How did they get the discount on note receivable number of 141,964 CHAPTER 7 Cas

Question

How did they get the discount on note receivable number of 141,964 CHAPTER 7 Cas The S tridewell Wholesale Shoe Company manufactures athletic shoes that it sells to retail- ers. On January 1, 2018, the company sold shoes to Harmon Sporting Goods. Stridewell agreed to accept a $700,000, two-year note in payment for the shoes. Assuming a 12% effective interest rate, Stridewell would account for the note as follows: January 1, 2018 Notes receivable 700,000 Discount on note receivabe. Sales revenue." 141,964 558,036 To record the sale of goods in exchange for a two-year note receivable December 31, 2018 Discount on note receivable.... 66,964 Interest revenue ($558,036 66,964 12%) To record interest revenue in 2018 December 31, 2019 Cast . Discount on note receivabl.e... ..700,000 ...75,000 Interest revenue ($558,036 + $66,964) × 12%] Notes receivable 75,000 700,000 To record interest revenue in 2019 and collection of the note To focus on recording the note we intentionally omit the entry required for the cost of the goods sold if the perpetual inventory system is used -$700,000 × Present value of $1: n = 2, 12%

Explanation / Answer

principal 700,000 where n= 2 years i= 12% Use PV of $1 table at 12 % for 2 years Present value = 700,000*.79719 558033 (note there is difference of $3 may be due to rounding of factor tables) or PV = $1/(1+i)^n PV = 700,000/(1+.12)^2 558036

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