On June 30, 2016, Kimberly Farms purchased custom-made harvesting equipment from

Question

On June 30, 2016, Kimberly Farms purchased custom-made harvesting equipment from a local producer. In payment, Kimberly signed a noninterest-bearing note requiring the payment of $90,000 in two years. The fair value of the equipment is not known, but an 7% interest rate properly reflects the time value of money for this type of ban agreement. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) At what amount will Kimberly initially value the equipment? How much interest expense will Kimberly recognize in its income statement for this note for the year ended December 31, 2016?

Explanation / Answer

Therefore, Interest for 2 years = $ 90,000 - $ 78,610 = $ 11,390

The Interest expense will Kimberly recognise in its income statement for this note for the year ended December

31,2016 =

Interest Expense = $ 2,847.50

( Interest for 6 months = $ 11,390 / 4 )

Table or Calculator function Future Value $ 90,000 n 2 years i 7 % Present Value ( 90,000*0.873) PVIF2,7% =0.873 $ 78,610

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