Exercise 7 13 On July 1, 2017, Ayayai Inc. made two sales. 1. It sold land havin

Question

Exercise 7 13 On July 1, 2017, Ayayai Inc. made two sales. 1. It sold land havinq a fair value of $904 620 In exchange for a 3 Year zero-interest-bearing promissory note in the face mount of $1,237,189. The land is carried on Avayai's books a cost of $595,200. 2. it rendered serices in exchange for a 5%, year promissory note having a face value of $08,340 (interest payable annually). Ayaya Tnc. recently had to pay g% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 1 1% interest. Record the two journal entries that should be recorded by Ayayal Inc, for the sales transactions above that took place on July 1, 2017. (Round present value factor caiculations to 5 decimal places, e.g. i.25124 and finai answers to 0 decimal places, e.g.5,275 It no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles re automotically indented when the on?ount is entered. Do not indent manually.) No. Date Account Titles and Explanation 1. July 1, 2017 Debit Credit Notes Receivablo 1-237.1 and 332 368 Gain on Disposal of Land 339.820 2. July 1, 2017 Noce. Receivablo on Notea Recevable Click if you would like to Show Work for this questonn Show Wans

Explanation / Answer

The first journal entry is correct.

The following is the second journal entry:

note:

present value of note

=> $408,340 * PVF (11%, 6 years)

=>$408,340 * 1 /(1.11)^6

=>$408,340 * 0.53464

=>$218,315.

present value of interest received over 6 years

=>$408,340 * 5% =.$20,417 is received annually.

present value of interest to be received over 6 years.

=> $20,417 * Present value annuity factor (11% , 6 years)

=>$20,417* [1 - (1.11)^(-6)]/0.11

=>$20,417 * [0.4653592]/0.11

=>$20,417*[4.23054]

=>$86,375.

present value of note and interest = $218,315 + $86,375

=>$304,690.

now,

discount on notes receivable = face value of note - present value of note

=>$408,.340 - $304,690

=>$103,650.

2 July 1 2017 Notes receivable a/c $408,340 ........To Discount notes receivable $103,650 ..........To Service revenue a/c $304,690

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