Exhibit 14-11 Harry's Inc. issued a four-year, $75,000, non-interest-bearing note to a customer on January 1, 2013. Harry also agrees to sell inventory to the customer at reduced rates over a five-year period. Sales are to be evenly spread over the five-year period. Harry's incremental interest rate is 8%, and the present value of the note is $55,125.
-Refer to Exhibit 14-11. If the face value of a note is materially different from the cash sales price of the property it was exchanged for, and the note is recorded at its present value, the correct interest rate to use is the

Question

Quizplus · Accepted Answer

The correct interest rate to use is the borrower's incremental rate because the face value of the note is materially different from the cash sales price of the property it was exchanged for, and the note is recorded at its present value.