Ask Question
12 January, 22:37

Tamarisk Corporation purchased a truck by issuing an $118,400, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck.

+5
Answers (1)
  1. 12 January, 22:50
    0
    Dr. Truck $80,869

    CR. Note Payable $80,869

    Explanation:

    Note issued is a liability instrument. It is a promise of payment f principal amount and interest after a specific period of time. Zero interst interest bearing not does not offer any interest payment but it is issued at a discounted price. Present value of Note payable is the value that should be recognised as a cost of the truck.

    Now calculate the present value of the Note.

    PV of Zero coupon bond = FV / (1 + r) ^n

    Where

    FV = FV maturity value of the note = $118,400

    r = Interest rate = 10%

    n = numbers of period = 4 years

    Placing Values in the formula

    PV of Zero coupon bond = $118,400 / (1 + 10%) ^4

    PV of Zero coupon bond = $80,869
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Tamarisk Corporation purchased a truck by issuing an $118,400, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers