Question

On July 1, 2020, Skysong Inc. made two sales. 1. It sold land having a fair...

On July 1, 2020, Skysong Inc. made two sales.

1. It sold land having a fair value of $909,890 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,431,725. The land is carried on Skysong's books at a cost of $594,900.
2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $409,660 (interest payable annually).


Skysong Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest.

Record the two journal entries that should be recorded by Skysong Inc. for the sales transactions above that took place on July 1, 2020. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Homework Answers

Answer #1

Journal Entry:

Date Account Name Debit Credit
July ,1,2020 Note Receivable $1,431,725
To Land $594,900
To Discount on Note Receivable( 1431725- 909,890) $521,835
To Gain On Disposal Of Land(909,890 - 594,900) $314,990
July,1 2010 Note Receivable $ 409,660
To Discount On Note Receivable(Diff.) $183,155
To Service Revenue $226,505

Explanation:

1. Present Value of Note $409,660 Pv of'$1 Table ( N = 8 year; R = 12%) 0.40388 (409,660× 0.40388)= $ 165,453
2.

Present Value of Interest( 409,660× 3%)

= $ 12,290

( PVOA : N = 8: R=12%) 4.96764

(12,290× 4.96764)

= $,61,052

Present Value of Total Cash Flow'( 1+2) $ 226,505
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