Carr Company sells specialized machinery and equipment. On January 1, 2011, the company sold equipment and received a two-year, $10,000 note with a 3 percent stated interest rate. Interest is payable each December 31, and the entire principal is payable December 31, 2012.
The equipment does not have a readily established market value. The market rate of interest for notes of this type and level of risk is 10 percent.
See Carr Company information above.
Required:
Explain how and why this transaction was structured as it is.

Question

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The Answer of Carr Company sells specialized machinery and equipment. On January 1, 2011, the company sold equipment and received a two-year, $10,000 note with a 3 percent stated interest rate. Interest is payable each December 31, and the entire principal is payable December 31, 2012.
The equipment does not have a readily established market value. The market rate of interest for notes of this type and level of risk is 10 percent.
See Carr Company information above.
Required:
Explain how and why this transaction was structured as it is.

Carr Company Sells Specialized Machinery and Equipment