Question

Equestrain Roads accepted a customer's $50,000 zero-interest-bearing six-month note payable in a sales transaction. The product sold normally sells for $46,000. If the sale was made on June 30, how much interest revenue from this transaction would be recorded for the year ending December 31?

Answer 1

Answer:

$4,000

Explanation:

The difference between the face value of note and the issuance value of the note is discount. This discount is recorded and amortized over the note life to maturity. As the note is for 6 months and There are also six months from June 30, to December 31. So, all the Discount of $4,000 ($50,000-$46,000)  will be recognized as Interest Income. This discount can be amortized and recognized as Interest Income on monthly basis or collectively at the year end.