Question

ABC company, sold equipment to D company. ABC agree to provide financing to D, in the...

ABC company, sold equipment to D company. ABC agree to provide financing to D, in the form of 100000, with 10% interest bearing note to be repaid in 5 years. market rate is 5%. prepare the ALL journal entries to record the sale of equipment, record interest on note receivable for first 2 years. ITS a long term interest bearing note question at premium.

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Answer #1

Solution:

Future value of note after 5 years = $100,000 * (1+0.10)^5 = $161,051

Fair value of equipment = $161,051 * PV factor at 5% for 5th period

= $161,051 * 0. 783526 = $126,188

Journal Entries - ABC Company
Event Particulars Debit Credit
1 Note receivables Dr $126,188.00
         To Sales revenue $126,188.00
(To record sale of equipment)
2 Note receivables Dr ($126,188*5%) $6,309.00
         To Interest revenue $6,309.00
(To record interest revenue for year 1)
3 Note receivables Dr [($126,188 + $6,309)*5%] $6,625.00
         To Interest revenue $6,625.00
(To record interest revenue for year 2)
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