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Note Payable

On December 30, 2004, Cey, Inc. purchased a machine from Frank Corp. in exchange for a noninterest-bearing note requiring eight payments of $40,000. The first payment was made on December 30, 2004, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows:
Present Value of Ordinary Present Value of
Period Annuity of 1 at 11% Annuity Due of 1 at 11%
7 4.712 5.231
8 5.146 5.712
On Cey's December 31, 2004 balance sheet, the net note payable to Frank is
a. $188,480.
b. $205,840.
c. $209,240.
d. $228,480.

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The note would be recorded at the present value of the payments to be made. The ...

Solution Summary

The solution explains how to calculate the present value of a notes payable