On May 1,2017,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 including interest at 7%.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 photocopier be recorded at in the accounting records?

Question

Quizplus · Accepted Answer

D) The fair value of the note is determined using discounted cash flow analysis as the interest rate in the note is less than the market rate.
Using a BAII PLUS financial calculator
• 3 N, 14 I/Y, 798 PMT, CPT PV PV = -1,853 (rounded)
In accounting records:
Dr. Office equipment ($1,853 note given + $800 down payment) = 2,653