On January 1, 2023, Hornets Company sold land that originally cost P400,000 to the Egi Company. As payment, Egi gave Hornets a P600,000 note. The note bears an interest rate of 8% and is to be repaid in three annual installments of P200,000 plus interest on the outstanding balance. The first payment is due on December 31, 2023. The market price of the land is not reliably determinable. The prevailing interest rate for notes of this type is 8%. Question: 30. Assume the same facts given in the problem, but change the prevailing interest rate for notes of this type to 12% (instead of 8%). At how much should the note be recorded on January 1, 2023? A. P600,000 B. P560,138 C. P480,360 D. P427,080
On January 1, 2023, Hornets Company sold land that originally cost P400,000 to the Egi Company. As payment, Egi gave Hornets a P600,000 note. The note bears an interest rate of 8% and is to be repaid in three annual installments of P200,000 plus interest on the outstanding balance. The first payment is due on December 31, 2023. The market price of the land is not reliably determinable. The prevailing interest rate for notes of this type is 8%. Question: 30. Assume the same facts given in the problem, but change the prevailing interest rate for notes of this type to 12% (instead of 8%). At how much should the note be recorded on January 1, 2023? A. P600,000 B. P560,138 C. P480,360 D. P427,080
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On January 1, 2023, Hornets Company sold land that originally cost P400,000 to the Egi Company. As payment, Egi gave Hornets a P600,000 note. The note bears an interest rate of 8% and is to be repaid in three annual installments of P200,000 plus interest on the outstanding balance. The first payment is due on December 31, 2023. The market price of the land is not reliably determinable. The prevailing interest rate for notes of this type is 8%.
Question:
30. Assume the same facts given in the problem, but change the prevailing interest rate for notes of this type to 12% (instead of 8%). At how much should the note be recorded on January 1, 2023?
A. P600,000
B. P560,138
C. P480,360
D. P427,080
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