Question

In: Accounting

Stickleback performed services for a customer in exchange for a $18,000, 5 year, 10% note receivable...

Stickleback performed services for a customer in exchange for a $18,000, 5 year, 10% note receivable on January 1, 2020. Interest will be paid quarterly, with the first payment at the end of the first quarter. The customer’s normal borrowing rate is 12%.

Determine the balance in the discount on note receivable as of December 31, 2023.

$2,007

$334

None of the other answer choices is correct.

$632

$1,130

$5,194

$17,665

Solutions

Expert Solution

PV Factor @2.5% for 20 periods = 0.5537
PV Annuity @3% for 20 periods = 14.8775

Carrying Value of Bonds on Jan 1, 2020 = $18000 x 0.5537 + $18000 x 10% x 3/12 x 14.8775 = $16661
Discount on Bonds = $18000-16661 = $1339

Periods Payment Interest Discount Amortized Carrying Value
0 $         16,661
1 $               450 $               500 $                 50 $         16,711
2 $               450 $               501 $                 51 $         16,762
3 $               450 $               503 $                 53 $         16,815
4 $               450 $               504 $                 54 $         16,869
5 $               450 $               506 $                 56 $         16,926
6 $               450 $               508 $                 58 $         16,983
7 $               450 $               509 $                 59 $         17,043
8 $               450 $               511 $                 61 $         17,104
9 $               450 $               513 $                 63 $         17,167
10 $               450 $               515 $                 65 $         17,232
11 $               450 $               517 $                 67 $         17,299
12 $               450 $               519 $                 69 $         17,368
13 $               450 $               521 $                 71 $         17,439
14 $               450 $               523 $                 73 $         17,512
15 $               450 $               525 $                 75 $         17,588
16 $               450 $               528 $                 78 $         17,665

Discount on note as of Dec 31, 2023 = $18000 - 17665 = $335

Answer is b. $334

ekkarill92 answered 2 years ago
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