D is corrent. The solutions approach is to recognize that (1) a note has been issued for cash and a future benefit, and (2) the provision for interest on the loan is not reasonable (per ASC Topic 835). The difference between the face value of the note ($100,000) and its present value ($81,000) represents interest on notes receivable of $19,000. Using an effective interest approach, interest income for Carpet is computed as follows:
A is incorrect. The solutions approach is to recognize that (1) a note has been issued for cash and a future benefit, and (2) the provision for interest on the loan is not reasonable (per ASC Topic 835). The difference between the face value of the note ($100,000) and its present value ($81,000) represents interest on notes receivable of $19,000. Using an effective interest approach, interest income for Carpet is computed as follows:
A is incorrect. The solutions approach is to recognize that (1) a note has been issued for cash and a future benefit, and (2) the provision for interest on the loan is not reasonable (per ASC Topic 835). The difference between the face value of the note ($100,000) and its present value ($81,000) represents interest on notes receivable of $19,000. Using an effective interest approach, interest income for Carpet is computed as follows:
A is incorrect. The solutions approach is to recognize that (1) a note has been issued for cash and a future benefit, and (2) the provision for interest on the loan is not reasonable (per ASC Topic 835). The difference between the face value of the note ($100,000) and its present value ($81,000) represents interest on notes receivable of $19,000. Using an effective interest approach, interest income for Carpet is computed as follows:
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