In: Accounting
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.
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 |