Question

On June 1, 2014, Nott Corp. loaned Horn $800,000 on a 12% note, payable in five annual installments of $160,000 beginning January 2, 2015. In connection with this loan, Horn was required to deposit $5,000 in a noninterest-bearing escrow account. The amount held in escrow is to be returned to Horn 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, 2014. Horn made timely payments through November 1, 2014. On January 2, 2015, Nott received payment of the first principal installment plus all interest due. At December 31, 2014, Nott's interest receivable on the loan to Horn should be

Answer 1

$16,000

Step-by-step explanation:

the journal entry to record this loan would be:

June 1, 2014, loan handed out to Horn

Dr Notes receivable 800,000

Cr Cash 800,000

on December 31, 2014, accrued interest receivable for November and December

Dr Interest receivable 16,000

Cr Interest revenue 16,000

interest revenue = $800,000 x 12% x 2/12 (Nov. + Dec.) = $16,000