On January 1, 2022, Balance Bar Co. receives a 5-year, $100,000 zero-interest-bearing note for services they provided. The market rate of interest for a note of similar risk is 6 percent. a. How does Balance Bar record the receipt of the note? b. And how does Balance Bar record interest revenue at the end of the first year? c. At the end of the second year?
On January 1, 2022, Balance Bar Co. receives a 5-year, $100,000 zero-interest-bearing note for services they provided. The market rate of interest for a note of similar risk is 6 percent. a. How does Balance Bar record the receipt of the note? b. And how does Balance Bar record interest revenue at the end of the first year? c. At the end of the second year?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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2. On January 1, 2022, Balance Bar Co. receives a 5-year, $100,000 zero-interest-bearing note for services they provided. The market rate of interest for a note of similar risk is 6 percent.
a. How does Balance Bar record the receipt of the note?
b. And how does Balance Bar record interest revenue at the end of the first year?
c. At the end of the second year?
Expert Solution
Step 1:Answer:
Fv=100,000
N=5 years
i=6%
Then principal:$100,000 (PVF$5,6%) = $100,000 x .74726 =$74,726
Amortization table below;
| Cash received | 6% interest revenue | discount Amortized | carrying amount of note | |
| Date of issue | $74,726 | |||
| At the end of first year | - |
$4484 ($74726*6%) |
$4484 | $79210 |
| At the end of second year | - |
$4753 (79210*6%) |
$4753 | $83962 |
| At the end of third year | - | $5038 | $5038 | $89000 |
| At the end of fourth year | - | $5340 | $5340 | $94340 |
| At the end of fifth year | - | $5660 | $5660 | $100,000 |
| $25274 | $25274 |
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