Question

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.)

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