On June 1, 2014, Siebens Enterprises loaned $27,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015. Related to this note receivable, what amount of interest income would Siebens report on its 2014 income statement? (Round your final answer to the nearest whole dollar amount.)

$1,260

Explanation:

The computation of amount of interest income is shown below:-

Principal                                    $27,000

Rate of interest                          8%

Interest for 7 month in 2014     $1,260

($27,000 × 8% × 7 ÷ 12)

Interest for 5 months in 2015   $900

( $27,000 × 8% × 5 ÷ 12)

12 months from 1 June 2014  

to 31 may 2015                            12 months

Interest                                         $2,160

($27,000 × 8%)

T will repay the principal and one year interest  

on may 31, 2015

($20,000 + $2,160)                        $22,160

So, Interest income to be reported on its 2014 income statement is $1,260

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