Question
Lathrop Inc. purchased equipment on January 1, 2020, for $75,000 cash plus a note payable. The fair value of the equipment on January 1, 2020,
Lathrop Inc. purchased equipment on January 1, 2020, for $75,000 cash plus a note payable. The fair value of the equipment on January 1, 2020, is $271,333. The principal of $200,000 is due on December 31, 2021, and the note specified 5% interest payable each December 31 over a two-year period. The market rate of interest is 6%. 5M Corp. uses the effective interest method to amortize discounts and premiums. Which of the following is true? a. The Equipment will be recorded at 271,333 b. The Note Payable will be recorded at 196,333 c. The present value of the note is $196,333 d. A & C e. All of the above
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