Question

On January 1, 2017, Marin Inc. borrowed and received $260,000 from a major customer, Bramble Corp. The debt is evidenced by a zero-interest-bearing note due in 4 years. Marin, as consideration for the zero-interest-bearing feature of the note, agrees that it will supply inventory to Bramble for the loan period at a below-market price. The appropriate rate at which to impute interest is 8%.

a) Prepare the journal entry to record the initial transaction on January 1, 2017.

b) Prepare the journal entries to record any adjusting entries needed at December 31, 2017. Assume that the sales of Marin’ product to Bramble occur 29% in year 1, 29% in year 2, 19% in year 3, and 23% in year 4.

Answer 1

a. Preparation of journal entry to record the initial transaction on Jan 1,2017.

b. Preparation of journal entries to record any adjusting entries needed at Dec 31, 2017.

Refer to the below image for more detailed solution with calculations.

to record the initial prepare the transaction journal entries on Jan 1, 2017 : Requirement @ : particolars Debit Date Credit Jan 1, 2017 4260 000 $ 68900 Cash All or Discount on Notes payable al or TO Notes payable To unearned Revenue ? 260000 $ 68900 working Face value & 260000 Present value of & lat 8-1. for 4 years x •7350 present value ~ $19 100 unearned = : Revenue $260000 as 191100 68900 6 : Journal entries Requirement Date credit Debit $15288 Dec 31, 2017 particolars Interest expense All Dr To Discount on Notes payable $15288 Writing : & 19.400 x 81 29 15288 ale or * $19981 Dec 31, 2017 Uneorned Revenue To sales Alc 1998) Working : $ $ 68900 % 29%. =- $ 1998 I Note) Given that sales of Marin product occur to Bramble goto in year 1.