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There is this question:
On Aug 1, Year 1, Vann Corp’s $500,000 1 year, non interest bearing note due July 31, Year 2, was discounted at Homestead Bank at 10.8%. Vann uses the SL method of amortizing bond discount. What carrying amount should Vann report for notes payable in its Dec 31, Year 1, balance sheet?
Answer is B: 468,500.
What notes payable and what does the bond discount have to do with it? Can somebody please explain this.
If this was a note receivable the discounting is pretty straight forward, 10.8% of the 500,000 maturity value is the banks interest and the the company receives the remainder, 446,000. But why the amortization?
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