Question

Cambria Limited took a $360,000 two-year note receivable from a customer in connection with a major inventory sale transaction on 1 January 20X5. The note required annual end-of-year interest payments of 4%, and the principal was due at the end of 20X6.

Assume now that the market interest rate is 8%. Calculate the present value of the note, and prepare a schedule that shows the annual interest. (Round time value factor to 5 decimal places and final answers to the nearest whole dollar amount. Enter all answers in positive.)

PLEASE SHOW ALL CALCULATIONS AND EXPLANATIONS FOR EVERY NUMBER AND RATE FOUND.

Present value Opening Net Liability Receivable Interest Expense/Revenue Interest Paid/ Received Discount Amortization Closing Net Liability Receivable

Answer 1

solution:

Present value of note = Present value of interest and principal discounted at market interest rate

= ($360,000*4%) * Cumulative PV factor at 8% for 2 periods + $360,000 * PV factor at 8% for 2nd period

= $14,400 * 1.78326 + $360,000 * 0.85734

= $25,679 + $308,642 = $334,321

Date	Opening net liability / receivables	Interest expense / revenue	Interest paid / received	Discount Amortization	Closing net liability / receivables
31-Dec-20X5	$334,321	$26,746	$14,400	$12,346	$346,667
31-Dec-20X6	$346,667	$27,733	$14,400	$13,333	$360,000