On January 1, 2018, Laramie Inc. acquired land for $6.2 million. Laramie paid $1.2 in cash and signed a 6% note requiring the company to pay the remaining $5 million plus interest on December 31, 2019. An interest rate of 6% properly reflects the time value of money for this type of loan agreement. For what amount should Laramie record the purchase of land?

Question

Quizplus · Accepted Answer

The note is interest-bearing and thus the land is recorded for the face amount of the note, plus the cash paid on January 1, 2018 = $5,000,000 + $1,200,000 = $6,200,000.