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On 1/1/2020, Star sold a machine with the following terms to Eagle Inc.: cash received $20,000,...

  1. On 1/1/2020, Star sold a machine with the following terms to Eagle Inc.: cash received $20,000, $40,000 5% (state rate) note receivable due in 5 years with interest payable 1/1 and . Eagle’s cost of capital is 6%. The original cost of the machine was $25,000 with an accumulated depreciation of $11,000.

The present value of the note is ________________________

The entry Star (seller) would record is:

The entry Eagle (buyer) would record is:

Prepare the first 4 periods of the amortization schedule for the note that Eagle (the Buyer) would prepare. You only need to show the first 4 periods. Label the amortization schedule with account names and debits/credits:

Solutions

Expert Solution

Present value of Notes:
Amount of notes receivable after 5 years 40000.00
Multiply: PVF at 6% for 5 year 0.747258
Present value of notes 29890.32
Journal entry:
S.no. Accounts title and explanation Debit $ Credit $
a. Accumulated depreciation 11000.00
Cash 20,000
Notes receivable 40,000
    Equipment 25,000
    Interest receivable 10110
    Gain on sale of assets (20,000+29890-14000) 35890
(for sale of equipment)
Amort Chart:
Year Interest Interest receivable Interest Carrying value
revenue receivable receivable of Notes receivable
Credited debited balance
0 10110.00 29890.00
1 1793 1,793 8317.00 31683.40
2 1901 1,901 6416.00 33584.40
3 2015 2,015 4401.00 35599.40
4 2136 2,136 2265.00 37735.40
5 2265 2,265 0.00 40000.00

ekkarill92 answered 2 years ago
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