Question

On January 1, 2019, Park Company accepted a $36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park $200,000 and had a book value of $20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is $25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Park’s December 31, 2019, balance sheet?

Answer 1

$28,560

Step-by-step explanation:

Calculation for the carrying value of the note receivable on Park’s December 31, 2019, balance sheet

Using this formula

Carrying value of note receivable =Present value of the note +(Imputed interest rate ×Present value of the note )

Let plug in the formula

Carrying value of note receivable=$25,500+(12%×$25,500)

Carrying value of note receivable=$25,500+$3,060

Carrying value of note receivable=$28,560

Therefore the carrying value of the note receivable on Park’s December 31, 2019, balance sheet will be $28,560