PRESENT VALUE AND JOURNAL NOTE
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Hello,
Problem:
Xtech Inc issued a promissory note to Jay Entp in the amount of of $400,000 on January 1, 2007, the due date is December 31, 2011. The note has a stated rate of 4%. Interest is due each year on December 31. The current yield rate of interest is 8%.
A) What is the present value?
B) What entry would Jay Entp journalize for the issuance of the note?
I always get confused as to what percentage we use when looking up the number used on the Time Value charts. Is it the stated rate? Or the yield rate of interest?
Kindly advise for A and B. With explanation.
I understand the note value is: 400,000
Time would be 5 years
Interest?
This is an ordinary annuity since the payment is made at the end of each year
Pls confirm the formula would be PVF + PVF-OA.
Thank you.
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Solution Summary
This solution illustrates how to value and journalize a note issued at a discount.
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