On January 1, 2014, Ann Price loaned $112,695 to Joe Kiger. A zero-interest-bear
ID: 2477449 • Letter: O
Question
On January 1, 2014, Ann Price loaned $112,695 to Joe Kiger. A zero-interest-bearing note (face amount, $150,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2016. The prevailing rate of interest for a loan of this type is 10%. The present value of $150,000 at 10% for three years is $112,695. What amount of interest income should Ms. Price recognize in 2014?
options:
A. $33,810
B. $11,270
C. $15,000 (WRONG)
D. $45,000
i did: $150,000*10% = $15,000 but that is wrong
Explanation / Answer
correct option is "B" - 11270
[note balance outstanding = 112695 * .10 = 11269.5 (approx 11270 )
As there is no interest on face value as it is a zero interest bearing note. ]
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