P12. On January 1, 2015, Cobb Co. received, for the sale of a parcel of land, a

Question

P12. On January 1, 2015, Cobb Co. received, for the sale of a parcel of land, a tenyear note receivable having a face amount of $2,000,000 and a stated interest rate of 8% payable annually each December 31. The market rate of interest for this type of note is 10%.

Present value factors are as follows: At 8% At 10% Present value of 1 for 10 periods 0.46319 0.38554

Present value of an ordinary annuity of 1 for 10 periods 6.71008 6.14457

The amount to record as proceeds for the sale of the land is:

a. $2,000,000

. b. $1,960,200.

c. $1,840,000.

d. $1,754,211.

e. None of the above.

Please show work! Thank you!

Explanation / Answer

Answer: d. $1754211

Proceeds From sale of land=$160000*(PVIFA10%,10)+$2000000*(PVIF10%,10)

=160000*6.14457+2000000*0.38554

=1754211

Interest=2000000*8%=160000

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