Question

On July 1, 2020, Swifty Inc. made two sales.

1.		It sold land having a fair value of $905,690 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,425,116. The land is carried on Swifty's books at a cost of $594,100.
2.		It rendered services in exchange for a 3%, 8-year promissory note having a face value of $408,280 (interest payable annually).

Swifty Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest.

Record the two journal entries that should be recorded by Swifty Inc. for the sales transactions above that took place on July 1, 2020. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Answer 1

Answer:

Date	Account titles and explanation		Debit(in $)	Credit(in $)
	July 1,2020	Notes Receivable		1425116
		Land			594100
		Discount on Notes Receivable (905690-594100)			311590
		Gain on Disposal			519426
	July 1,2020	Notes Receivable		408280
		Discount on Notes Receivable			182540
		Service Revenue			225740
		Calculation of Present value of service revenue at market interest rate of 12%
		Service revenue =Interest amount*PVAF(12%,8) + Face value*PVIF(12%,8)
		Service revenue =$12248*4.96764 + $408280*0.40388
		Service revenue =$225740