Reference no: EM132746313
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?