On May 1,2017,SBC INC.buys a computer listed for $12,600.The office supply store agrees to accept a $1,600 down payment and a $11,000,three-year note payable at $3,500 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?
A) $1,800
B) $8,126
C) $8,553
D) $11,000

Question

Quizplus · Accepted Answer

B) 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, 3500 PMT, CPT PV PV = -8,126 (rounded)