Problem On December 31, 2016, Gireen Company finished consultation services and

Question

Problem On December 31, 2016, Gireen Company finished consultation services and accepted in eschange a zero imerest bearing note wit ha face value of$800,000, a due date of December 31, 2019. The implied interest rate is 10%. The follow ing interest factors are provided -10% Future Value of I Present Valuc of I Future Value of Ordinary Annuity of Present Value of Ordinary Annuity of 1.15763 86384 3,15250 2.72325 1.33100 75132 .31000 2.48685 Instructions (a) Determine the present value of the note. (b) Prepare journal entries for the initial transaction, recognition of interest each year, and the collection at maturity

Explanation / Answer

a) Present value of Note = 800000*.75132 = 601056

b) Journal entry :

Date account & explanation debit credit Notes receivable 800000 Discount on notes receivable 198944 Sales revenue 601056 (To record initial transaction) Discount on notes receivable (601056*10%) 60105.6 Interest revenue 60105.6 (To record interest) Cash 800000 Notes receivable 800000 (To record maturity of note)

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