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Social Science6. On December 31, 2010, Chelsea Co. provides a service for its customer Villas Boas Co. inexchange for a promissory note requiring five annual payments of $1,000 each. The paymentsare to occur on December 31 of each year beginning on December 31, 2011. The note does notspecify any interest, and there is no market for the note. Based on the credit worthiness of VillasBoas Co. and the length of the note, it is estimated that Villas Boas Co. would have to pay 10%interest if it borrowed a similar amount from a bank. The amount of interest revenue recognizedby Chelsea for the year ended December 31, 2013 is:a. $174b. $249c. $317d. $347
6. On December 31, 2010, Chelsea Co. provides a service for its customer Villas Boas Co. in
exchange for a promissory note requiring five annual payments of $1,000 each. The payments
are to occur on December 31 of each year beginning on December 31, 2011. The note does not
specify any interest, and there is no market for the note. Based on the credit worthiness of Villas
Boas Co. and the length of the note, it is estimated that Villas Boas Co. would have to pay 10%
interest if it borrowed a similar amount from a bank. The amount of interest revenue recognized
by Chelsea for the year ended December 31, 2013 is:
a. $174
b. $249
c. $317
d. $347
Expert Answer
First step is to compute the amount of notes receivable to be recorded in the beginning of the period i.e. 01.01.11. This will be computed by computing the present vale of each payment and adding them up to know the amount of Note receivable.
The same has been computed as above.
Next step is to compute the Amort chart showing the allocation of each payment in to interest and principal repayment.
Interest is computed n the previous outstanding balance.
Principal repayment is ocmputed by deducting the inter...
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