Question

In: Accounting

On January 1, 2019, BB Jane Inc sold goods for $35,000 and offered the customer no...

On January 1, 2019, BB Jane Inc sold goods for $35,000 and offered the customer no interest and no payments for three years. $35,000 is due on December 31, 2021. The interest rate for this type of transaction is 6.75%.
Required
Prepare all the journal entries required for the years 2019, 2020, and 2021 to account for the sale of goods all the way to the payoff of the note.
Round all calculations and journal entry amounts to the nearest dollar.

Solutions

Expert Solution

Date Account title Debit credit
1 Jan 2019 Note receivable 35000
Discount on note receivable 6228
sales revenue 28772
31 Dec 2019 Discount on note receivable 1942
Interest revenue 1942
31 Dec 2020 Discount on note receivable 2073
Interest revenue 2073
31 Dec 2021 Discount on note receivable 2213
Interest revenue 2213
31 Dec 2021 cash 35000
Note receivable 35000

Note :

Present value of Note = PVF6.75%,3*Amount

                           = .82205 * 35000

                           = 28771.75 (rounded to 28772 )

Find PVF using the formula 1/(1+i)^n where i= 6.75% ,n= 3

Period Interest on notw carrying value of note
1/1/2019 28772
31/12/2019 28772*6.75%= 1942 28772+1942= 30714
31/12/2020 30714*6.75%= 2073 30714+2073= 32787
31/12/2020 32787*6.75%= 2213 32787+2213= 35000

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