Question

On December 1, Year 4, Tigg Mortgage Co. gave Pod Corp. a $200,000, 12% loan. Pod received proceeds of $194,000 after the deduction of a $6,000 nonrefundable loan origination fee. Principal and interest are due in 60 monthly installments of $4,450, beginning January 1, Year 5. The repayments yield an effective interest rate of 12% at a present value of $200,000 and 13.4% at a present value of $194,000. What amount of accrued interest receivable should Tigg include in its December 31, Year 4, balance sheet?

Answer 1

Answer:

The accrued interest receivable is $2000

Explanation:

Accrued interest receivable refers to interest earned by a company but has not received in cash. This happens when the cash to be paid as interest falls outside an accounting period. Accrued interest receivable is an asset account on the investor's books and a current liability on the issuer's books.

Since the accrued interest is to be between December 1 and December 31, the time period is 1 month = 1/12 years.

loan percent = 12% = 0.12

loan amount = $200000

The accrued interest receivable = Time period × loan percent × loan amount = (1/12) × 0.12 × 200000 = $2000

The accrued interest receivable is $2000