On December 31, 2007, Eller Corporation sold for $75,000 an old machine having an original cost of $135,000 and a book value of $60,000.The terms of the sale were as follows:

$15,000 down payment
$30,000 payable on December 31 each of the next two years

The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction.What should be the amount of the notes receivable net of the unamortized discount on December 31, 2007 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)

Question

On December 31, 2007, Eller Corporation sold for $75,000 an old machine having an original cost of $135,000 and a book value of $60,000.The terms of the sale were as follows:

$15,000 down payment
$30,000 payable on December 31 each of the next two years

The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction.What should be the amount of the notes receivable net of the unamortized discount on December 31, 2007 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)

Quizplus · Accepted Answer

The present value of the notes receivable is calculated by discounting the future payments of $30,000 each at 9% for 2 years. The present value is $30,000 * 1.75911 = $52,773.

On December 31, 2007, Eller Corporation Sold for $75,000 an Old