[kukuna2008]

Please take a look at the question below. why do I feel like if it ask Note receivable, it should be 90,000; if it ask Note payable, it should be 62,500. because installment sale and Lease lessor book all record the gross amount of charge rather than discount charge. I am confused! Please help

On December 30, 20X1, Chang Co. sold a machine to Door Co. in exchange for a non-interest-bearing note requiring 10 annual payments of $10,000. Door made the first payment on December 30, 20X1. The market interest rate for similar notes on the date of issuance was 8%. Information on present value factors is as follows:

Period 9, Present value of $ 1 at 8%: 0.5002

Period 9, Present value of ordinary annuity of $1 at 8%: 6.2469

Period 10, Present value of $ 1 at 8%: 0.4632

Period 10, Present value of ordinary annuity of $1 at 8%: 6.7101

On its December 31, 20X1, balance sheet, what amount should Chang report as note receivable? the answer is $62,500

FAR - 83, 04/2015
AUD - 73, 86, 08/2015
REG - 75
BEC - 71, rematch in 04/2016

[omalloy]

the payment amounts – 10k

the length of time until the amounts are paid- no time had gone by between 12/1/2001 and 12/1/2001

the market interest rate- 8%

PV* Present value of ordinary annuity of $1 @ market = 10*6.2469 = 62,469

FAR 65, 70, 78
REG 64, 76
BEC 70, 80
AUD 81

Ethics 96

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[Anonymous]

“Please take a look at the question below. why do I feel like if it ask Note receivable, it should be 90,000; if it ask Note payable, it should be 62,500. because installment sale and Lease lessor book all record the gross amount of charge rather than discount charge. I am confused! Please help”

Q: On December 30, 20X1, (((Chang Co. sold))) a machine (((to Door Co. in exchange for a non-interest-bearing note))) requiring 10 annual payments of $10,000. Door made the first payment on December 30, 20X1. The market interest rate for similar notes on the date of issuance was 8%. Information on present value factors is as follows:

Rule: A non-interest bearing note should be recorded at its present value calculated using the prevailing market interest rate. The market interest rate is then used to calculate interest on the note. (per Becker)

PV = $10,000 * 6.2469 = $62,469

Note: the first payment of $10,000 has been made on the date of the sale so you have a period of 9 payments remaining.

Chang N/R = $62,469

[kukuna2008]

Hi Guys, thank you so much! When to use present value and when to use undiscounted value is always confused me.

FAR - 83, 04/2015
AUD - 73, 86, 08/2015
REG - 75
BEC - 71, rematch in 04/2016

[Author]

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