Bento Corp took a $500,000 four-year 4% note receivable from a customer in connection with a...

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.

Expert Solution

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

ekkarill92 answered 10 months ago

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