Question

On January 1, Year 1, Barrett, Inc., purchased equipment and signed a note agreeing to pay $100,000 on December 31, Year 3. The market interest rate applicable to the note was determined to be 10%. What is the amount that will be credited to Note Payable in the journal entry dated January 1, Year 1?

Answer 1

$75,131

Step-by-step explanation:

The computation of the amount of note payable credited is shown below:

Notes payable is

= Agreed amount to pay × present value factor at 10% for 3 years

= $100,000 × 0.75131

= $75,131

By multiplying the agreed amount to pay with the present value factor at 10% for 3 years we can get the amount credited to the note payable