Question

On January 1, 2020, Hat Trick Manufacturing exchanged some equipment for a $750,000 zero-interest-bearing note due on January 1, 2023. The prevailing rate of interest for a note of this type at January 1, 2020 was 10%. The present value of $1 at 10% for three periods is 0.75. Hat Trick Manufacturing included __ as interest revenue on the 2021 income statement.

Answer 1

61,198.47

Step-by-step explanation:

First we solve for the present value of the note receivables at January 1st, 2021 As we are asked for the interest revenue on the 2021 incoem statment

`(Maturity)/((1 + rate)^(time) ) = PV`

Maturity $750,000.00

time 2.00

rate 0.10000

`(750000)/((1 + 0.1)^(2) ) = PV`

PV 619,834.7107

now, we calcualte the interest considering the 10% implicit interest

619,834.7107 x 0.10 = 61,198.47

This will be the interest revenu for the year 2021