I need help solving the following problems: 1. On September 1, 2013, V&S Inc. is

Question

I need help solving the following problems:

1. On September 1, 2013, V&S Inc. issues a note payable to Regional Bank for $1,200,000, bearing interest at 12%, and payable in three equal annual principle payments of $400,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2014. At December 31, 2014, V&S should record accrued interest payable of?

2. On January 1, 2014, Ann Price loaned $112,695 to Joe Kiger. A zero-interest bearing note (face amount $150,000) was exchanged for cash. The note is to be repaid on December 31, 2016. The prevailing rate of interest for a loan of this type is 10%. The present value of the $150,000 at 10% for three years is $112,695. What amount of interest income should Ms. Price recognize in 2014?

Explanation / Answer

Date Opening balance of loan Interest 12% on opening balance Loan repayment Loan balance as on date Sep-1,2013 1200000 Sep-1,2014 144000 400000 800000 Dec-31,2014 800000 24000 800000 (Int.on 800000*12% for 3 months) 168000 At December 31, 2014, V&S should record accrued interest payable of $ 168000 Face value of 0% Note Recd. 150000 Loan given in exchange 112695 Premium on exchange 37305 Interest income to be recognised in 2014 by Ms.Price 37305/3= 12435

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