E7-13B (L04) (Note Transactions at Unrealistic Interest Rates) On July 1, 2017, Taylor Inc. made two sales.

1. It sold land having a fair market value of $500,000 in exchange for a 4-year, zero-interest-bearing promissory note in the face amount of $732,053.70. The land is carried on Taylor's books at a cost of $375,000.

2. It rendered services in exchange for a 4%, 8-year promissory note having a face value of $400,000 (interest payable annually).

Taylor Inc. recently had to pay 7% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 10% interest.