Truck #2 has a list price of $20,000 and is acquired for a down payment of $2,500 cash and a zero-interest-bearing note with a face amount of $17,500. the note is due april 1, 2018. culver would normally have to pay interest at a rate of 9% for such a borrowing, and the dealership has an incremental borrowing rate of 8%.

Dr Trucks 18,555

Dr Discount on Notes Payable 1,445

    Cr Cash 2,500

    Cr Notes Payable 17,500

Explanation:

Since the seller accepted a zero interest bearing note, that is equivalent to making a discount. To determine the discount on the note, we have to calculate the present value of the note: discount rate is 9% and present value is $17,500

present value of the note = $17,500 / (1 + 9%) = $16,055

discount on the note = $17,500 - $16,055 = $1,445

So the purchase price of the truck would be:

$2,500 down payment + $16,055 = $18,555

the answer is a.

by: nicholas dooley

answer; /// the use of a bank credit card to make purchase;