Question

Rex Corporation accepted a $10,000, 5% interest bearing note from Brooks Inc. on December 1, 2018 in exchange for machinery with a list sales price of $9,500. The note is payable on December 1, 2021. If the prevailing interest rate is 8%, what revenues should Rex report in its income statement for the year ended December 31, 2018

Answer 1

Answer:

9151.42

Explanation:

First, we will calculate the PV of the note as of 1 December 2018 with the difference between the Market Rate and actual interest rate.

DIfference = Market Interest rate  - Actual interest rate

Difference = 8% - 5%

Difference = 3%

PV = FV/(1+r)^n

PV = $10000/(1.03)^3

PV = $9151.42

Interest Income = $9151.42  x 8% x 1/12

Interest Income = $61