On December 31, 2020, Flint Corporation sold for $100,000 an old machine having an original cost of $180,000 and a book value of $80,000. The terms of the sale were as follows:
$20,000 down payment,
$40,000 payable on December 31 each of the next two years.
The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should be the amount of the notes receivable net of the unamortized discount on December 31, 2020, rounded to the nearest dollar?

Question

On December 31, 2020, Flint Corporation sold for $100,000 an old machine having an original cost of $180,000 and a book value of $80,000. The terms of the sale were as follows: 
$20,000 down payment,
$40,000 payable on December 31 each of the next two years.
 The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should be the amount of the notes receivable net of the unamortized discount on December 31, 2020, rounded to the nearest dollar?

Quizplus · Accepted Answer

The present value of the notes receivable should be calculated using the 9% interest rate. The present value of $40,000 due in one year is $40,000 / (1 + 0.09) = $36,697. The present value of $40,000 due in two years is $40,000 / (1 + 0.09)^2 = $33,667. The total present value of the notes receivable is $36,697 + $33,667 = $70,364.

On December 31, 2020, Flint Corporation Sold for $100,000 an Old