Question

On January 1, 2013, Belgium Chocolates lent $75,000 to its CEO, interest-free. Use salaries expense for...

On January 1, 2013, Belgium Chocolates lent $75,000 to its CEO, interest-free. Use salaries expense for any expense related to the transaction. The loan is repayable in full in four years. The market rate for similar loans (with similar credit risk) is 5%.

Instructions

a)    Calculate the present value (fair value) of this loan (round to the nearest dollar). Why is it not the same as the actual cash advanced?

b)         Prepare the journal entry to record this transaction

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