Notes Payable account

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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On January 1, 2021, Bonita Industries sold property to Sandhill Company. There was no established exchange price for the property,
and Sandhill gave Bonita a $4500000 zero-interest-bearing note payable in 5 equal annual installments of $900000, with the first
payment due December 31, 2021. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was
$3500730 at January 1, 2021. What should be the balance of the Discount on Notes Payable account on the books of Sandhill at
December 31, 2021 after adjusting entries are made, assuming that the effective-interest method is used?
$713252.
$684204.
$999270.
$0.
Transcribed Image Text:On January 1, 2021, Bonita Industries sold property to Sandhill Company. There was no established exchange price for the property, and Sandhill gave Bonita a $4500000 zero-interest-bearing note payable in 5 equal annual installments of $900000, with the first payment due December 31, 2021. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $3500730 at January 1, 2021. What should be the balance of the Discount on Notes Payable account on the books of Sandhill at December 31, 2021 after adjusting entries are made, assuming that the effective-interest method is used? $713252. $684204. $999270. $0.
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