On December 31, 2016, Green Company finished consultation services and accepted in exchange a promissory note with a face value of $800,000, a due date of December 31, 2019, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%.
The following interest factors are provided:
Interest Rate
Table Factors For Three Periods
5%
10%
Future Value of 1
1.15763
1.33100
Present Value of 1
.86384
.75132
Future Value of Ordinary Annuity of 1
3.15250
3.31000
Present Value of Ordinary Annuity of 1
2.72325
2.48685
Instructions (Part 1)
(a) Determine the present value of the note.
(b) Record the journal entries for December 31, 2016 and December 31, 2017.
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