AMC issues a note in exchange for a machine with no stated interest rate. In accounting for the transaction:
A)The machine should be depreciated over the note's term to maturity.
B)If fair values of the note and machine are unavailable, the note should be recorded at its present value, discounted at the market rate of interest.
C)Both the note and machine are recorded at the face amount of the note or the fair value of the machine, whichever is more clearly determinable.
D)The note is recorded at its face amount unless the fair value of the machine is readily available.

Question

Quizplus · Accepted Answer

When the interest rate is not stated, the market rate of interest should be used to calculate the present value of the note. If fair values of the note and machine are unavailable, the note should be recorded at its present value, discounted at the market rate of interest. This will ensure that the accounting for the transaction is in compliance with the accounting principles of relevance and reliability.

AMC Issues a Note in Exchange for a Machine with No