Realco Inc. sold used equipment with a cost of $14,900 and a carrying amount of

Question

Realco Inc. sold used equipment with a cost of $14,900 and a carrying amount of $2,380 to Monty Corp. in exchange for a $4,900, three-year non–interest-bearing note receivable. Although no interest was specified, the market rate for a loan of that risk would be 8%. Assume that Realco follows IFRS.

A) Prepare the entry to record the sale of Realco’s equipment and receipt of the note. (Round answers to 0 decimal places, e.g. 5,275. 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.)

Account Titles and Explanation

Debit

Credit

1

2

3

4

B) Prepare the entries to record the recognition of interest each year. (Round answers to 0 decimal places, e.g. 5,275. 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.)

Account Titles and Explanation   Debit   Credit

Record Interest for year 1

Record Interest for year 2

Record Interest for year 3

C) Prepare the entry to record the collection of the note at maturity. (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. Round answers to 0 decimal places, e.g. 5,275.)

Account Titles and Explanation

Debit

Credit

Account Titles and Explanation

Debit

Credit

Explanation / Answer

A)

B)

C)

Account Titles and explanation Debit Credit Notes Receivable 4,900 Discount on Notes Receivable (4900 - 4900/(1.08^3) 1,010 Equipment 2,380 Profit on sale of Asset 1,510

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