Question
On December 31, 2014, Green Company finished consultation services and accepted in exchange a promissory note with a face value of $710,000, a due date
On December 31, 2014, Green Company finished consultation services and accepted in exchange a promissory note with a face value of $710,000, a due date of December 31, 2017, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. The following interest factors are provided:
Interest Rate | ||
Table Factors For Three Periods | 5% | 10% |
Future Value of 1 | 1.15763 | 1.33100 |
Present Value of 1 | 0.86384 | 0.75132 |
Future Value of Ordinary Annuity of 1 | 3.15250 | 3.31000 |
Present Value of Ordinary Annuity of 1 | 2.72325 | 2.48685 |
Present value of the note $621,720
Prepare a Schedule of Note Discount Amortization for Green Company under the effective interest method:
Date | Cash Interest (5%) | Effective Interest (10%) | Discount Amortized | Unammortized Discount Balance | Present Value of Note |
12/31/14 | $ | $ | $ | $ | $ |
12/31/15 | |||||
12/31/16 | |||||
12/31/17 | |||||
$ | $ | $ |
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