Leaf Co. purchased from Oak Co. a $20,000, 8%, five-year note that required five equal annual year-end payments of $5,009. The note was discounted to yield a 9% rate to Leaf. At the date of purchase, Leaf recorded the note at its present value of $19,485. L

Leaf Co. purchased from Oak Co. a $20,000, 8%, five-year note that required five equal annual year-end payments of $5,009. The note was discounted to yield a 9% rate to Leaf. At the date of purchase, Leaf recorded the note at its present value of $19,485. Leaf does not elect the fair value option for reporting its financial liabilities. What should be the total interest revenue earned by Leaf over the life of this note?

The total interest revenue earned over the life of the note equals the excess of the cash received over the cash paid to acquire the note. The cash received over the five years is $25,045 (5 receipts of $5,009 each). The cash paid to acquire the $20,000 note was $19,485. Therefore, the total interest revenue is $5,560 ($25,045 − $19,485).