3. What should be reported as noncurrent liability from this transaction at December 31, 2021 after adjusting entries are made assuming that the effective interest method is used?
3. What should be reported as noncurrent liability from this transaction at December 31, 2021 after adjusting entries are made assuming that the effective interest method is used?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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
Transcribed Image Text:3. What should be reported as noncurrent liability from this transaction at
December 31, 2021 after adjusting entries are made assuming that the effective
interest method is used? *
On January 1, 2021, Better Company sold property to Best Company. There was no established
exchange price for the property, and Best gave Better a P,000,000 non-interest bearing note payable in
5 equal annual installments of P400,000, with the first payment due December 31, 2021. The prevailing
rate of interest for a note of this type is 10%. The present value of the note at 10% was P758,160 at
January 1, 2021. What should be the balance of the Discount on Notes Payable account on the books of
Better Company at December 31, 2021 after adjusting entries are made assuming that the effective
interest method is used?
2758,160
2633,976
497,374
2136,602
none of them
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