1.
On January 1, 2014, Robin Wright Inc. purchased land that had an assessed value of $341,000 at
the time of purchase. A $674,000, zero-interest-bearing note due January 1, 2017, was given in
exchange. There was no established exchange price for the land, nor a ready fair value for the
note. The interest rate charged on a note of this type is 10%. Determine at what amount the land
should be recorded at January 1, 2014, and the interest expense to be reported in 2014 related to
this transaction.
Solution
The amount the land should be recorded at  = Amount of zero Interest bearing note * PVF@
10%,3years
= 674,000 * .75131
= $ 506,382.94
Interest expense to be reported in 2014 = carrying value of note * Interest rate
= 506,382.94 *.10
= $ 50,638.29