On June 1,2016,Dirty Harry Co.borrowed cash by issuing a 6-month noninterest-bearing note with a maturity value of $500,000 and a discount rate of 6%.Assuming straight-line amortization of the discount,what is the carrying value of the note as of September 30,2016?

Question

Quizplus · Accepted Answer

The discount on the note can be calculated as follows:
Discount = Maturity value x Discount rate x Time
= $500,000 x 6% x 4/12 (4 months from June 1 to September 30)
= $10,000
The carrying value of the note is the maturity value minus the discount, which is:
Maturity value - Discount = $500,000 - $10,000 = $490,000
Therefore, the correct answer is C, $495,000, which is the closest option to the calculated carrying value.