On December 31, 2011, Fenton Company sold equipment to Denver Inc., accepting a $275,000 noninterest-bearing note...

On December 31, 2011, Fenton Company sold equipment to Denver Inc., accepting a $275,000 noninterest-bearing note receivable in full payment on December 31, 2014. Denver Inc., normally pays 12% for its borrowed funds. The equipment is carried in Fenton's perpetual inventory records at 65% of its cash selling price.

2. Prepare Fenton's journal entry on December 31, 2012, necessitated by this transaction. (Hint: Prepare an amortization schedule for the loan.)

Solutions

Expert Solution

Solution:

Date   Accounts   Debit   Credit
2017   Notes receivable   $195,740
   Sales revenue       $195,740

   Cost of Goods Sold   $127,231
   Inventory       $127,231

Date   Accounts   Debit   Credit
2018   Notes receivable   $23,489
   Interest revenue       $23,489

Working:

   Annual Payment   Interest on Previous Loan    Ending Loan Balance
2011           $275,000 x 0.71178 = $195,739.50
2012   0   $23,489   219,229
2013   0   $26,307   245,536
2014   0   $29,464   275,000
Carrying value of the equipment in inventory of Fenton’s: [$195,739.50 * .65] = $127,231

ekkarill92 answered 1 year ago

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