Question

On January 1, 2019, Vivi Inc. lent cash to a borrower by accepting a promissory note....

On January 1, 2019, Vivi Inc. lent cash to a borrower by accepting a promissory note.

• The 3-year note has a principal value of $400,000 and a maturity date of December 31, 2021.

• The note has a stated annual interest rate of 8% (coupon rate), with interest payable at the end of each year, starting December 31, 2019.

• Under the circumstances, the market (discount) rate for a note of similar risk is 10%.

Requirement: B1. Calculate the present value of the promissory note on January 1, 2019 (rounded to the nearest dollars).

B2. Prepare the journal entry to recognize the note on January 1, 2019.

B3. Prepare the journal entry relating to the note on December 31, 2019.

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