On October 1, 2005, Fleur Retailers signed a 4-month, 16% note payable to finance the purchase of holiday merchandise. At that date, there was no direct method of pricing the merchandise, and the note's market rate of interest was 11%. Fleur recorded the purchase at the note's face amount. All of the merchandise was sold by December 1, 2005. Fleur's 2005 financial statements reported interest payable and interest expense on the note for three months at 16%. All amounts due on the note were paid February 1, 2006. Fleur's 2005 cost of goods sold for the holiday merchandise was Overstated by the difference between the note's face amount and the note's October 1, 2005 present value. Your Answer This is overstated by the difference between the note's face amount and the note's present value at October 1, 2005 plus 11% interest for two months. Correct Understated by the difference between the note's face amount and the note's October 1, 2005 present value. Understated by the difference between the note's face amount and the note's October 1, 2005 present value plus 16% interest for two months