Question

On January 1, 2020, Crane Company exchanged equipment for an $800000 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 9%. The present value of $1 at 9% for three periods is 0.77. What amount of interest revenue should be included in Crane's 2021 income statement?

Answer 1

The correct answer is $60,429.6

Step-by-step explanation:

According to the scenario, the given data are as follows:

Equipment cost = $800,000

Present value of 1$ = 0.77

So, Note carrying value for Jan.1 2020 = $800,000 × 0.77 = $616,000

Now, The amount of interest for 2020 are as follows:

Interest amount = $616,000 × 9% = $55,440

Now, the amount of interest for 2021 are as follows:

Interest amount = ( $616,000 + $55,440) × 9%

= $671,440 × 9%

= $60,429.6