Financial Accounting: Amount of Interest Revenue?

Question

On January 1, a company lends a corporate customer $90,000 at 8% interest. The amount of interest revenue that should be recorded for the quarter ending March 31 equals:

$2,400.
$7,200.
$1,800.
$600.

Answer 1

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Answer 2

Is the interest compounded monthly, quarterly, semi-annually, or annually?

 

It appears that we are to assume the interest is compounded quarterly so

let's look at that:

 

A = P(1+r/n)^nt

A = future amount

P = principal = 90,000

r = interest rate = 8% = .08

t = time in years = 1/4 = .25

n = number of times compounded per year = 4

 

A = 90,000(1+.08/4)^4(.25)

A = 91800

Interest = A-P = 91800-90000 = 1800

Interest is $1,800 for the quarter