Question

Recording Entries for Long-Term Note Receivable; Effective-Interest Method

On January 1, 2020, Jacobs Company sells land financed through a $40,000 note, issued by Andress Company. The note is a $40,000, 8%, annual interest-bearing note. Andress agrees to repay the $40,000 proceeds on December 31, 2021. The prevailing interest rate on similar notes is 11%. Assume that the cost of the land is equal to the fair value of the note.

Required

Prepare all entries for Jacobs over the note term, including any year-end adjustments. Use the effective interest method to amortize the discount.

Date	Account Name	Dr.	Cr.
Jan. 1, 2020	?	?	?
	?	?	?
	Land	?	?
Dec. 31, 2020	Cash	?	?
	?	?	?
	?	?	?
Dec. 31, 2021	Cash	?	?
	?	?	?
	?	?	?
	To record interest on note
Dec. 31, 2021	?	?	?
	?	?	?
	To record settlement of note

r the note term, including any year-end adjustments. Use the effective interest method to amortize the discount

Answer 1

Date	Account Titles	Debit	Credit
Jan. 1	Notes Receivable	$         40,000
2020	Discount on Notes		$           2,055
	Land		$         37,945
Dec. 31	Cash	$           3,200
2020	Discount on Notes	$              974
	Interest Revenue		$           4,174
Dec. 31	Cash	$           3,200
2021	Discount on Notes	$           1,081
	Interest Revenue		$           4,281
Dec. 31	Cash	$         40,000
2021	Notes Receivable		$         40,000

Fair Value of Land = -PV(11%,2,3200,40000,0) = $37945
The above is a excel formula