On May 1,2012,VeryFine LTD.provides a vendor with a $18,000 non-interest-bearing note due on May 1,2013 in exchange for furniture with a list price of $17,400.At what amount will the property be recorded in the accounting records? The company's banker has suggested that an appropriate market rate is 6% per annum for loans that mature in one year or less and 8% for loans with longer maturities.

Question

Quizplus · Accepted Answer

Since the note is non-interest-bearing, the amount of the note ($18,000) is equal to the present value of the furniture. We need to calculate the present value of the furniture based on the market rate of interest.

Using the banker's suggested market rate of 6%, the present value of the furniture would be:

Present Value = List Price / (1 + market rate)^time
Present Value = $17,400 / (1 + 0.06)^1
Present Value = $16,415.09

Therefore, the property should be recorded at $16,415, which is the present value of the furniture.

Choice A, B, and D are not correct because they do not take into account the market rate of interest and only consider the list price or face value of the note.