Answer
Rolen reports 2012 interest revenue determined by multiplying the note’s carrying amount at September 30, 2012, times the buyer’s market rate of interest at the date of issue, times 3/12. Rolen should recognize that there is an interest factor implicit in the note, and this interest is earned with the passage of time.
Work Step by Step
Therefore, interest revenue for 2012 should include three months’ revenue. The rate used should be the market rate established by the original present value, and this is applied to the carrying amount of the note.
