On 1/1/19, Lantana Loan Co., a calendar-year company, accepts a 6%, $300,000 three-year loan that pays interest semi-annually on 6/30 and 12/31 from Diamond Distributors, when the market rate of interest was 10%. In exchange for the note, Diamond agrees to make semi-annual interest payments and repay the full $300,000 at maturity. What is the amount of discount amortized and the amount of Interest Revenue recorded on 6/30/19, the date of the first interest payment? (Round any intermediate calculations and your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The discount amortized is calculated using the effective interest method. The initial carrying amount of the loan is calculated using the market rate of interest (10%), which is lower than the face value due to the discount. The interest revenue is the carrying amount of the loan multiplied by the market rate, and the discount amortized is the difference between the interest revenue and the cash interest received.