Question

On January 1, 2010, North Co. sold equipment and accepted in exchange a $600,000 zero-interest-bearing note due on January 1, 2013. The effective rate of interest for a note of this type at 1/1/10 was 10%. Assume the present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in North's 2011 income statement?

Answer 1

Answer:

$49,500

Explanation:

Calculation for what amount of interest revenue should be included in North's 2011 income statement

First step is to find Zero-interest-bearing note due balance

Zero-interest-bearing note due balance

=$600,000 *0.75*10%

Zero-interest-bearing note due balance= $45,000

Second Step will be to calculate the interest revenue

Interest revenue=($450,000 + $45,000) *10%

Interest revenue= $495,000*10%

Interest revenue=49,500

Therefore what the amount of interest revenue should be included in North's 2011 income statement is $49,500