On May 1, 2020, SBC INC. buys a photocopier listed for $2,900. The office supply store agrees to accept a $800 down payment and a $2,100, three-year note payable at $798 per year. The company's banker has suggested that an appropriate market rate is 11% per annum for loans that mature in one year or less and 14% for loans with longer maturities. At what amount will the note be recorded at in the accounting records?

Question

Quizplus · Accepted Answer

The note should be recorded at its present value. Using the market rate of 14% for a three-year note, the present value of the $798 annual payments is approximately $1,853.