Tech Magic purchased a new computer system and in return signed a three-year $30,000 non- interest-bearing note payable. An investigation by the company's accountant revealed that similar notes have market rates of interest around 8%. At what amount should the note payable be initially recorded on Chi's ﬁnancial statements?
A) $25,771
B) $30,000
C) $23,815
D) $25,770

Question

Quizplus · Accepted Answer

The note payable should be initially recorded at its present value, which is calculated using the market rate of interest. Using the formula for present value and an 8% interest rate over three years, the correct initial recording amount is $23,815.

Tech Magic Purchased a New Computer System and in Return