Question

SHOW ALL WORK ON HOW ANSWER WAS ACQUIRED

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

1.		It sold land having a fair value of $915,830 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,441,072. The land is carried on Crane's books at a cost of $597,600.
2.		It rendered services in exchange for a 3%, 8-year promissory note having a face value of $402,550 (interest payable annually).

Crane 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 Crane 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.)

No.	Date	Account Titles and Explanation	Debit	Credit
1.	July 1, 2020	enter an account title	enter a debit amount	enter a credit amount
		enter an account title	enter a debit amount	enter a credit amount
		enter an account title	enter a debit amount	enter a credit amount
		enter an account title	enter a debit amount	enter a credit amount
2.	July 1, 2020	enter an account title	enter a debit amount	enter a credit amount
		enter an account title	enter a debit amount	enter a credit amount
		enter an account title	enter a debit amount	enter a credit amount

Answer 1

No.	Date	Account title and explantion	Debit	Credit
1	July 1,2020	Notes receivable	$1,441,072
		Discount on notes receivable		$525,242
		Land		$597,600
		Gain on sale of land		$318,230
		[To record sale of land]
2	July 1,2020	Notes receivable	$402,550
		Discount on notes receivable		$165,724
		Service revenue		$236,826
		[To record service revenue]

Calculations:

For 1)

Face value of the notes receivable	$1,441,072
Fair value of the land	($915,830)
Discount on notes receivable	$525,242
Fair value of the land	$915,830
Cost of the land	($597,600)
Gain on sale of land	$318,230

For 2)

Cash interest = $402,550 x 3% = $120,76.5

Present value of cash interest		$62,147
[$120,76.5 x 5.14612 PV annuity factor (11%, 8 years)]
Present value of face value		$174,679
[$402,550 x 0.43393 PV factor (11%, 8 years)]
Carrying value of the notes		$236,826