In: Accounting
Bento Corp took a $500,000 four-year 4% note receivable from a customer in connection with a major sale transaction. The note requires annual blended payment s to be paid at end of each year. The market interest rate is 4%.
1. Calculate the required blended payment. round to the nearest dollar.
2. Prepare a schedule that shows annual interest and the principal portion of the four payments.
3. Prepare journal entries to record the initial sale transaction and each payment.
1) Annual payment =Value of note /PVA 4%,4
= 500000/ 3.62990
= 137744.84 [rounded to 137,745]
2)
Year | Payment [A] | Interest [B] | principal [A-B] | Carrying value of note |
0 | 500000 | |||
1 | 137745 | 20000 [500000*.04] | 117745 | 500000-117745= 382255 |
2 | 137745 | 15290.2 [382255*.04] | 122454.8 | 382255-122454.8= 259800.2 |
3 | 137745 | 10392.01 | 127352.99 | 259800.2-127352.99= 132447.01 |
4 | 137745 | 5297.99 | 132447.01 | 0 |
3)
Date | Account | Debit | credit |
year 1 -Beginning | Note receivable | 500000 | |
Accounts receivable | 500000 | ||
Year 1-end | cash | 137745 | |
Note receivable | 117745 | ||
Interest revenue | 20000 | ||
Year 2 -end | cash | 137745 | |
Note receivable | 122454.8 | ||
Interest revenue | 15290.2 | ||
year3-end | cash | 137745 | |
note receivable | 127352.99 | ||
Interest revenue | 10392.01 | ||
year 4- end | cash | 137745 | |
Note receivable | 132447.01 | ||
Interest revenue | 5297.99 |