On March 1, 2014, Parnevik Company sold goods to Goosen Inc. for $632,000 in exc

Question

On March 1, 2014, Parnevik Company sold goods to Goosen Inc. for $632,000 in exchange for a 5-year, zero-interest-bearing note in the face amount of $1,065,000. The goods have an inventory cost on Parnevik’s books of $486,000. Prepare the journal entries for Parnevik on (a) March 1, 2014, and (b) December 31, 2014. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Explanation / Answer

Answer: a)

1/3/2014 Notes receivables Dr.1,065,000

To sales revenue....................................... 632,000

To discount on notes receivable.................. 433000

(to record Parnevik's sale to Goosen company)

Cost of goods sold Dr. 486000

To inventory ..............................486000

(to record cost of goods sold)

Answer: b)

Parnevik should record revenue of $632000 on March1, 2014 which is the fair value of inventory in this case.Parnevik is also financing this purchase and records interest revenue on the note for 5 year period. In this case, the interest rate is computed to be 11%[(632000/1065000) = 0.59342, which is the PV of $1 factor for n = 5, I = 11%].

Parnevik records interest revenuue of $57933 (11%*632000*10/12) at december 31, 2014.

Journal entry:

Discount on notes receivables Dr.$57933

To interest revenue,...............................$57933

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.