Question

on December 31st, 2017 Rays Inc sold goods to Orioles Company in exchange for a non- interest bearing note receivable. Rays Inc has a December 31st, year-end. Dodgers Company has a credit-rating that requires them to pay 12% interest on borrowed funds. The non-interest bearing note has a face-value of $200,000 and is to be repaid within on December 31st, 2019. Prepare the journal entry on December 31st, 2017 (if no journal entry is required, please state "no journal entry is required") Prepare the journal entry on December 31st, 2018 (if no journal entry is required, please state "no journal entry is required") Prepare the journal entry on December 31st, 2019 (if no journal entry is required, please state "no journal entry is required")

Answer 1

Solution :

Fair value of goods sold = $200,000 * PV factor at 12% for 2nd period

= $200,000 * 0.797194 = $159,439

Journal Entries - Rays Inc.
Date	Particulars	Debit	Credit
31-Dec-17	Note receivables Dr	$200,000.00
	To Sales revenue		$159,439.00
	To Discount on note receivables		$40,561.00
	(To record sales revenue)
31-Dec-18	Discount on note receivables Dr ($159,439*12%)	$19,133.00
	To Interest revenue		$19,133.00
	(To record interest revenue)
31-Dec-19	Cash Dr	$200,000.00
	Discount on note receivables Dr ($178,572*12%)	$21,428.00
	To Note receivables		$200,000.00
	To Interest revenue		$21,428.00
	(To record collection at maturity)