Question

On January 1, 2017, Windsor Co. borrowed and received $520,000 from a major customer evidenced by a zero-interest-bearing note due in 4 years. As consideration for the zero-interest-bearing feature, Windsor agrees to supply the customer’s inventory needs for the loan period at lower than the market price. The appropriate rate at which to impute interest is 9%.

(a)		Prepare the journal entry to record the initial transaction on January 1, 2017.
(b)		Prepare the journal entry to record any adjusting entries needed at December 31, 2017. Assume that the sales of Windsor’s product to this customer occur evenly over the 4-year period.

(Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	January 1, 2017
(b)	December 31, 2017
		(To record Interest Expense)
	December 31, 2017
		(To record Unearned Sales Revenue)

List of Chart of Accounts

• Accumulated Depreciation-Equipment
• Accumulated Depreciation-Machinery
• Allowance for Doubtful Accounts
• Bad Debt Expense
• Bond Issue Expense
• Bonds Payable
• Buildings
• Cash
• Common Stock
• Debt Investments
• Depreciation Expense
• Discount on Bonds Payable
• Discount on Notes Payable
• Discount on Notes Receivable
• Equipment
• Equity Investments
• Gain on Disposal of Machinery
• Gain on Disposal of Land
• Gain on Disposal of Plant Assets
• Gain on Redemption of Bonds
• Gain on Restructuring of Debt
• Gain on Sale of Machinery
• Interest Expense
• Interest Payable
• Interest Receivable
• Interest Revenue
• Land
• Loss on Disposal of Land
• Loss on Redemption of Bonds
• Machinery
• Mortgage Payable
• No Entry
• Notes Payable
• Notes Receivable
• Paid-in Capital in Excess of Par - Common Stock
• Paid-in Capital in Excess of Par - Preferred Stock
• Premium on Bonds Payable
• Sales Revenue
• Unamortized Bond Issue Costs
• Unearned Revenue
• Unearned Sales Revenue
• Unrealized Holding Gain or Loss - Income

Answer 1

Answer:

Date	Accounts and Titles	Debit($)	Credit($)
Jan 1 2014	Cash	5,20,000
	Discount on Notes Payable	1,51,616
	Notes Payable		5,20,000
	Unearned Sales Revenue		1,51,616
31-Dec-14	Interest Expenses (368384*9%)	33,155
	Discount on Notes Payable		33,155
	(To record Interest Expense)
31-Dec-14	Unearned Sales Revenue	37,904
	Sales Revenue (151616/4)		37,904
	(To record Unearned Sales Revenue)

Note:

FV=$520,000
n=4 years r=9% PVIF (9%,4)	0.70843
Present value=520000*.70843	3,68,384
Discount( 520,000-368,384)	1,51,616