Question

On January 1, 2021, Wright Transport sold four school buses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $515,000 by Elmira on December 31, 2023. The effective interest rate is 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):

Required:

1. How much sales revenue would Wright recognize on January 1, 2021, for this transaction?
2. Prepare journal entries to record the sale of merchandise on January 1, 2021 (omit any entry that might be required for the cost of the goods sold), the December 31, 2021, interest accrual, the December 31, 2022, interest accrual, and receipt of payment of the note on December 31, 2023.

Answer 1

ANSWER:

Amount of notes receivable    515000      
Multiply: PVF at 8% for 3 years 0.7938      
Amount of sales revenue to be recognized   408807      

Journal entries :

Date	Accounts title and explanations	Debit $	Credit $
a.	Notes receivable	515000
	Sales revenue		408807
	Discount on notes receivable		106193
	(for notes received on sales revenue)
31.12.21	Discount on notes receivable	32705
	Interest revenue (408807*8%)		32705
	(for interest accrued)
31.12.22	Discount on notes receivable	35321
	Interest revenue (408807+32705)*8%)		35321
	(for interest accrued)
31.12.23	Discount on notes receivable	38147
	Interest revenue (408807+32705+35321)*8%)		381477
	(for interest accrued)
31.12.23	Cash account	515000
	Notes receivable		515000
	(for amount collected on notes)

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