A) Assume a The Lending Company lends money to an organization on January 1 and...
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A) Assume a The Lending Company lends money to an organization on January 1 and receives a promissory note which it records as a notes receivable. The note receivable is $100,000 but debtor only receives $80,000. The term is 5 years.
The $20,000 discount will be amortized/written off over the life of the loan.
1. What happens to this discount? What does it become when it is "written off"?
2. How much cash does The Lending Company receive when the discount is periodically amortized/written off?
Number your responses please
B) Assume a The Lending Company lends money to an organization on January 1 and receives a promissory note which it records as a notes receivable. The note receivable is $100,000 but debtor only receives $80,000. The term is 5 years.
Why would the debtor accept $80,000 when it is required to pay back $100,000 plus interest?
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