On December 31, 2010, Flint Corporation sold for $75,000 an old machine having an original cost of $135,000 and a book value of $60,000.The terms of the sale were as follows: The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction.What should be the amount of the notes receivable net of the unamortized discount on December 31, 2010 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)

Question

On December 31, 2010, Flint Corporation sold for $75,000 an old machine having an original cost of $135,000 and a book value of $60,000.The terms of the sale were as follows:  The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction.What should be the amount of the notes receivable net of the unamortized discount on December 31, 2010 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)

Quizplus · Accepted Answer

To calculate the notes receivable net of the unamortized discount, we need to find the present value of the note.

The note receivable is $75,000, so we can set up the following equation:

$75,000 = P * (1 - (1 + 0.09)^{-2})/0.09

Where P is the principal amount of the note.

Solving for P, we get:

P = $52,772.51

Since no mention of interest was made in the agreement, we can assume that the note is a non-interest bearing note. Therefore, there is no unamortized discount to consider.

Thus, the notes receivable net of any unamortized discount on December 31, 2010 is $52,773 (rounded to the nearest dollar).

Therefore, the correct answer is A) $52,773.

On December 31, 2010, Flint Corporation Sold for $75,000 an Old