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Note Payable and Interest Receivable

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On June 1, 2006, Nott Corp. loaned Gore $600,000 on a 12% note, payable in five annual installments of $120,000 beginning January 2, 2007. In connection with this loan, Gore was required to deposit $6,000 in a noninterest-bearing escrow account. The amount held in escrow is to be returned to Gore after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, 2006. Gore made timely payments through November 1, 2006. On January 2, 2007, Nott received payment of the first principal installment plus all interest due.

On December 31, 2006, Nott's interest receivable on the loan to Gore should be how much?

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Solution:
Interest on the note is payable on the first day of each month beginning July 1, 2006. The first payment due for June interest falls on 1st July. Rate of interest is 12% per annum or 1% per month. Total interest receivable is $12000 as calculated in the table.

Note: First installment of principal amount is due $120000 on 2nd Jan 2007.Amount of Deposit accepted in Non-interest bearing account is not ...

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