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On June 1, 2018, a customer made a purchase of $40,000 of merchandise. The customer signed...

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Accounting

On June 1, 2018, a customer made a purchase of $40,000 ofmerchandise. The customer signed a $40,000, five- year,zero-interest-bearing note due June 1, 2023. The market interestrate for a loan of c omparable risk level was 14%.

Prepare an effective-interest amortization schedule for thepromissory note received from the customer on June 1, 2018. Showcalculations

Answer & Explanation Solved by verified expert
4.4 Ratings (816 Votes)

Present value of Note =40000/1/(1+.14)^5 =20774.75

year Effective Interest Discount Amortized Un amortized Discount Present value of Note
2018                             19,225.25                           20,774.75
2019 2908.46 2908.46 16316.79                           23,683.21
2020 3315.65 3315.65 13001.14                           26,998.86
2021 3779.84 3779.84 9221.30                           30,778.70
2022 4309.02 4309.02 4912.28                           35,087.72
2023 4912.28 4912.28 0.00                           40,000.00

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Transcribed Image Text

On June 1, 2018, a customer made a purchase of $40,000 ofmerchandise. The customer signed a $40,000, five- year,zero-interest-bearing note due June 1, 2023. The market interestrate for a loan of c omparable risk level was 14%.Prepare an effective-interest amortization schedule for thepromissory note received from the customer on June 1, 2018. Showcalculations

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