Materials Ltd. purchases inventory on 1 April 20X7 and agrees to pay the vendor $126,000 on 31 March 20X9, plus annual interest at 2% each 31 March. The market interest rate for similar term and security is 7%. Assume also that the inventory does not have a readily determinable market value. 

Required:

1. Calculate the present value of the note payable. 

2. Prepare a table that shows the balance of the note payable and interest expense over the life of the note.

Interest Expense Interest Paid Market Rate Closing Net Liability Discount Opening Net Liability Amortization Year 1