Situation The Wales Company has a $90,000, non-interest-bearing four-year note receivable from the Spenser Company that was received on July 1, 2007 when Wales sold a used machine. The machine was custom made five years ago, cost the Wales Company $100,000, and was being depreciated over a 10-year life by the straight-line method to a zero residual value. As the accountant for the Wales Company you know that APB Opinion No. 21 requires that the note be discounted using the borrower’s interest rate. You phone the accountant for the Spenser Company and ask her what that company’s incremental borrowing rate is. She responds cheerfully, “Sorry, I have no idea. We never borrow money because the owner provides all the capital we need.” The president asks you to resolve this issue.

Directions
Research the related generally accepted accounting principles and prepare a short memo to the president that answers her question. Cite your references and applicable paragraph numbers.