Note with Fair Value Not Equal to Cash Consideration

question 16

Essay

Note with fair value not equal to cash consideration
On January 1, 2020, Tanzania Corp. lent $50,000 to its CEO, interest-free. However, the loan is repayable in five instalments, each December 31, until paid. 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).
b) Prepare the journal entry to record this transaction.

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Definitions:

Invisible Hand

A metaphor introduced by Adam Smith to describe the self-regulating nature of the marketplace, where individual self-interests unintentionally benefit society as a whole.

Price Mechanism

The way in which prices rise and fall as a result of changes in demand and supply, guiding the allocation of resources in a market economy.

External Benefit

A benefit from a good or service that is received by someone not directly involved in the transaction or production of that good or service, also known as a positive externality.

Pollution

The introduction of contaminants into the natural environment that cause adverse changes and harm to the ecosystem.