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On December 31, 2005, Jet Co. received two $10,000 notes receivable from customers in exchange for services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and payable at maturity.
The note from Hart Corp., made under customary trade terms, is due in nine months and the note from Maxx, Inc. is due in five years. The market interest rate for similar notes on December 31, 2005 was 8%. The compound interest factors to convert future values into present values at 8% follow:
Present value of $1 due in nine months: .944
Present value of $1 due in five years: .680

At what amounts should these two notes receivable be reported in Jet's December 31, 2005, balance sheet?

Hart Maxx
a. $9,440 $6,800
b. $9,652 $7,820
c. $10,000 $6,800
d. $10,000 $7,820

Respuesta :

ofentsemaphalla

Answer:

d. $10,000 $7,820

Explanation:

In the Future Value, a note of 9 months is reported because current notes do not need to be measured with the Present Value.

Five year note, the present value of future cash flows, is reported at $7,820.

Computation:

[$10,000 + $10,000(.03)(5 years)](.680)], which is the note's present value plus the 3 per cent interest's present value.

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