Amount of interest income of foster company

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Reference no: EM13150436

On January 1, 2004, Foster Company sold property to Agler Company which originally cost Foster $570,000. There was no established exchange price for this property. Agler gave Foster a $900,000 zero-interest-bearing note payable in three equal annual installments of $300,000 with the first payment due December 31, 2004. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $900,000 note payable in three equal annual installments of $300,000 at a 10% rate of interest is $746,100. What is the amount of interest income that should be recognized by Foster in 2004, using the effective interest method?

Reference no: EM13150436

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