Question

On January 1, 2014, Fishbone Corporation (an equipment manufacturer) sold equipment to Lost Company that cost $150,000. Fishbone received as consideration a $240,000 non-interest-bearing note due on December 31, 2016.. The prevailing rate of interest for a note of this type on January 1, 2014, was 5%.

1. Record the 1/1/14 transaction for Fishbone Corporation and all necessary entries from 2014-2016.

Record the 1/1/14 transaction for Lost Company and all necessary entries from 2014-2016.

Answer 1

	Consideration amount	$240,000
	Interest rate	5%
	PV factor at 5% for 3 years	0.8638
	Discounted consideration amount ($ 240,000 x 0.8638)	$207,312.00
	Fishbone Corporation
Date	Account tittle	Debit $	Credit $
1/1/2014	Notes Receivable	207,312.00
	Sales Revenue		207,312.00
	( Record sale of equipment by receiving non-interest-bearing note due on December 31, 2016)
1/1/2014	Cost of goods sold	150,000.00
	Merchandise Inventory		150,000.00
31/12/14	Notes Receivable ( $ 207,312 x 5%)	10,365.60
	Interest income		10,365.60
	(Accrued annual interest on notes at 5%)
31/12/15	Notes Receivable ( $ 207,312 + $ 10,365.60 x 5%)	10,883.88
	Interest income		10,883.88
	(Accrued annual interest on notes at 5%)
31/12/16	Notes Receivable ( $ 207,312 + $ 10,365.60 + $ 10,883.88 x 5%)	11,428.07
	Interest income		11,428.07
	(Accrued annual interest on notes at 5%)
31/12/16	Cash	240,000.00
	Notes Receivable		240,000.00
	(Maturity of notes receivable )
	Lost Company
Date	Account tittle	Debit $	Credit $
1/1/2014	Equipment	207,312.00
	Notes Payable		207,312.00
	( Purchase of equipment by giving non-interest-bearing note due on December 31, 2016)
31/12/14	Interest Expenses	10,365.60
	Notes Payable		10,365.60
	(Accrued interest on Notes payable )
31/12/15	Interest Expenses	10,883.88
	Notes Payable		10,883.88
	(Accrued interest on Notes payable )
31/12/16	Interest Expenses	11,428.07
	Notes Payable		11,428.07
	(Accrued interest on Notes payable )
31/12/16	Notes Payable	240,000.00
	Cash		240,000.00
	( payment of maturity of notes full amount )