On December 31, 2010, Chelsea Co. provides a service for its customer Villas Boas Co. inexchange for a promissory note requiring five annual payments of $1,000 each. The paymentsare to occur on December 31 of each year beginning on December 31, 2011. The note does notspecify any interest, and there is no market for the note. Based on the credit worthiness of VillasBoas Co. and the length of the note, it is estimated that Villas Boas Co. would have to pay 10%interest if it borrowed a similar amount from a bank. The carrying value of the note on Chelsea’sbalance sheet on December 31, 2011?a. $4,041b. $3,737c. $3,170d. $2,992

Question

On December 31, 2010, Chelsea Co. provides a service for its customer Villas Boas Co. in
exchange for a promissory note requiring five annual payments of $1,000 each. The payments
are to occur on December 31 of each year beginning on December 31, 2011. The note does not
specify any interest, and there is no market for the note. Based on the credit worthiness of Villas
Boas Co. and the length of the note, it is estimated that Villas Boas Co. would have to pay 10%
interest if it borrowed a similar amount from a bank. The carrying value of the note on Chelsea’s
balance sheet on December 31, 2011?
a. $4,041
b. $3,737
c. $3,170
d. $2,992

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