On January 1, 2015, Ball Co.exchanged equipment for a $200,000 zero-interest-bearing note due on January 1, 2018.The prevailing rate of interest for a note of this type at January 1, 2015 was 10%.The present value of $1 at 10% for three periods is 0.75.What amount of interest revenue should be included in Ball's 2016 income statement?

Question

Quizplus · Accepted Answer

The present value of the note at the time of exchange is $200,000 * 0.75 = $150,000. The interest revenue for 2016 is calculated on the carrying amount of the note at the beginning of 2016, which is $150,000 plus the interest accrued in 2015 ($15,000), totaling $165,000. The interest revenue for 2016 is $165,000 * 10% = $16,500.