On January 1, 2016, Wright Transport sold four school busses to the Elmira Schoo

Question

On January 1, 2016, Wright Transport sold four school busses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $527,000 by Elmira on December 31, 2018. The effective interest rate is 6%. Required: 1. How much sales revenue would Wright recognize on January 1, 2016, for this transaction? 2. Prepare journal entries to record the sale of merchandise on January 1, 2016 (omit any entry that might be required for the cost of the goods sold), the December 31, 2016, interest accrual, the December 31, 2017, interest accrual, and receipt of payment of the note on December 31, 2018.

Explanation / Answer

Assuming that the sale price of all the four buses is equal to the value of the notes receivable from the school, the revenue that should be recognised in Jan1, 206 should be $527000.

The journal that should be passed for the sale of the buses by the Wright transport is:

Note Receivable.....................................Dr. $527000

Sales....................................................................Cr. $527000

(to record the sale of merchandise on January 1, 2016 )

Dec 31, 2016

Interest receivable...................................Dr. $31620 [0.06*527000]

Interest Income.....................................................Cr. $31620

(Interest accrued recorded)

Dec 31, 2017

Interest receivable...................................Dr. $31620 [0.06*527000]

Interest Income.....................................................Cr. $31620

(Interest accrued recorded)

Dec 31, 2018

Interest receivable...................................Dr. $31620 [0.06*527000]

Interest Income.....................................................Cr. $31620

(Interest accrued recorded)

Cash.....................................................Dr. $558620

Interest receivable.....................................................Cr. $31620

Notes Receivable.......................................................Cr. $527000

(receipt of payment of the notes recivable along with the interest accrued for the last year)

Note: It has been assumed that the interest accrued are paid to Wright Transport each year.

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