Question

PLEASE SHOW ALL WORK!

(a) On January 1, 2020, Sunland Inc. purchased land that had an assessed value of $380,000 at the time of purchase. A $515,000, zero-interest-bearing note due January 1, 2023, was given in exchange. There was no established exchange price for the land, nor a ready fair value for the note. The interest rate charged on a note of this type is 12%. Determine at what amount the land should be recorded at January 1, 2020, and the interest expense to be reported in 2020 related to this transaction. (Round answers to 0 decimal places, e.g. 38,548.) Land to be recorded at January 1, 2020 đ " Interest expense to be reported " (b) On January 1, 2020, Coronado Furniture borrowed $5,900,000 (face value) from Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zero-interest-bearing, Coronado Furniture agreed to sell furniture to this customer at lower than market price. A 10% rate of interest is normally charged on this type of loan. Prepare the journal entry to record this transaction. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Determine the amount of interest expense to report for 2020. (Round answer to 0 decimal places, e.g. 38,548.) Interest expense to be reported for 2020 $

THANK YOU.

Answer 1

(a)

PV of Note Receivable after 3 years at 12% Interest Rate:
=515000*(1/(1.12^3))
$3,66,567
Amortization Schedule
Year	Opening	Interest @ 12%	Closing
2020	$3,66,567	$43,988	$4,10,555
2021	$4,10,555	$49,267	$4,59,821
2022	$4,59,821	$55,179	$5,15,000
Land to be recorded at January 1,2020			$3,66,567
Interest Expense to be reported in 2020			$43,988

(b)

Journal Entries
Date	Accounts	Dr.	Cr.
01-01-2020	Cash Dr	$59,00,000
	To Zero Interest Note Payable		$59,00,000
	(Being borrowed from Sinise Co. through Zero Interest bearing Note due in 4 years.)
31-12-2020	Interest Expense Dr	$5,90,000		=5900000*10%
	To Discount on sales		$5,90,000
	(Being discount given to Sinise Co. against Interest payable on Note.)
	Interest Expense to be reported in 2020
	$5,90,000