Question

2. 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:

Answer 1

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