Exercise 14-18 On January 1, 2017, Sunland Co, borowed and received 5480,000 fro

Question

Exercise 14-18 On January 1, 2017, Sunland Co, borowed and received 5480,000 from a major customer evidenced by a zero-interest-bearing note due in 5 years. As consideration for the zero-interest-beaning teature, Sunland agrees to supply the customer's inventory needs for the loan period at lower than the market price. The appropriate rate at which to impute interest is 10%. (a) Prepare the joumal entry to record the initial transaction on January 1, 2017, (b) Prepare the joumal entry to record any adjusting entrics neaded at Danemher 31, 2017. Assume that the salas of Surland's preduct to this customer occur evanly ave Round present value factor alculations to 5 decimal p aces, e q 1.25 124 and decimal places e q 58,911. If no entry i at loner the -ear perind required, select No Entry for the account titles ?nd enter 0 for the amounts C Credit account titles are automatically indented when amount is entered. Do not indent manually) No. (a) anuary 1, 2017 t manually.) nd the final Account Tides and Explanation Debit 488000 Discounit on Notes Payable Notes Payahle Unearned Sales Revenue (b) December 31, 2017 Interest Expense Discount on Notes Payable (To record tn terast Expensa) becember 31,2017 Unearned Sales Revenue Sales Revenue

Explanation / Answer

Face value = 480000

Present value of 1 at 10% for 5 years = 0.62092

Present value = 298042

Discount on notes payable = 480000-298042 = 181958

No. Date Account titles and explanation Debit Credit a January 1 2017 cash 480000 Discount on notes payable 181958 Notes Payable 480000 Unearned sales revenue 181958 b December 31 2017 Interest expense (298042*10%) 29804 Discount on notes payable 29804 (to record interest payable) December 31 2017 unearned Sales revenue (181958÷5) 36392 Sales revenue 36392

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