Question

Leaf Co. purchased from Oak Co. a $20,000, 8%, 5-year note that required five equal, annual year-end payments of $5,009. The note was discounted to yield a 9% rate to Leaf. At the date of purchase, Leaf recorded the note at its present value of $19,485. What should be the total interest revenue earned by Leaf over the life of this note?A. $5,560B. $8,000C. $5,045D. $9,000

Answer 1

A. $5,560

Step-by-step explanation:

The computation of the total interest revenue is shown below:

= Five-year payments received of note payable - present value of note payable

where,

Five-year payments received of note payable = Annual year payment received × number of years

= $5,009 × 5 years

= $25,045

And, the present value of the note payable is $19,485

Now put these values to the above formula

So, the value would equal to

= $25,045 - $19,485

= $5,560