Question

Prepare all Journal Entries related to the following note of ABC Company for the 2019 fiscal year which ends Dec. 31, 2019.
NOTE C: On April 1, 2019, ABC Company finished consultation services and accepted in exchange a promissory note with a face value of $100,000, a due date of April 1, 2021, and no stated or coupon rate. The 11% interest is a realistic interest rate (market rate)for a note of this type.

Answer 1

Year	PV factor @ 11%	Remarks
1	0.90090	= 1 / 1.11
2	0.81162	= 0.9009 / 1.11

Date	General Journal	Debit	Credit
Apr 1, 2019	Notes receivable	$        100,000
	Sales revenue (0.81162*100000)		$          81,162
	Discount on Note Receivable		$          18,838
	(To record sales revenue)
Dec 31, 2019	Discount on Note Receivable	$            6,696
	Interest revenue		$            6,696
	(To record Interest revenue.) (Apr to Dec =9 months) (8928*9/12)
Dec 31, 2020	Discount on Note Receivable	$            9,665
	Interest revenue		$            9,665
	(To record Interest revenue.) ((8928*3/12)+(9910*9/12))
Apr 1, 2021	Discount on Note Receivable	$            2,477
	Interest revenue		$            2,477
	(To record Interest revenue.) (18838-6696-9665) or (9910*3/12)
Apr 1, 2021	Cash	$        100,000
	Notes receivable		$        100,000
	(To record Cash received from zero-interest-bearing note .)

	Face value	Less:Discount on Note	Book value of note	Interest revenue (Book value of note*11%)
Year 1	$        100,000	$        18,838	$          81,162	$          8,928
Year 2	$        100,000	$          9,910	$          90,090	$          9,910

Discount on Note for Year 2 = 18838-8928