On January 1, 2020, Susan Hong lent $ 60,104 to Ben Bachu. A zero-interest-bearing note (face amount, $ 80,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2022. The market rate of interest for a loan of this type is 10%. To the nearest dollar, and using the effective-interest method, how much interest revenue should Ms. Hong recognize in 2020?

Question

Quizplus · Accepted Answer

The interest revenue for 2020 is calculated using the effective-interest method. The initial investment is $60,104, and the market interest rate is 10%. Therefore, the interest revenue for 2020 is $60,104 * 10% = $6,010.40, which rounds to $6,010 to the nearest dollar.

On January 1, 2020, Susan Hong Lent $ 60,104 to Ben