Homework Answers
Book value of equipment = $480,000
Face value of non interest bearing note = $600,000
Interest rate = 10%
Present value of 1 at 10% for three periods = 0.75
Present value of note = Face value of non interest bearing note x Present value of 1 at 10% for three periods
= 600,000 x 0.75
= $450,000
Interest income for 1 year = Present value of note x Interest rate
= 450,000 x 10%
= $45,000
Correct option is second.
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