Equipment is exchanged for a noninterest-bearing note. Payment of $20,000 on the note is to...
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Equipment is exchanged for a noninterest-bearing note. Payment of $20,000 on the note is to be made in one year. The market rate for notes of similar risk is 5%. Assuming an annual interest rate of 5% is appropriate, the present value of the principal is $20,000 0.95238 = $19,048. Assuming that a semiannual interest rate of 2.5% is appropriate, the present value of the principal is ($20,000/2) 1.92742 = $19,274. What amount should be recorded for the purchase of this equipment?
Equipment is exchanged for a noninterest-bearing note. Payment of $20,000 on the note is to be made in one year. The market rate for notes of similar risk is 5%. Assuming an annual interest rate of 5% is appropriate, the present value of the principal is $20,000 0.95238 = $19,048. Assuming that a semiannual interest rate of 2.5% is appropriate, the present value of the principal is ($20,000/2) 1.92742 = $19,274.
What amount should be recorded for the purchase of this equipment?
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