Answer
Concerning the zero-interest-bearing note receivable, the interest revenue for 2012 should be determined by multiplying the carrying value of the note by the prevailing rate of interest at the date of the note by one third i.e. the period between September 1, 2012 to December 31, 2012. The carrying value of the note at September 1, 2007 is the face amount discounted for two years at the prevailing interest rate from the maturity date of August 31, 2014 back to the issuance date of September 1, 2012.
Work Step by Step
Even if unstated, interest accrues with the passage of time, and it should be accounted for as an element of revenue over the life of the note receivable.
