Question

Exercise 7-14 (Part Level Submission) On December 31, 2015, Nash Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Nash Co. agreed to accept a $296,600 zero-interest-bearing note due December 31, 2017, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 12%. Nash is much more creditworthy and has various lines of credit at 6%. Collapse question part (a) Prepare the journal entry to record the transaction of December 31, 2015, for the Nash Co.

Answer 1

Solution:

Zero interest bearing note = $296,600

Hayduke rate of interest on borrowed funds = 12%

Present value of zero interest bearing in note discounted at 12%

=$296,600 * PV Factor at 12% for 2nd period

= $296,600 * 0.797194 = $236,448

Journal Entries - Nash Company
Date	Particulars	Debit	Credit
31-Dec-15	Note Receivables Dr	$296,600.00
	To Service Revenue		$236,448.00
	To Discount on note receivables		$60,152.00
	(To record note recevied for service provided)