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 $530,000 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

1)Period= 1 January 2021 - December 31, 2023 = 3 years

Present value of note = PV8%,3*Face value of note

                   = .79383 * 530000

                   = $ 420730

sales revenue to recognized = 420730

#Find present value factor using present value factor table at 8% for 3 periods.

2)

Date	Account title	Debit	credit
1 Jan 2021	Note receivable	530000
	Discount on note receivable		109270
	Sales revenue		420730
	[Being sales made]
December 31, 2021	Discount on note receivable	33658
	Interest revenue		33658
December 31, 2022	Discount on note receivable	36351
	Interest revenue		36351
December 31, 2023	Discount on note receivable	39261
	Interest revenue
December 31, 2023	cash	530000
	Note receivable		530000

working"

period ending	Interest revenue	carrying value of note
December 31, 2021	420730*8%=33658	420730+33658= 454388
December 31, 2022	454388*8%= 36351	454388+36351= 490739
December 31, 2023	490739*8%= 39261**	490739+39259= 530000

**adjusted for rounding off difference