Question

10. On January 1, 2018, Wright Transport sold four school buses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $524,000 by Elmira on December 31, 2020. The effective interest rate is 9%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):

Required:

1. How much sales revenue would Wright recognize on January 1, 2018, for this transaction?
2. Prepare journal entries to record the sale of merchandise on January 1, 2018 (omit any entry that might be required for the cost of the goods sold), the December 31, 2018, interest accrual, the December 31, 2019, interest accrual, and receipt of payment of the note on December 31, 2020.

Answer 1

1)Present value of Note = PVIF(9%,3)*NOTE face value

             = .77218*524000

              = $404,624.10

Sales revenue To recognized : $404,624.10

2)

Date	Account	Debit	credit
1 jan 2018	Note receivable	524,000
	Discount on note receivable		119,375.90
	Sale revenue		404,624.10
	[being sale recorded]
Dec 31 2018	Discount on note receivable	36416.17
	Interest revenue   [404,624.10*.09]		36416.17
	[Interest accrued ]
dec 31 2019	Discount on note receivable	39693.63
	Interest revenue [404,624.10+36416.17]*.09		39693.63
	[Interest accrued for 2018]
Dec 31 2020	Discount on note receivable	43266.06
	Interest revenue [404,624.10+36416.17+39693.63]*.09		43266.06
	[Interest accrued]
31 dec 2020	Cash	524,000
	Note receivable		524,000