Intermediate Financial Accounting Question

Question

On January 1, 2022 Hideki Matsuyama provides services in exchange for a $10,000 zero-interest bearing note due in 4 years. The effective interest rate for a note of this type is 15 percent. How much revenue does Hideki recognize on January 1, 2022? 

Answer 1

Hideki is set to receive 10,000 at the end of 4 years. To know the revenue that should be recognized we need to calculate the present value of this amount. The discounting rate is provided and this is 15%.

PV=FV/(1+r)^t

PV=10000/(1.15^4)

PV=5,717.53

Hideki should therefore recognize revenue of 5,717.53.