In: Accounting
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 $526,000 by Elmira on December 31 2023. The effective interest rate is 7% (EV of $1. PV of 51. 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.
1. Sales revenue
n= 3 years I = 7%
Present value of the notes receivable
$526,000 * 0.81630 = $429374
2. Interest revenue
Date |
Principal |
Opening |
Interest at 7% |
31-12-21 |
429377 |
30056 |
|
31-12-22 |
429377 |
30056.39 |
32160 |
31-12-23 |
429377 |
32160.34 |
32308 |
Date |
Particulars |
Debit |
Credit |
Jan 01 2021 |
Note receivable |
526000 |
|
Discount on note receivable |
96626 |
||
Sales revenue |
429374 |
||
(Recording of sales revenue) |
|||
Dec 31 2021 |
Discount on note receivable |
30056 |
|
Interest revenue |
30056 |
||
(recording of interest revenue) |
|||
Dec 31 2022 |
Discount on note receivable |
32160 |
|
Interest revenue |
32160 |
||
(recording of interest revenue) |
|||
Dec 31 2023 |
cash |
526000 |
|
Discount on note receivable |
32308 |
||
Interest revenue |
32308 |
||
Note receivable |
526000 |
||