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On January 1, 2019, Ellen Greene Company makes the following acquisition.
Purchases land having a fair value of $200,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $337,012.
On December 31, 2019, how much interest expense should be recognized on the zero-interest-bearing promissory note? (Hint: First solve for the implied interest rate) Round your final answer to the nearest dollar.

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Answer:

The interest expense should be recognized on the zero-interest-bearing promissory note is 22.000

Explanation:

Interest expense = (Fair value of the land * Interest rate)

Supposing a interest rate of 11% we get:

Interest expense = 200.000 * 11% = 22.000

The interest expense that should be recognized on the zero-interest-bearing promissory note will be $22000.

From the complete question, the land that was purchased have a fair value of $200,000 and the company has to pay 11% interest for funds from its bank.

Therefore, the interest will be calculated thus:

= Interest rate × Fair value

= 11% × $200,000

= 0.11 × $200,000

= $22000.

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