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Tomas Taco Company receives a $61,200 4-year note bearing interest of 8% (paid annually) from a...

Question:

Tomas Taco Company receives a $61,200 4-year note bearing interest of 8% (paid annually) from a customer at a time when the discount rate is 10%.

What is the present value of the note received by Tomas? The factor for the present value of $1, n = 4 years, i = 8% is .73503; the factor for the present value of $1, n = 4 years, i = 10% is 0.68301.

The factor for the present value of an ordinary annuity of $1, n = 4 years, i = 8% is 3.31213; the factor for the present value of an ordinary annuity of $1, n = 4 years, i = 10% is 3.16987.

Calculate Present Value of a Note Receivable

So, when recording certain types of long-term notes receivable, it is important under generally accepted accounting principles to record these types of notes taking into consideration the time value of money. In the case of a long-term note which also includes some type of payment of interest during the period the note is outstanding, the interest portion of the note should also be discounted under generally accepted accounting principles to take into consideration the time value of money.

Answer and Explanation:

What is the present value of the note received by Tomas?


So, recording the present value of this note has two parts:

-the present value of the...

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How to Calculate Net Present Value: Definition, Formula & Analysis

from Financial Accounting: Help and Review

Chapter 5 / Lesson 20
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