Reference no: EM132884975

Monty Corp. had the following long-term receivable account balances at December 31, 2019.

Notes receivable $2,000,000

Notes receivable - Employees 350,000

Transactions during 2020 and other information relating to Monty' long-term receivables were as follows:

1. The $2,000,000 note receivable is dated May 1, 2019, bears interest at 9%, and represents the balance of the consideration received from the sale of Monty's electronics division to Sandhill Company. Principal payments of $666,667 plus appropriate interest are due on May 1, 2020, 2021, and 2022. The first principal and interest payment was made on May 1, 2020. Collection of the note instalments is reasonably assured.

2. The $350,000 note receivable is dated December 31, 2019, bears interest at 9%, and is due on December 31, 2022. The note is due from Marcia Cumby, president of Monty Corp., and is secured by 10,000 Monty common shares. Interest is payable annually on December 31, and the interest payment was made on December 31, 2020. The quoted market price of Monty's common shares was $50 per share on December 31, 2020.

3. On April 1, 2020, Monty sold a patent to Carla Vista Company in exchange for a $200,000 non-interest-bearing note due on April 1, 2022. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type on April 1, 2020, was 10%. The present value of $1 for two periods at 10% is 0.82645 (use this factor). The patent had a carrying amount of $43,000 at January 1, 2020, and the amortization for the year ended December 31, 2020 would have been $7,000. The collection of the note receivable from Carla Vista is reasonably assured.

4. On July 1, 2020, Monty sold a parcel of land to Teal Mountain Inc. for $220,000 under an instalment sale contract. Teal Mountain made a $54,000 cash down payment on July 1, 2020, and signed a four-year, 11% note for the $166,000 balance. The equal annual payments of principal and interest on the note will be $53,506, payable on July 1, 2021, through July 1, 2024. The land could have been sold at an established cash price of $210,000. Monty had paid $140,000 for the land when it purchased it. Collection of the instalments on the note is reasonably assured.

5. On August 1, 2020, Monty agreed to allow its customer, Saini Inc., to substitute a six-month note for accounts receivable of $210,000 it owed. The note bears interest at 6% and principal and interest are due on the note's maturity date.

Problem 1: Determine the amount of interest income that should be reported in 2020.