25. A company sold land and accepted a five-year note having a maturity value of $40,000 with no stated interest rate. The land originally cost the company $75,000. At the date of sale, the land had a fair value of $30,000. What is the amount of the discount when recording the sale?
Answer: A
The amount of the discount when recording the sale is $10,000.
The discount on the note is determined by comparing the fair value of the land at the time of sale with the note's maturity value. In this case, the land had a fair value of $30,000, and the note's maturity value is $40,000, leading to a discount of $10,000.
A) $10,000
This option is correct as it accurately represents the discount calculated by subtracting the fair value of the land ($30,000) from the maturity value of the note ($40,000). Therefore, the discount amounts to $10,000.
B) $15,000
This option is incorrect since it does not align with the calculation of the discount. The difference between the fair value of the land and the note's maturity value is not $15,000, hence this option is not valid.
C) $30,000
This option is also incorrect as it suggests that the entire fair value of the land represents a discount. However, the discount is only the difference between the maturity value of the note and the fair value of the land, which is $10,000, not $30,000.
D) $5,000
This option is incorrect as it underestimates the discount. The discount is derived from the difference between the note's maturity value and the fair value of the land, which is not $5,000.
Conclusion
In conclusion, the correct answer is $10,000 because it accurately reflects the discount calculated from the difference between the note's maturity value and the fair value of the land. All other options fail to properly represent this calculation, resulting in their inaccuracy.