Melton Company sold some machinery to Addison Company on January 1, 2014. The cash selling price would have been $947,700. Addison entered into an installment sales contract which required annual payments of $250,000, including interest at 10%, over five years. The first payment was due on December 31, 2014. What amount of interest income should be included in Melton's 2015 income statement (the second year of the contract)

$79,247

Explanation:

Installment includes the interest and principal as well to be paid on equal proportion. It need to be separated to report in the financial statement. Installment amortization is used to calculate the principal portion and interest portion of each years installment.

Installment Sale Schedule

Year    Balance      Payment     Principal    Interest  

1         $947,700   $250,000   $155,230   $94,770 ( 947,700 x 10% )

2        $792,470   $250,000   $170,753   $79,247 ( 792,470 x 10% )

Interest of $79,247 should be included in  Melton's 2015 income statement.

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