You have just been promoted to manager at a national CPA firm. A new accountant approaches you with the following situation: He has discovered that the president of your client’s company has a brother who is both the major shareholder and the president of a local bank. Your client has a $300,000, 5-year note payable to the bank at 4% interest compounded annually. Because the going interest rate is 16%, the accountant suggests that the note be recorded at its present value using this going rate. The president says that the effective liability is $300,000 and should be reported on the balance sheet at this figure. The note was issued on January 1, 2019, and is due on January 1, 2024.

Required:
1. Explain who is correct.
2. At what amount should the company have valued the note on January 1, 2019, assuming that the accountant’s assessment is correct?