On January 1, 2013, a company purchased a $50,000, 16 percent interest-bearing note from ABC Associates without recourse. The note was dated January 1, 2012 and matures on June 30, 2013. The note specifies that the full 18 months of interest is payable on the maturity date. A 20 percent discount rate was agreed to by both parties. On January 1, 2013, ABC Associates should record a debit to cash for:

Question

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The present value of the note is $38,000. The difference between the face amount of the note and the present value is the discount, which is $12,000. The discount is recorded as a debit to cash on the books of ABC Associates.

On January 1, 2013, a Company Purchased a $50,000, 16