What amount of interest expense should be reported

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Reference no: EM133265159

Question: At the beginning of current year, XYZ Company borrowed 3,600,000 from a major customer evidenced by a non-interest bearing note due in three years.

The entity agreed to supply the customer's inventory needs for the loan period at an amount lower than market price.
At the 12% imputed interest rate for this type of loan, the present value of the note is 2,550,000 at the date of issuance.

1. ) What amount of interest expense should be reported in the income statement for the current year?

2.) What is the balance of the notes payable account at the end of the current year?

3.) What is the balance of the discount on notes payable account at the end of the current year?

4.) What amount of interest expense should be reported in the income statement for the second year?

5.) What is the carrying amount of the notes payable at the end of the second year?

Reference no: EM133265159

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