On 1 January 2020, AAA Limited (“AAA”) purchased a three-year interest-bearing note issued by a financial institution, with a face value of $100,000, due on 1 January 2023. This note bears an annual interest at 5% payable on each 1 January, starting from 1 January 2021. The market rate of interest for a note of similar risk is 8%. Cash equal to the present value of this note was paid by AAA on the purchase date. AAA has a financial year ended 31 December.

Required:

(a) Calculate the present value of the note on 1 January 2020. .(3 marks)

(b) Prepare all the journal entries for year 2020 and for 2021 respectively. .(10 marks)

**clear explanation on part a please! Some says the answer of part a is $92,269 but the answer I got is $86,384.

**Why do not use $100,000 divided by 1.05 3times to find the present value?

Answer rating: 100% (QA)

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