Question

On July 1, 2020, Teal Inc. made two sales.

1.		It sold land having a fair value of $906,700 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,426,706. The land is carried on Teal's books at a cost of $593,200.
2.		It rendered services in exchange for a 3%, 8-year promissory note having a face value of $401,380 (interest payable annually).

Teal Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest.

Record the two journal entries that should be recorded by Teal Inc. for the sales transactions above that took place on July 1, 2020.

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

Answer 3 In the given question we have to pass the journal entries 5 Credit Transaction No. Date 1 July.1,2020 Debit 1426706 Account Title and Explanation Zero Percent Note Receivable Land Discount on Note Payable (1426706-906700) Gain on sale of Land (906700-593200) (To record sale of land) 593200 520006 313500 2 July.1,2020 401380 Promissory Note Receivable Discount On Note Payable (401380-221928) Service Revenue (to record service revenue) 179452 221928 18 Note calculation of present value of promissiory note at 12% Yield 19 Present Value of note payable = (interest payment *present value annuity(12%,8)) + (face value/(1+i)^n) 20 = ((401380*.03)*((1-(1.12)^-8)/.12))+(401380/(1.12)^8) 21 = 59817.3375 +162110.65 22 = $ 221928