On December 31. 2COO Burry Corporation sold some of its product to Flynn Company

Question

On December 31. 2COO Burry Corporation sold some of its product to Flynn Company, accepting a 3%. four-year promissory note having a maturity value of 900,000 (Merest payable 8rooalty on December 31) Berry Corporation pays 6% for its borrowed funds. Flymn Company, however, pays 8% for its borrowed funds The product sold is earned on the books of Berry at a manufactured cost of 570,000 Assume Berry uses a perpetual inventory system Instructions Prepare the journal entries to record the transaction on the hooks of Berry Corporation at December 31. 2009. (Assume I hit the effective interest method is used. Use the interest tables below and round to the nearest dollar.) Make all appropriate entr.es for 2010 cn the hooks of Berry Corporation Make all appropriate entries for 2011 on the hooks of Berry Corporation

Explanation / Answer

Inventory

Interest Revenue

Interest Revenue

Face Value of the Notes Receivable 900,000.00 Rate of Interest 0.03 Amount of Interest 27,000.00 The Face Value of Notes Receivable is in the nature of a single sum. From the given table, PVF (4,6% ) 0.79 Present Value of the Note 712,881.00 The Face Value of Notes Receivable The interest payments are in the nature of Annuities Calculate their Present Values : PVF-OA(4,6% ) Present Value of Interest Payments 93,557.85 Present Value of the Note 806,438.85 Amount of the Note 900,000.00 Premium or Amount paid in excess of par 93,561.15 Journal Entry on 31Dec ,2009 : Notes Receivable 900,000.00          Sales Revenue 806,438.85         Premium on Notes Receivable 93,561.15 Cost of Goods Sold 570,000.00

Inventory

570,000.00 Journal Entry on 31Dec ,2009 : Cash 27,000.00

Interest Revenue

27,000.00 Journal Entry on 31Dec ,2010 : Cash 27,000.00

Interest Revenue

27,000.00

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