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2 years ago

Presented below are two independent situations.

Business

1 answer:

rewona [7]2 years ago

5 0

Answer: a)Interest expense for Year 2020=$46, 977.50 b) see explanation column

Explanation:

a) Amount of Note payable = $550,000

Present Value factor for 3 years at 12%

= PV = 1/(1+r) ^n

1/ (1+ 12%)^3 =(0.892857143)^ 3 = 0.71178

Present value of Note for land at 2020 = $550,000 x 0.71176 = $391, 479

.136

Interest expense for Year 2020= $391, 479.136 x 12%= $46, 977.50

b) Face value of note = $5,000,000

Present value factor for 4 years at 10 % =

= PV = 1/(1+r) ^n

1/ (1+ 10%)^4 =(0.909090909)^ 4 = 0.68301345

Present value of the note = $5,000,000 x 0.68301345= $3,415,067.28

Discount on note payable =$5,000,000 -$3,415,067.28 =$1,584,932.72

Journal to record amount of interest to report for 2020

Date Account Debit Credit

Jan 2020 Cash $5,000,000

Discount on notes payable $1,584,932.72

Notes payable $5,000,000

interest revenue $1,584,932.72

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Step-by-step explanation:

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