3rd Edition

ISBN: 9780136912644

Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella

Publisher: Pearson Education (US)

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Textbook Question

Chapter 11, Problem 11.4E

Acquiring an Asset with a Note Payable (Deferred Payment Arrangements). On December 31, 2018, the Clearwater Corporation acquired a custom-made plant asset by issuing a promissory note with a face value of $750,000, a due date of December 31, 2023, and a stated (coupon) rate of interest of 2%. Interest is compounded annually and is payable at the end on each year. The fair value of the customized asset is not readily determinable and the note receivable is not publicly traded. Given the company’s incremental borrowing rate and current market conditions, the imputed rate of interest for the note is estimated as 6%.

Determine the present value of the note and prepare the journal entry to record the transaction for Clearwater Corporation.

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Chapter 11, Problem 11.3E

Chapter 11, Problem 11.5E

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Chapter 11 Solutions

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Solution Summary: The author calculates the present value of the note payable and prepares a journal entry to record the transaction.

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