Question

8. On January 1, 2014, Fishbone Corporation (an equipment manufacturer) sold equipment to Lost Company that cost $150,000. Fishbone received as consideration a 5% interest-bearing note requiring payments of $80,000 annually for 3 years. The first note payment is to be made on December 31, 2014. The prevailing rate of interest for a note of this type on January 1, 2014, was 5%.

Answer 1

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			Year	PVF 5%
			1	0.9524
			2	0.9070
			3	0.8638
		a		2.7232
	Annual Payment	b		$        80,000
	Note Receivable Value	a*b		$     217,860
	Cash Payment	Interest	Principal	Balance
				$     217,860
	$                      80,000	$     10,893	$     69,107	$     148,753
	$                      80,000	$        7,438	$     72,562	$        76,190
	$                      80,000	$        3,810	$     76,190	$                -
Journal:
Jan 1 2014	Note Receivable	$   217,860
	Sales Revenue		$   217,860
Jan 1 2014	Cost of Goods Sold	$   150,000
	Inventory		$   150,000
Dec 31 2014	Cash	$     80,000
	Note Receivable		$     69,107
	Interest Revenue		$     10,893
Dec 31 2015	Cash	$     80,000
	Note Receivable		$     72,562
	Interest Revenue		$        7,438
Dec 31 2016	Cash	$     80,000
	Note Receivable		$     76,190
	Interest Revenue		$        3,810