On June 1,2012,ABC LTD.provides a vendor with an $18,500 non-interest-bearing note due on July 1,2013 in exchange for furniture with a list price of $18,100.At what amount will the property be recorded in the accounting records? The company's banker has suggested that an appropriate market rate is 12% per annum for loans that mature in one year or less and 15% for loans with longer maturities.

Question

Quizplus · Accepted Answer

To record the property, we need to determine the present value of the note, taking into account the market rate of interest. We can use the formula:
Present value = Face value / (1 + market rate)^time
Where:
Face value = $18,500
Market rate = 12% (since the note matures within one year)
Time = 1 year
Using the formula, we get:
Present value = $18,500 / (1 + 0.12)^1 = $16,518
Therefore, the property should be recorded at $16,518.