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On January 1, 2011, Garner Company sold property to Ager Company which originally cost Garner $760,000. There was no established exchange price for this property. Ager gave Garner a $1,200,000 zero-interest-bearing note payable in three equal annual installments of $400,000 with the first payment due December 31, 2011. 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 expense that should be recognized by Ager in 2011, using the effective-interest method?

a. $0.

b. $40,000.

c. $99,480.

d. $120,000.

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Category:- Accounting Basics
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