Question

On January 1, 2021, Wright Transport sold four school buses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $523,000 by Elmira on December 31, 2023. The effective interest rate is 6%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):

Required:

1. How much sales revenue would Wright recognize on January 1, 2021, for this transaction?
2. Prepare journal entries to record the sale of merchandise on January 1, 2021 (omit any entry that might be required for the cost of the goods sold), the December 31, 2021, interest accrual, the December 31, 2022, interest accrual, and receipt of payment of the note on December 31, 2023.

Answer 1

Answer :

1. The sales revenue that W will recognize on 1 january, 2021 :-

Sales revenue = Value of note * PVF @ 6% for 3rd year

=5,23,000* (1 ÷ 1.06)^3

= $4,39,121

2. Journal entries

Date	Account title	Debit	Credit
Jan 1, 2021	Notes receivable	5,23,000
	Discount on notes receivable (5,23,000 - 4,39,121)		83,879
	Sales revenue		4,39,121
Dec 31, 2021	Discount on notes receivable(4,39,121 ×6%)	26,347
	Interest revenue		26,347
Dec 31, 2022	Discount on notes receivable (4,39,121 + 26,347) ×6%	27,928
	Interest revenue		27,928
Dec 31, 2023	cash	5,23,000
	Discount on notes receivable (4,39,121 + 26,347 + 27,928) ×6%	29,604
	Interest revenue		29,604
	Notes receivable		5,23,000