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A customer dishonoured a note and the $1,020 owed was moved to Receivables. Two months later the customer pays, plus a 10% penalty charged on the $1,020 for the 60-day delay. Using a 360-day year, how much cash is received?
A$1,020
B$1,122
C$1,037
D$1,040
Answer & Solution
Correct answer: C. $1,037
1. The penalty is treated as interest revenue.
2. Penalty = $$\$1{,}020 \times 10\% \times \frac{60}{360} = \$17$$
3. Cash received = $1,020 + $17 = $1,037.
4. $1,020 omits the penalty; $1,122 applies the full annual 10%; $1,040 uses the wrong base or rate. All are wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.3.2 "Maturity (Due) Date", p.136_
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