help with FAR Note payable MCQ ??

  • Creator
    Topic
  • July 13, 2017 at 5:10 pm #1585468
    FAR_SUCKS
    Participant

    On December 1, 20X1, Money Co. gave Home Co. a $200,000, 11% loan. Money paid proceeds of $194,000 after the deduction of a $6,000 nonrefundable loan origination fee. Principal and interest are due in 60 monthly installments of $4,310, beginning January 1, 20X2. The repayments yield an effective interest rate of 11% at a present value of $200,000 and 12.4% at a present value of $194,000. What amount of income from this loan should Money report in its 20X1 income statement?

    A.$0

    B.$1,833

    CORRECT ANSWER C.$2,005

    D.$7,833

    It says you do 194,000*12.4%*(1/12) = 2005

    Can someone please walk me through this with journal entries? I’ve been staring at this problem for an hour and cannot understand whats going on conceptually. i.e. why we do 194,000*12.4%

    Thanks in advance!!

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