Question

On January 2, 20x5, a company sold a large piece of equipment with a list price of

$200,000 (held in inventory to a customer) on the following terms: blended annual

payments of interest and principal starting December 31, 20x5 and ending on December

31, 20x8. The interest rate charged by the note is 3%.

The company’s incremental borrowing rate is 4% and the customer who purchased the

equipment’s incremental borrowing rate is 8%. The bookkeeper was unsure on how to

handle this and credited the December 31, 20x5 payment to Revenue. No entry was made

to the Note Receivable account.

Required – Prepare the adjusting journal entries required as at December 31, 20x5.

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.