Question

Frasquita acquired equipment from the manufacturer on 6/30/2021 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $586,000 on 4/30/2022 to satisfy the obligation in full. If Frasquita accrued interest of $21,000 on the note in its 2021 year-end financial statements, what amount would it have recorded the equipment for on 6/30/2021

Answer 1

Answer:

$551,000

Explanation:

Given that:

1. The maturity date for the payment of interest & principal is 4/30/2022.
2. 10 months is required to complete the maturity period. which is from 30th June 2021 to 30th April 2022.
3. 6 months interest = $21,000 as given in the question.

We calculate:

One month interest = $21,000/6 = $3,500

Therefore, total interest amount at the time of maturity = $3,500 X 10 = $35,000

Frasquita is obligated to pay the amount on 4/30/2022 = $586,000 with interest included.

Face value of note = $586,000 - $35,000 = $551,000

This implies that the amount of equipment recorded at the time of purchase (6/30/2021) = $551,000

$551,000 is the answer.