Question
Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press had no known market value. Hornet agreed to pay $300,000
Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press had no known market value. Hornet agreed to pay $300,000 at the end of three years and asked for a 3% interest rate. At the time, Hornet's incremental borrowing rate was 7%. How should the seller and buyer record the transaction?
A) Each should record the sale/purchase at $300,000.
B) The seller should record the sale at $300,000 and Hornet at the present value of $300,000.
C) Each should record the transaction at the present value of the note payable.
D) Hornet should record the sale at $300,000 and the seller at the present value of $300,000.
Please explain your answer so I will get a better understanding of this question. Thanks!
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