Question

On June 1, Year 1, Yola Corp. lent Dale $500,000 on a 12% note, payable in five annual installments of $100,000 beginning January 2, Year 2. In connection with this loan, Dale was required to deposit $5,000 in a noninterest-bearing escrow account. The amount held in escrow is to be returned to Dale after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, Year 1. Dale made timely payments through November 1, Year 1. On January 2, Year 2, Yola received payment of the first principal installment plus all interest due. At December 31, Year 1, Yola’s interest receivable on the loan to Dale is _________.

Answer 1

The question is missing the below options:

A. $0

B. $5,000

C. $10,000

D. $15,000

The correct option is C,$10,000

Step-by-step explanation:

As at 1st November year one, Dale has made payments in respect of interest on the loan of $500,000 to date, that is Dale has paid interest on the loan from inception-June 1 Year till 31st October Year 1.

As a result , the interest outstanding at the end of Year 1, is loan interest for November and December Year 1,which is computed below:

Outstanding loan interest=2/12*12%*$500,000

=$10,000

From Dale's perspective $10,000 interest on loan is outstanding as the end of Year 1 while the same amount is the loan interest receivable by Yale Corp.