I am guessing you are given an annualized rate of 10%, and the period of the loan is only 90 days. When you determine the interest owed during the 75 days then, you would need to do: 4800*0.10*(75/360) which is equal to 100. Your entries would then be modified to look like:

360 days in a year is the convention typically used to determine these types of questions.

Oct 17 Note Receivable (D) 4,800

Revenue (C) 4,800

Dec 31 Interest Receivable (D) 100

Interest Revenue (C) 100

Jan 15 Cash (D)4,920

Interest Receivable (C) 100

Interest Revenue (C) 20

Note Receivable (C) 4,800

I don't get this question on a practice exam. The answer is D, but I cannot see why.

Timothy Company sold merchandise to a customer on October 17 of 2004. They accepted a $4,800, 90-day, 10% note

as payment. If Timothy Company's accounting period ends on December 31, 2004 [Oct 17 to Dec 31 = 75 days],

Timothy Company's journal entry on January 15 ( when the note plus interest is received ) will include:

A) Credit to Interest Revenue for $120

B) Credit to Interest Revenue for $480

C) Credit to Interest Receivable for $20

*D) Credit to Interest Receivable for $100*

E) Debit to Cash for $5,280

Normally, wouldn't you do the journal like this:

Oct 17 Note Receivable (D) 4,800

Revenue (C) 4,800

Dec 31 Interest Receivable (D) 400

Interest Revenue (C) 400

Jan 15 Cash (D) 5,280

Interest Receivable (C) 400

Interest Revenue (C) 80

Note Receivable (C) 4,800