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Amortization of discount on note

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1. Amortization of discount on note.
On December 31, 2006, Green Company finished consultation services and accepted in exchange a promissory note with a face value of $600,000, a due date of December 31, 2009, 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 .86384 .75132
Future Value of Ordinary Annuity of 1 3.15250 3.31000
Present Value of Ordinary Annuity of 1 2.72325 2.48685

The present value of the note is $525,398 using the above information
To arrive at the answer to this question it will help to prepare a Schedule of Note Discount Amortization for Green Company under the effective interest method. (Round to whole dollars.) Go to the test worksheet for a template that will help in calculation the correct answer.
The amount of the effective interest for 12/31/09 (year three) is (a small rounding adjustment may be necessary)
c. $57,268

Bank reconciliation use the following information to determine the answer to questions 2 and 3.
Adcock Plastics Company deposits all receipts and makes all payments by check. The following information is available from the cash records:


Balance per bank $26,746
Add: ...

Solution Summary

This post uses dollar value LIFO.

See Also This Related BrainMass Solution

2-2 Entries for note payables

On August 31, Jenks Co. partially refunded $180,000 of its outstanding 10% , note payable, made 1 year ago to Arma State Bank by paying $180,000 plus $18,000 interest (having obtained the $198,000 by using $52,400 cash and siging a new 1-year $160,000 note discounted at 9% by the bank)

1. Make the entry to record the partial refunding. Assume Jenks Co. makes reversing entries when appropriate.

2. Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount.

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