Question

On January 1, Song Corp. receives a $100,000, two-year, note receivable from a customer in exchange for payment of goods. The note has a 12% effective interest rate. On December 31, when Song records interest for the year, Song will record

Answer 1

$9,566.33

Step-by-step explanation:

We need to determine the present value of the notes receivable using the pv excel function below:

=-pv(rate,nper,pmt,fv)

rate is the interest rate of 12%

nper is the number of years before the amount on the note is received which is 2 years

pmt is the amount of fixed interest(there is no fixed interest in this case)

fv is the future value of the loan in year 2 i.e $100,000

=-pv(12%,2,0,100000)=$79,719.39

Now,after a year 12% interest is applied to the pv:

interest=$79,719.39 *12%=$9,566.33