Jolly Industries issued a $1.8 million note payable to Beckman Construction in exchange for construction services....
Jolly Industries issued a $1.8 million note payable to Beckman Construction in exchange for construction services. Similar notes have an interest rate of 12 percent. Beckman Construction plans to construct the building with equal costs over the life of the note, thus equaling three annual payments of $600,000. What should Beckman record as their Discount on Notes Payable when the note is issued? Assume that the PVF-OA3, 10% = 2.48685, PVF-OA3, 12% = 2.40183, PVF3, 10% = 0.75131, and PVF3, 12% = 0.71178.
-
A :
$307,890
-
B :
$447,642
-
C :
$358,902
-
D :
$518,796
Homework Answers
c.$358,902.
first let us know the present value of annuity payments of 600,000 made over the years.
600,000 * PV annuity factor for 3 years @12%.
=>600,000*2.40183.
=>1,441,098.
amount of discount = face value - present value
=>1,800,000-1,441,098
=>358,902.
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