On December 31, 1999, Key Co. received two $10,000 noninterest-bearing notes from customers in exchange for services rendered. The note from Alpha Co., which is due in nine months, was made under customary trade terms, but the note from Omega Co., which is due in two years, was not. The market interest rate for both notes at the date of issuance is 8%. The present value of $1 due in nine months at 8% is 0.944. The present value of $1 due in two years at 8% is 0.857. At what amounts should these two notes receivable be reported in Key's December 31, 1999, balance sheet?

a. $ 9,440 $ 8,570

b. $10,000 $ 8,570

c. $ 9,440 $10,000

d. $10,000 $10,000

Question

Business

Elliott Warner

8 October, 07:04

On December 31, 1999, Key Co. received two $10,000 noninterest-bearing notes from customers in exchange for services rendered. The note from Alpha Co., which is due in nine months, was made under customary trade terms, but the note from Omega Co., which is due in two years, was not. The market interest rate for both notes at the date of issuance is 8%. The present value of $1 due in nine months at 8% is 0.944. The present value of $1 due in two years at 8% is 0.857. At what amounts should these two notes receivable be reported in Key's December 31, 1999, balance sheet?

a. $ 9,440 $ 8,570

b. $10,000 $ 8,570

c. $ 9,440 $10,000

d. $10,000 $10,000

+1

Answers (1)

Know the Answer?

Kristen Copeland · Answer 1

b. $10,000 $ 8,570

Explanation:

The shirt term note will be reported for his face value as the customary term stand for a lack of commercial substance The note isn't accepted to gain interest as it is for a very-short term (less than 90 days)

In the other hand, the 9 months note does have a commercial substance therefore, it has implied interest charged into it.

nominal x pv favor = PV

10,000 x 0.857 = $8,570

This makes option B correct.