On january1 year 1 parke company borrowed 360000 from

14. On January 1, year 1, Parke Company borrowed $360,000
from a major customer evidenced by a noninterest-bearing
note due in three years. Parke agreed to supply the customer’s
inventory needs for the loan period at lower than fair value. At
the 12% imputed interest rate for this type of loan, the present
value of the note is $255,000 at January 1, year 1. What
amount of interest expense should be included in Parke’s year
1 income statement?
a. $43,200
b. $35,000
c. $30,600
d. $0
15. Pie Co. uses the installment sales method to recognize
revenue. Customers pay the installment notes in twenty-four
equal monthly amounts, which include 12% interest. What is an
installment note’s receivable balance six months after the sale?
16. On July 1, year 1, a company obtained a two-year 8%
note receivable for services rendered. At that time the market
rate of interest was 10%. The face amount of the note and
the entire amount of the interest are due on June 30, year 3.
Interest receivable at December 31, year 1, was

Module 13: Present Value 409
c. 5% of the July 1, year 1, present value of the amount
due June 30, year 3.
d. 4% of the July 1, year 1, present value of the amount
due June 30, year 3.
17. Which of the following is reported as interest expense?
a. Pension cost interest.
b. Postretirement health-care benefits interest.
c. Imputed interest on noninterest-bearing note.
d. Interest incurred to finance construction of machinery
for own use.
18. Norton Corp. does not elect the fair value option for
recording its financial liabilities. The discount resulting from
the determination of a note payable’s present value should be
reported on its balance sheet as a(n)