Reference no: EM132484931

Point 1: On January 1, 2015, Perez Company borrowed $3,600,000 from a major customer evidenced by a noninterest bearing note due in three years. Perez agreed to supply the customer's inventory needs for the loan period at lower than market. At the 12% imputed interest rate for this type of loan, the present value of the note is $2,550,000 at January 1, 2015.

Required:

Question 1: What amount of interest expense should be included in Perez Company's 2015 income statement?

Point 2: Manny Company's liability account balance at June 30, 2015, included a 10% note payable in the amount of $3,600,000. The note is dated October 1, 2014, and is payable in three equal annual payments of $1,200,000 plus interest. The first interest and principal payment was made on October 1, 2015.

Required:

Question 2: What should be reported as accrued interest payable for this note to be reported in Manny Company's statement of financial position?