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.

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

ekkarill92 answered 2 years ago

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