Question

Mayer Company received a seven-year zero-interest-bearing note on February 22, 2016, in exchange for property it sold to Reardon Company. There was no established exchange price for this property and the note has no ready market. The prevailing rate of interest for a note of this type was 7% on February 22, 2016, 7.5% on December 31, 2016, 7.7% on February 22, 2017, and 8% on December 31, 2017. What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2016 and 2017, respectively?

Answer 1

7%

Step-by-step explanation:

Since in the question, it is mentioned that the interest-bearing note is received on February 22, 2016, and on that date, the prevailing rate of interest for a note is 7%.

So, the same rate of interest is applied for the years ended December 31, 2016, and 2017 irrespective of the fact whatever rates are given in the question

All other information which is given is not relevant. Hence, ignored it.