Lester Company received a seven-year zero-interest-bearing note on February 22, 2010, in exchange for property it sold to Porter Company.There was no established exchange price for this property and the note has no ready market.The prevailing rate of interest for a note of this type was 7% on February 22, 2010, 7.5% on December 31, 2010, 7.7% on February 22, 2011, and 8% on December 31, 2011.What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2010 and 2011, respectively?

Question

Quizplus · Accepted Answer

The interest rate used should be the rate at the time of the transaction, which was 7% on February 22, 2010, for both years.

Lester Company Received a Seven-Year Zero-Interest-Bearing Note on February 22