On May 1, 2020, VeryFine LTD. provides a vendor with a $18,000 non-interest-bearing note due on May 1, 2021 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.
A)$16,415
B)$16,667
C)$16,981
D)$18,000

Question

Quizplus · Accepted Answer

The present value of the note is $16,981, which is the amount that will be recorded in the accounting records.The present value of a non-interest-bearing note is calculated as follows:PV = FV / (1 + r)^nwhere:PV is the present valueFV is the future valuer is the annual interest raten is the number of yearsIn this case, the future value is $18,000, the annual interest rate is 6%, and the number of years is 1.Therefore, the present value is:PV = $18,000 / (1 + 0.06)^1= $16,981