Question

On January 1, 2020, Ann Price loaned $216216 to Joe Kiger. A zero-interest-bearing note (face amount, $280000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2022. The prevailing rate of interest for a loan of this type is 9%. The present value of $280000 at 9% for three years is $216216. What amount of interest income should Ms. Price recognize in 2020

Answer 1

$19,459.44

Step-by-step explanation

Interest expense in 2020 = Loan amount * Prevailing rate of interest

Interest expense in 2020 = $216216 * 9%

Interest expense in 2020 = $19,459.44

So, $19,459.44 is the amount of interest income that Ms. Price should recognize in 2020