Reference no: EM132739005
Question - You are assigned to assess the collectability of the receivables carried in the books of BLEND Corporation, your audit client. The trial balance prepared at December 31, 2016 showed a balance of $4,000,000 for Notes Receivables broken as follows:
Notes receivable from Company X 3,000,000
Notes receivable from Company Y 1,000,000
Total 4,000,000
In the course of your examination, you discovered the following:
The notes receivable from Company X is a three-year non-interest bearing note, with face value of $3,000,000. The note was received in exchange for a piece of land sold by BLEND on May 1, 2016. The land was carried in the books at the date of sale at $2,600,000. The difference between the face amount of the note and the carrying value of the land was credited to gain on sale of land. The market interest rate for a note of this type is 10%.
The notes receivable from Company Y bears interest at 10%. The note was received from sale of goods in the normal course of business. The note is dated October 1, 2016 and matures on March 31, 2017
No interest revenue has yet been recorded by BLEND during 2016 on any of the notes mentioned above.
REQUIRED - What is the interest income to be reported in the income statement from these notes for the year ended, December 31, 2016?
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