Essay
Note with fair value not equal to cash consideration
On January 1, 2020, Cameroon Corp. lent $50,000 to its CEO, interest-free. The loan is repayable in full in five years. The market rate for similar loans (with similar credit risk) is 4%.
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.
Correct Answer:
Verified
a)5 N, 4 I, 50000 FV, CPT PV = $41,096.
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