On May 1,2017,VeryFine LTD.provides a vendor with a $18,000 non-interest-bearing note due on May 1,2018 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.

Question

Quizplus · Accepted Answer

C) The fair value of the note is determined using discounted cash flow analysis. The market rate suggested by the bank has been used to discount the obligation. List prices are not necessarily a reliable indicator of the asset's fair market value.
Using a BAII PLUS financial calculator
• 1 N, 6 I/Y, 18000 FV, CPT PV PV = -16,981(rounded)