Question

On December 1, 20X1, Tigg Mortgage Co. gave Pod Corp. a $200,000, 12% loan. Pod received proceeds of $194,000 after the deduction of a $6,000 nonrefundable loan origination fee. Principal and interest are due in 60 monthly installments of $4,450, beginning January 1, 20X2. The repayments yield an effective interest rate of 12% at a present value of $200,000 and 13.4% at a present value of $194,000. What amount of accrued interest receivable should Tigg include in its December 31, 20X1, balance sheet

Answer 1

$2,000

Step-by-step explanation:

Present value of loan = $200,000

Interest rate = 12%

Therefore, the accrued interest receivable can be calculated using the simple interest formula :

Where the present value of the loan is the principal amount,

Accrued interest = principal * rate * time

Since the period is between December 1st to 31 st December = 1 month = (1/12) years

Accrued interest = $200,000 * (1/12) * 12%

Accrued interest = $200,000 * 0.083333 * 0.12

Accrued interest = $2000

Answer 2

$2,000

Step-by-step explanation:

Accrued interests = loan principal x interest rate x time = $200,000 x 12% x 1/12 (1 month) = $2,000

The adjusting journal entry to record accrued interests should be:

December 31, 20x1, accrued interest receivable

Dr Interest receivable 2,000

Cr Interest revenue 2,000

Interest receivable is an asset account with a normal debit balance.