Question

On January 1, 2018, Wright Transport sold four school buses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $526,000 by Elmira on December 31, 2020. The effective interest rate is 7%. (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, 2018, for this transaction?
2. Prepare journal entries to record the sale of merchandise on January 1, 2018 (omit any entry that might be required for the cost of the goods sold), the December 31, 2018, interest accrual, the December 31, 2019, interest accrual, and receipt of payment of the note on December 31, 2020.

Required 1: How much sales revenue would Wright recognize on January 1, 2018, for this transaction? (Round your final answer to nearest whole number.)  

ales revenue

Required 2: - Record the sale of goods on January 1, 2018 in exchange for the long term note.

- Record the interest accrual on December 31, 2018.

- Record the interest accrual on December 31, 2019.

- Record the interest revenue in 2020 and collection of the note.

Answer 1

1. Sales Revenue to be recorded on January 1, 2018 will be the present value of $526,000 which he will receive on December 31, 2020

Project A	Year 0	Year 1	Year 2	Year 3
Payment Received				526,000
Discount rate 7% , Life 3 years
Present Value factor	1	0.935	0.873	0.816
Present Value of Net Cash flow	0	0	0	429,373
Net Present value	0	0	0	429,373

Sales Revenue to be recorded is 429,373.

2. Required journal entries are as prepared below:

Year	Particulars	L.F	Debit ($)	Credit ($)
2018
Jan-01	Note Receivable		526,000
	Discount on Note Receivable			96627
	Sales Revenue			429,373
	(for school buses sold)
Dec-31	Discount on Notes Receivable (429,373*7%)		30,056
	Interest Revenue			30,056
	(For interest recorded)
2019
Dec-31	Discount on Notes Receivable (459,429*7%)		32,160
	Interest Revenue			32,160
	(For interest recorded)
2020
Dec-31	Cash		526,000
	Discount on Notes Receivable (491,589*7%)		34,411
	Interest Revenue			34,411
	Note Receivable			526,000
	(for cash received on note)