Cypress Oil Company’s December 31, 2013, balance sheet listed $645,000 of notes receivable and $16,000 of interest receivable included in current assets. The following notes make up the notes receivable balance:
Note 1 Dated 8/31/2013, principal of $300,000 and interest at 10% due on 2/28/2014.
Note 2 Dated 6/30/2013, principal of $150,000 and interest due 3/31/2014.
Note 3 $200,000 face value noninterest-bearing note dated 9/30/2013, due 3/31/2014.
Note was issued in exchange for merchandise. The company records adjusting entries only at year-end. There were no other notes receivables outstanding during 2013.
1. Determine the rate used to discount the noninterest-bearing note.
2. Determine the explicit interest rate on Note 2.
3. What is the amount of interest revenue that appears in the company’s 2013 income statement related to these notes?