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Question 298

Mrs. Franklin has two mortgage loans at First National Bank on which she makes monthly payments. On Loan A she made 13 payments last year, mailing the last payment on December 28. It was received the afternoon of January 2 and credited on January 3. The amount of interest paid on Loan A in the first 12 payments was $1,000. There was $155 of interest on the 13th payment. On Loan B, she made 12 payments; each contained interest accrued to the fourth day of the month.

The last payment was mailed on December 19 and was received and credited on December 23. The last payment contained interest accrued to January 4. The total interest paid on Loan B was $2,000, of which $100 accrued between January 1 and January 4 of the next year. How much interest must First National Bank report?

    Correct Answer: D

    First National Bank must report interest that was credited during the reporting year. On Loan A, only the first 12 payments totaling $1,000 in interest were credited during the year; the 13th payment was credited in January of the next year, so it is not included. On Loan B, the total interest paid was $2,000. However, $100 of the interest accrued from January 1 to January 4 of the next year. Since the interest that must be reported is only the amount credited during the year, we do count this $100 because the payment containing it was made and credited in December of the reporting year. Therefore, the correct interest amounts to report are $1,000 for Loan A and $2,100 for Loan B.

Discussion
Cam22Option: C

Loan A: $1,000 in interest (excluding the 13th payment since it was credited in January of the next year). Loan B: $2,000 in total interest paid during the year, which includes the interest accrued up to January 4, since the payment was made and processed in December. Therefore, the correct answer is C. $1,000 for Loan A and $2,000 for Loan B.