Noninterest-Bearing Note On January 1, 2001, Stone Manufacturing accepted a 3-year noninterest-bearing note in the amount of $20,000 in exchange for machinery with a market value of $15,876. The note, which matures on December 31, 2003, provides an 8 percent return in the form of interest to Stone Manufacturing.

a. Compute the interest income to be recorded in each of the 3 years by Stone Manufacturing and the balance of the note receivable at the end of each year.

b. Why does the amount of interest income increase each period?

c. If Stone Manufacturing were to sell the note receivable at December 31, 2001, and the purchaser was willing to accept an 8 percent return, what would be the selling price of the note?