Karen, a cash basis taxpayer, sold goods in December 2019 for $20,000. The customer was unable to pay cash, so the customer gave Karen a note for $20,000 that was payable in April 2020. The note bore interest at a rate in excess of the applicable federal rate. The fair market value of the note was $19,000. Karen collected $20,500 from the customer in April 2020, $20,000 principal plus $500 interest. Under the cash method, Karen must recognize income of:

a. $0 in 2019 and $20,000 in 2020.

b. $18,000 in 2019 and $2,500 in 2020.

c. $20,000 in 2019 and $500 in 2020.

d. $0 in 2019 and $20,500 in 2020.

e. $19,000 in 2019 and $1,500 in 2020.