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sorry to repost this, but didnt get any answers on the other thread i had put this in…
On October 1, 2010 Fleur Retailers signed a 4-month, 16% note payable to finance the purchase of holiday merchandise. At that date, there was no direct method of pricing the merchandise, and the note’s market rate of interest was 11% Fleur recorded the purchase at the note’s face amount. All of the merchandise was sold by December 1, 2010. Fleur’s 2010 Financial statements reported interest payable and interest expense on the note for 3 months at 16%. All amounts due on the note were paid February 1, 2011. Fleur’s 2010 cost of goods sold for the holiday merchandise was
a: overstated by the difference between the note’s face amount and the note’s october 1, 2010 present value plus 11% interest for 2 months
b: understated by the difference between the note’s face amount and the not’s october 1, 2010 present value
c: overstated by the difference between the note’s face amount and the note’s october 1, 2010 present value
d: understated by the difference between the note’s face amount and the note’s october 1, 2010 present value plus 16% interest for 2 months.
correct answer is B, but the explanation in wiley is just a little to wordy and i cant follow it, can someone bread this down for me
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