Question

?On December 31, 2015, Bonita Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Bonita Co. agreed to accept a $346,500 zero-interest-bearing note due December 31, 2017, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 11%. Bonita is much more creditworthy and has various lines of credit at 6%.

Answer 1

The answer has been presented in the supporting sheet. All the parts ha sbeen solved with detailed explanation and format.

2 Answer Firstl we have to calculate the present value of bond = Face value / (1+i)^n =346500/(1.11)^2 =$ 281227 3 4 Credit Debit 346,500 $ 6 Entry 1) 7 Date Account Title and Explanation 8 31 Dec. 2015 Note Receivable Discount on bond receivable 10 Service Revenue (To record service revenue) 65,273 281,227 $ 11 Credit 13 Entry 2) Date Account Title and Explanation 15 31 Dec. 2016 Discount on bond receivable (281227*11%) Interest revenue (To record Inetrest revenue) Debit 30,935 16 $ 30,935 Credit $ Debit 34,338 $ 34,338 19 Entry 3) 20 Date Account Title and Explanation 21 31 Dec. 2017 Discount on bond receivable (281227+30935)*11%) Interest revenue (To record Inetrest revenue) Cash Note receivable (to record collection of note) $ 346,500 $ 346,500