Question

On December 31, 2017, Seller Company sold goods to Buyer Company and in return received a...

On December 31, 2017, Seller Company sold goods to Buyer Company and in return received a $40,000, 5%, 3- year note with interest paid annually.  Assume that Buyer Company's borrowing rate is 8%.  

The present value factor or an ordinary annuity at 8% for 3 periods is 2.57710 and the present value factor for a single sum at 8% for 3 periods is .79383.

The present value factor or an ordinary annuity at 5% for 3 periods is 2.72325 and the present value factor for a single sum at 5% for 3 periods is .86384.

How much sales revenue will Seller Company recognize on December 31, 2017?

Homework Answers

Answer #1

Interest = 40,000*5% = 2,000

Borrowing rate = 8%

Therefore present value is to be calculated on 8%

Present value of interest = 2000* present value factor at 8% for 3 periods

= 2000*2.57710

= $5,154.20

Present value of the single payment to be received at the end of 3 years

= 40,000*present value factor for a single sum at 8% for 3 periods

= 40000*0.79383

= $31,753.20

Total sales to be recognised = 31,753.20 + 5,154.20

= $36,907.40

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