On September 30, 2018, Corso Steel acquired a patent from Thermo Steel. The agreement specified that Corso will pay Thermo $1,000,000 immediately and then another $1,000,000 on September 30, 2020. An interest rate of 8% reflects the time value of money for this type of loan agreement.
-What amount of interest expense, if any, would Corso record on December 31, 2019, the company's fiscal year end?

Question

On September 30, 2018, Corso Steel acquired a patent from Thermo Steel. The agreement specified that Corso will pay Thermo $1,000,000 immediately and then another $1,000,000 on September 30, 2020. An interest rate of 8% reflects the time value of money for this type of loan agreement. 
-What amount of interest expense, if any, would Corso record on December 31, 2019, the company's fiscal year end?

Quizplus · Accepted Answer

Present value of note payable = $1,000,000 × 0.85734* = $857,340. Amortization of discount for 2018 = $857,340 × 8% × 3/12 = $17,147. Interest expense for 2019 = ($857,340 + $17,147) × 8% × 12/12 = $69,959. *PV_n=2,i=8%

On September 30, 2018, Corso Steel Acquired a Patent from Thermo