On June 30, 2021, Kimberly Farms purchased custom-made harvesting equipment from a local producer. In payment, Kimberly
Question:
On June 30, 2021, Kimberly Farms purchased custom-made harvesting equipment from a local producer. In payment, Kimberly signed a noninterest-bearing note requiring the payment of $60,000 in two years. The fair value of the equipment is not known, but an 8% interest rate properly reflects the time value of money for this type of loan agreement. At what amount will Kimberly initially value the equipment? How much interest expense will Kimberly recognize in its income statement for this note for the year ended December 31, 2021?
Step by Step Answer:
The initial value of equipment and note will be the present value of the note payment PV 60000 085734 51440 Present value of 1 n 2 i 8 from Table 2 Interest expense for July 1 to December 31 2021 5144...View the full answer
Intermediate Accounting
ISBN: 978-1260481952
10th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas
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The time value of money (TVM) is the concept that the money you have in your pocket today is worth more than the same amount would be if you received it in the future because of the profit it can earn during the interim.
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