Note with Fair Value Not Equal to Cash Consideration

question 79

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.

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Definitions:

Movable Collateral

Assets that can be relocated and are used as security for a loan without transferring ownership to the lender.

Secured Party's Remedies

Legal actions or measures available to a secured party to enforce rights against a debtor in case of default.

Debtor Defaults

A situation where a debtor is unable to meet the legal obligation of debt repayment.

After-Acquired Property

Property acquired by a debtor after the execution of a security agreement, which may still be subject to claims by secured creditors under certain agreements.