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On January 1, 2010, Jacobs Company sold property to Dains Company that originally cost Jacobs...

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Accounting

On January 1, 2010, Jacobs Company sold property to Dains Company that originally cost Jacobs $760,000. There was no established exchange price for this property. Dains gave Jacobs a $1,200,000 zero-interest-bearing note payable in three equal annual installments of $400,000, with the first payment due December 31, 2010. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $1,200,000 note payable in three equal annual installments of $400,000 at a 10% rate of interest is $994,800. What is the amount of interest income that should be recognized by Jacobs in 2010, using the effective-interest method? a. $0.

b. $40,000. c. $99,480. d. $120,000.

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