On December 31, 2020, Sarasota Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Sarasota Co. agreed to accept a $296,200 zero-interest-bearing note due December 31, 2022, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 10%. Sarasota is much more creditworthy and has various lines of credit at 6%.
Prepare the journal entry to record the transaction of December 31, 2020, for the Sarasota Co.
Answer | |||
Date | Account Titles & Explanation | Debit | Credit |
December 31,2020 | Notes Receivable | $ 296,200 | |
Service Revenue | $ 244,793 | ||
Discount on Notes Receivable | $ 51,407 | ||
Calculation- | |||
Service revenue = $296200*Present value factor for second year at 10% | |||
Service revenue = $296200*0.826446 | |||
Service revenue = $244,793 | |||
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