Question 1 On July 1, 2017, Splish Brothers Inc. made two sales: 1. It sold exce

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Question 1 On July 1, 2017, Splish Brothers Inc. made two sales:

1. It sold excess land in exchange for a four-year, non–interest-bearing promissory note in the face amount of $1,002,000. The land’s carrying value is $586,200.

2. It rendered services in exchange for an eight-year promissory note having a face value of $414,800. Interest at a rate of 3% is payable annually.

The customers in the above transactions have credit ratings that require them to borrow money at 12% interest. Splish Brothers recently had to pay 7% interest for money it borrowed from British National Bank.

3. On July 1, 2017, Splish Brothers also agreed to accept an instalment note from one of its customers in partial settlement of accounts receivable that were overdue. The note calls for four equal payments of $19,100, including the principal and interest due, on the anniversary of the note. The implied interest rate on this note is 12%.

I. Prepare the journal entries to record the three notes receivable transactions of Splish Brothers Inc. on July 1, 2017. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answers to 0 decimal places, e.g. 58,971. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No. Account Titles and Explanation     Debit     Credit

1.

2.

3.

II. Prepare an effective-interest amortization table for the instalment note obtained in partial collection of accounts receivable. (Round answers to 0 decimal places, e.g. 58,971.)

Effective Interest   Table Instalment    Note Receivable

     Payment    Interest                    Note      

Explanation / Answer

Date Account Title & Explanation Debit Credit Amount in $ Amount in $ 1 Note Receivable 1002000 Land 586200 Gain on sale of land 415800 To record the sale of excess land in exchange for Note 2 Notes receivable 414800 year Interest receipt PVIF Table@12% PV of receipts Discount on Notes payable 185451.9 0 1 Service revenue 229348.1 1 12444 0.8928571 11110.71 To record the revenue from services in exchange for note. 2 12444 0.7971939 9920.281 3 12444 0.7117802 8857.393 4 12444 0.6355181 7908.387 5 12444 0.5674269 7061.06 6 12444 0.5066311 6304.518 7 12444 0.4523492 5629.034 8 12444 0.4038832 5025.923 8 414800 0.4038832 167530.8 Total 229348.1 Year Equal Payments PVIF Table@12% Present value Note receivablebeginning balance Interest Payment Principal repaid Note receivable closing Balance 3 Notes receivable 58013.37 0 1 0 58013.37 Accounts receivable 58013.37 1 19100 0.8928571 17053.57 58013.37 6961.605 12138.4 45874.98 To record the partial settlement of accounts in exchange of note 2 19100 0.7971939 15226.4 45874.98 5504.997 13595 32279.97 3 19100 0.7117802 13595 32279.97 3873.597 15226.4 17053.57 4 19100 0.6355181 12138.4 17053.57 2046.429 17053.57 0 Total 58013.37

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