Question
Use the following information to answer the five questions that follow. Below is a portion of the amortization schedule relating to a 3-year note receivable
Use the following information to answer the five questions that follow. Below is a portion of the amortization schedule relating to a 3-year note receivable from the Zeroz Company. The document was signed by a client of the company on January 1, 2018. The document pays interest annually on December 31. The expiration date is December 31, 2020.
date | interest charged | interest income | discount amortization | book value |
1/1/2018 | ? | |||
31/12/2018 | ? | ? | ? | ? |
31/12/2019 | ? | ? | 349 | ? |
31/12/2020 | 1,100 | 1,374 | 374 | 20,000 |
total | 3,000 | 4,050 | 1,050 |
1. According to the amortization table presented above, what is the principal of the note receivable? Select one:
a. $20,000
b. $19,626
c. cannot be determined
d. $20,374
2. According to the amortization table presented above, what is the established or contractual interest rate? Select one:
a. 10%
b. 7%
c. 5%
d. The document does NOT have a stipulated (explicit) interest rate.
3. According to the amortization table presented above, what was the present value of the document on January 1, 2018? Select one:
a. $21,050
b. $18,950
c. It cannot be determined.
d. $20,000
4. Using the amortization table presented above, suppose that on December 31, 2019, the company makes the mistake of not amortizing the account of the discount in notes receivable. Indicate the effect of the error on the book value of the note receivable. Select one:
a. Overestimated by $349.
b. It cannot be determined.
c. Overestimated by $1,000
d. Underrated by $349.
5. Using the amortization table presented above, determine the correct interest income that must be reported in the statement of income and expenses for the period ending December 31, 2019. Select one:
a. $1,374
b. $1000
c. $4,050
d. $1,349
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