Question

On December 31, 2019, Coronado Company finished consulting services and accepted in exchange a promissory note with a face value of $610,000, a due date of December 31, 2022, and a stated rate of 6%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 12%.

The following interest factors are provided:

		Interest Rate
Table Factors For Three Periods		6%		12%
Future Value of 1		1.19102		1.40493
Present Value of 1		0.83962		0.71178
Future Value of Ordinary Annuity of 1		3.18360		3.37440
Present Value of Ordinary Annuity of 1		2.67301		2.40183

Determine the present value of the note.

Present value of the note

$

eTextbook and Media

Prepare a Schedule of Note Discount Amortization for Coronado Company under the effective interest method. (Round answers to 0 decimal places, e.g. 5,275.)

Date		Cash Interest (6%)		Effective Interest (12%)		Discount Amortized		Unamortized Discount Balance		Present Value of Note
12/31/19		$		$		$		$		$
12/31/20
12/31/21
12/31/22
		$		$		$

Answer 1

solution :

Computation of Present value of note
Table values are based on:
n=	3
i=	12.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.71178	$610,000.00	$434,186
Interest (Annuity)	2.40183	$36,600.00	$87,907
Present value of Note			$522,093

Date	Cash interest	Effective interest	Discount amortized	Unamortized discount balance	Present value of note
31-Dec-19				$87,907	$522,093
31-Dec-20	$36,600	$62,651	$26,051	$61,856	$548,144
31-Dec-21	$36,600	$65,777	$29,177	$32,679	$577,321
31-Dec-22	$36,600	$69,279	$32,679	$0	$610,000