Question

On January 1, 2021, Wright Transport sold four school buses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $526,000 by Elmira on December 31 2023. The effective interest rate is 7% (EV of $1. PV of 51. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1 )(Use appropriate factor(s) from the tables provided.): 

Required:

 1. How much sales revenue would Wright recognize on January 1, 2021, for this transaction?

 2. Prepare journal entries to record the sale of merchandise on January 1, 2021 (omit any entry that might be required for the cost of the goods sold), the December 31, 2021, interest accrual, the December 31, 2022. Interest accrual, and receipt of payment of the note on December 31, 2023. 

Answer 1

1. Sales revenue

   n= 3 years I = 7%

Present value of the notes receivable

$526,000 * 0.81630 = $429374

2. Interest revenue

Date	Principal	Opening	Interest at 7%
31-12-21	429377		30056
31-12-22	429377	30056.39	32160
31-12-23	429377	32160.34	32308

Date	Particulars	Debit	Credit
Jan 01 2021	Note receivable	526000
	Discount on note receivable		96626
	Sales revenue		429374
	(Recording of sales revenue)
Dec 31 2021	Discount on note receivable	30056
	Interest revenue		30056
	(recording of interest revenue)
Dec 31 2022	Discount on note receivable	32160
	Interest revenue		32160
	(recording of interest revenue)
Dec 31 2023	cash	526000
	Discount on note receivable	32308
	Interest revenue		32308
	Note receivable		526000