Question

On January 1, 2021, Wright Transport sold four school buses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $522,000 by Elmira on December 31, 2023. The effective interest rate is 5%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):

Required: 1. How much sales revenue would Wright recognize on January 1, 2021, for this transaction?

2. Prepare journal entries to record the sale of merchandise on January 1, 2021 (omit any entry that might be required for the cost of the goods sold), the December 31, 2021, interest accrual, the December 31, 2022, interest accrual, and receipt of payment of the note on December 31, 2023.

Answer 1

1	sales revenue	$450,924
2
Date	General Journal	Debit	Credit
Jan 1, 2021	Note Receivable	$522,000
	Discount on Note Receivable		$71,076
	Sales Revenue		$450,924
Dec 31, 2021	Discount on Note Receivable	$22,546		($450,924 x 5%)
	Interest Revenue		$22,546
Dec 31, 2022	Discount on Note Receivable	$23,674		[($450,924 + $22,546) x 5%]
	Interest Revenue		$23,674
Dec 31, 2023	Cash	$522,000
	Discount on Note Receivable	$24,856		[($450,924 + $22,546 + $23,674) x 5%]
	Interest Revenue		$24,856
	Note Receivable		$522,000
	Working
	Sales revenue =	Present value of the note receivable
		$522,000 x 0.86384
		$450,924
	Present value of $1: n = 1, I = 5