Question

Immediately after a note payable was signed, its present value was $30,000. This note and $20,000 cash were used to acquire a used plant asset at the beginning of the current year. The interest rate implied in the note is 6%. Total interest payments due on the note over its term amount to $4,000. The term exceeds one year. No payments on the note are due during the current year. What amount of interest expense is recognized for the first year (current year) on this note, and what amount is capitalized to the plant asset account?

Answer 1

plant assets 50,000

interest expense 2,400

Step-by-step explanation:

the plant assets will be the sum of the 20,000 andthe present value of the promissory note (without interest) which, we are given as 30,000

therefore 50,000 will be the value of the plant assets

accrued interest for the year

principal x interest rate

30,000 x 6% nterest rate = 2,400