Question

Frame Co. has an 8% note receivable dated June 30, 20X1, in the original amount of $150,000. Payments of $50,000 in principal plus accrued interest are due annually on July 1, 20X2, 20X3, and 20X4. In its June 30, 20X3, balance sheet, what amount should Frame report as a current asset for interest on the note receivable

Answer 1

Answer:

$8,000

Explanation:

Given the following:

Interest rate on notes receivable = 8%

Original principal balance = $150,000

Amount due by July 1 = $50,000

Therefore, in the June 30, 20X4 balance sheet, the original principal balance that has been outstanding will be :

$150,000 - $50000 = $100,000

Therefore, only $100,000 has been outstanding and is due for calculation in the interest on accounts receivable on June 30.

Interest rate * principal balance due at the date

8% * $100,000

0.08 * $100,000

= $8,000