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Item 6 Item 6 Item 6 When an equipment dealer receives a long-term note in exchange...

Item 6 Item 6 Item 6 When an equipment dealer receives a long-term note in exchange for equipment, and the stated rate of interest is indicative of the market rate of interest at the time of the transaction, the present value of the future cash flows received on the notes:

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Answer #1

Is credited to sales revenue at the exchange date

When the dealer receives a note receivable for the exchange transaction then its present value is calculated by taking the interest rate for the number of years for which long term note has been received. The present value so calculated is credited to the sales revenue at the exchange date. The following journal entry has to be passed

                    Notes Receivable

                              Sales Revenue (with the Present value of the notes receivable amount)

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