Question

On January 1, 2021, Wright Transport sold four school buses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $522,000 by Elmira on December 31, 2023. The effective interest rate is 5%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):

Required:

1. How much sales revenue would Wright recognize on January 1, 2021, for this transaction?
2. Prepare journal entries to record the sale of merchandise on January 1, 2021 (omit any entry that might be required for the cost of the goods sold), the December 31, 2021, interest accrual, the December 31, 2022, interest accrual, and receipt of payment of the note on December 31, 2023.

Answer 1

Requirement 1:

Answer: $450,924

Calculations:

Sales revenue

= $522,000 x 0.86384 Present value of $1 at 5% for 3 years

= $450,924

Requirement 2:

Date	Account title and explanation	Debit	Credit
1/1/2021	Notes receivable	$450,924
	Sales revenue		$450,924
	[To record sales revenue]
12/31/2021	Notes receivable	$22,546
	Interest revenue		$22,546
	[To record accrued interest revenue]
12/31/2022	Notes receivable	$23,674
	Interest revenue		$23,674
	[To record accrued interest revenue]
12/31/2023	Notes receivable	$24,856
	Interest revenue		$24,856
	[To record accrued interest revenue]
	Cash	$522,000
	Notes receivable		$522,000
	[To record cash received at maturity]

Calculations:

Date	Interest expense @ 5%	Carrying value
1/1/2021		$450,924
12/31/2021	$22,546	$473,470
12/31/2022	$23,674	$497,144
12/31/2023	$24,856	$522,000