Question

On July 1, 2020, Metlock Inc. made two sales:

1.		It sold excess land in exchange for a four-year, non–interest-bearing promissory note in the face amount of $1,244,650. The land’s carrying value is $630,000.
2.		It rendered services in exchange for an eight-year promissory note having a face value of $410,000. Interest at a rate of 2% is payable annually.

The customers in the above transactions have credit ratings that require them to borrow money at 12% interest. Metlock recently had to pay 6% interest for money it borrowed from British Bank.

3.

On July 1, 2020, Metlock also agreed to accept an instalment note from one of its customers in partial settlement of accounts receivable that were overdue. The note calls for four equal payments of $20,700, including the principal and interest due, on the anniversary of the note. The implied interest rate on this note is 8%.

The tables in this problem are to be used as a reference for this problem.

Prepare the journal entries to record the three notes receivable transactions of Metlock Inc. on July 1, 2020. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answers to 0 decimal places, e.g. 58,971. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
1.
2.
3.

Prepare an instalment note receivable schedule for the instalment note obtained in partial collection of accounts receivable. (Round answers to 0 decimal places, e.g. 58,971.)

Instalment Note Receivable Schedule
Date		Cash Collected		Interest Revenue		Principal Collected		Note Carrying Amount
July 1 2020								$
July 1 2021		$		$		$
July 1 2022
July 1 2023
July 1 2024

Answer 1

No	Date	Account titles and explanation					Debit	Credit
1	July 1,2020	Note receivable					1244650
		Land						630000
		Gain on sale of land		(1244650-630000)				614650
		(Land sold in exchange of note)
2	July 1,2020	Note receivable			(Note:1)		257238
		Sales revenue						257238
		(Sales revenue recorded)
3	July 1,2020	Note receivable			(Note:2)		68560
		Accounts receivable						68560
		(Installment note accepted for partial settlement)
Note:1
Face value of note=$ 410000
It is received at the time of maturity
Now,let's find the present value of face value of bonds
Discount factor=Interest on money borrowed=6%
Present value of face value of notes=Face value of the bonds*Discount factor at 6% for the 8th year=410000*0.62741=$ 257238
Note:2
Equal payment=$ 20700
Discount factor=Implied interest rate=8%
Present value of note=Equal payment*Discount factor at 8% for 4 years=20700*3.3121=$ 68560
Installment note receivable schedule
Date	Cash collected	Interest revenue	Principal collected	Note carrying amount
July 1,2020				68560
July 1,2021	20700	5485	15215	53345
July 1,2022	20700	4268	16432	36912
July 1,2023	20700	2953	17747	19165
July 1,2024	20700	1535	19165	0
Interest revenue=Beginning note carrying amount*Implied interest rate
Principal collected=Cash collected-Interest revenue
Ending note carrying amount=Beginning note carrying amount-Principal collected
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