Question

NEED PART B

On January 1, 2017, Pina Co. borrowed and received $478,000 from a major customer evidenced by a zero-interest-bearing note due in 3 years. As consideration for the zero-interest-bearing feature, Pina agrees to supply the customer’s inventory needs for the loan period at lower than the market price. The appropriate rate at which to impute interest is 10%.

(a)		Prepare the journal entry to record the initial transaction on January 1, 2017.
(b)		Prepare the journal entry to record any adjusting entries needed at December 31, 2017. Assume that the sales of Pina’s product to this customer occur evenly over the 3-year period.

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	January 1, 2017
(b)	December 31, 2017
		(To record Interest Expense)
	December 31, 2017
		(To record Unearned Sales Revenue)

Answer 1

Answer:

b)

Date	Particulars	Debit ($)	Credit ($)
31-Dec-17	Interest expense **	35913
	Discount on note Payable		35913
	(To record interest expense)
31-Dec-17	Unearned sales revenue***	39625
	Sales Revenue		39625
	(To record sales revenue)

Working Notes:

* Discount on Notes payable = 516000 - (present value of 478000 where n= 3 & i=10%)
=478000 -(478000*present value factor @10%,n=3)
=478000-(478000*0.75131)
=118873.82

**Interest expense = (478000*0.75131)*10% = 35912.618

***Unearned sales revenue = 118874/3 = 39625