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On December 31, 2016 Berry Corporation sold some of its product to Flynn Company, accepting a...

On December 31, 2016 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note having a maturity value of $900,000 (interest payable annually on December 31). Berry Corporation pays 6% for its borrowed funds. Flynn Company, however, pays 8% for its borrowed funds. The product sold is carried on the books of Berry at a manufactured cost of $560,000. Assume Berry uses a perpetual inventory system.

Prepare the journal entries to record the transaction on the books of Berry Corporation at December 31, 2016. (Assume that the effective interest method is used. Use the interest tables below and round to the nearest dollar.)

Make all appropriate entries for 2017 on the books of Berry Corporation.

Make all appropriate entries for 2018 on the books of Berry Corporation.

Table 1

Future Value of 1

Periods	2%	3%	4%	6%	8%
1	1.02000	1.03000	1.04000	1.06000	1.08000
2	1.04040	1.06090	1.08160	1.19102	1.25971
3	1.06121	1.09273	1.12486	1.19102	1.25971
4	1.08243	1.12551	1.16986	1.26248	1.36049
5	1.10408	1.15927	1.21665	1.33823	1.46933

Table 2

Present Value of 1

Periods	2%	3%	4%	6%	8%
1	0.98039	0.97087	0.96154	0.94340	0.92593
2	0.96117	0.94260	0.92456	0.89000	0.85734
3	0.94232	0.91514	0.88900	0.83962	0.79383
4	0.92385	0.88849	0.85480	0.79209	0.73503
5	0.90573	0.86261	0.82193	0.74726	0.68058

Table 3

Future Value of Ordinary Annuity of 1

Periodic Rents	2%	3%	4%	6%	8%
1	1.00000	1.00000	1.00000	1.00000	1.00000
2	2.02000	2.03000	2.04000	2.06000	2.08000
3	3.06040	3.09090	3.12160	3.18360	3.24640
4	4.12161	4.18363	4.24646	4.37462	4.50611
5	5.20404	5.30914	5.41632	5.63709	5.86660

Table 4

Present Value of Ordinary Annuity of 1

Periodic Rents	2%	3%	4%	6%	8%
1	0.98039	0.97087	0.96154	0.94340	0.92593
2	1.94156	1.91347	1.88609	1.83339	1.78326
3	2.88388	2.82861	2.77509	2.67301	2.57710
4	3.80773	3.71710	3.62990	3.46511	3.31213
5	4.71346	4.57971	4.45182	4.21236	3.99271

Solutions

Expert Solution

31-12-2016

Notes receivable…..….................900,000

Discount on notes receivable ......................149,045 (900,000 - 750,955)

Sales...............................................................750,955 [900,000*0.73503 +(900,000*3%)*3.31213]

Being goods sold by accepting 3% four year promisory notes having maturity value of $900,000 and annual interest payment)

Cost of Goods Sold.................560,000

To inventory...............................................560,000

(Being inventory sold of $560,000)

31-12-2017

Cash...........................................27,000 (900,000*3%)

Discount on notes receivable...33,076 (60,076 - 27,000)

Interest Revenue.........................................60,076 (750,955*8%)

(Being interest received and discount on notes receivable amortized)

31-12-2018

Cash...........................................27,000 (900,000*3%)

Discount on notes receivable...35,722 (60,076 - 27,000)

Interest Revenue.........................................62,722 [(750,955 + 60,076) * 8%]

(Being interest received and discount on notes receivable amortized)

jeff jeffy answered 1 year ago

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