Amortization of discount on note.
On December 31, 2014, Green Company finished consultation services and accepted in exchange a promissory note with a face value of $600,000, a due date of December 31, 2017, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%.
The following interest factors are provided:
Instructions

(a) Determine the present value of the note.
(b) Prepare a Schedule of Note Discount Amortization for Green Company under the effective interest method. (Round to whole dollars.)
(c) Explain how the accounting for a zero-interest-bearing note would differ in
(a) and (b) above.

Question

Amortization of discount on note.
On December 31, 2014, Green Company finished consultation services and accepted in exchange a promissory note with a face value of $600,000, a due date of December 31, 2017, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%.
The following interest factors are provided:  
Instructions

(a) Determine the present value of the note.
(b) Prepare a Schedule of Note Discount Amortization for Green Company under the effective interest method. (Round to whole dollars.)
(c) Explain how the accounting for a zero-interest-bearing note would differ in 
(a) and (b) above.

Quizplus · Accepted Answer

The Answer of Amortization of discount on note.
On December 31, 2014, Green Company finished consultation services and accepted in exchange a promissory note with a face value of $600,000, a due date of December 31, 2017, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%.
The following interest factors are provided:  
Instructions

(a) Determine the present value of the note.
(b) Prepare a Schedule of Note Discount Amortization for Green Company under the effective interest method. (Round to whole dollars.)
(c) Explain how the accounting for a zero-interest-bearing note would differ in 
(a) and (b) above.

Amortization of Discount on Note