On December 31, 2010 Brown Company finished consultation services and accepted i
ID: 2379078 • Letter: O
Question
On December 31, 2010 Brown Company finished consultation services and accepted in exchange a zero bearing promissory note with a face value of $400,000 and a due date of Dcember 31,2013. Teh fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropiate imputed (market rate of 5%
Factors:
PV OF $1 (3 PERIODS 5%) .86384
PV OF ANNUITY ( 3 PERIODS 5%) 2.72325
1) Determine the present value of the note
2) Prepapre the journal entry to record the issuance of the note at December 31,2010
3) Show the eyar end journal entirees of the next 3 years including the final entry to close the note
Explanation / Answer
1.Present value of the note =$400,000*.86384= $463,048.70
2. In the books of issuer of promissory note
Brown Company dr $400,000
To promissory note $400,000
In the books of Brown Company
Promissory note dr $400,000
To issuer of promissory note $400,000
3.Journal entry at the end of year 3
In the books of Brown Company
Bank a/c dr $400,000
To promissory note $400,000
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