Question

teslla corporation purchased land by signing a note with the seller requiring $16,000 immediately and $44,800 three years after the purchase. the note is noninterest-bearing, but the interest rate for similar land purchases with notes of similar risk is 10%. note: round your final answers to the nearest whole dollar. a. compute the value recorded in the land account. answer b. compute the interest the company records for the first year of the note. answer

Answer 1

a. The value recorded in the land account is $53,326.45. b. The interest the company records for the first year of the note is $1,600.

Step-by-step explanation:

a. To compute the value recorded in the land account, we need to calculate the present value of the $44,800 payment due in three years. The present value is calculated using the formula:

Present Value = Future Value / (1 + Interest rate)^(Number of years)

Using an interest rate of 10% and a time period of 3 years, the present value of $44,800 is:

$44,800 / (1 + 0.10)^3 = $37,326.45

Therefore, the value recorded in the land account is $16,000 + $37,326.45 = $53,326.45.

b. To compute the interest the company records for the first year of the note, we need to calculate the interest on the $16,000 payment made immediately. The interest is calculated using the formula:

Interest = Principal x Interest rate

Using a principal of $16,000 and an interest rate of 10%, the interest for the first year is:

$16,000 x 0.10 = $1,600.