Question

"Equestrain Roads sold $120,000 of goods and accepted the customer's $120,000 10%,

1-year note receivable in exchange. Assuming 10% approximates the market rate of return, what would be the debit in this journal entry to record the sale?"

Answer 1

To record the sale of goods in exchange for a $120,000 10%, 1-year note receivable, the debit would be to Notes Receivable for $120,000, and the credit would be to Sales Revenue for $120,000, indicating an increase in assets and revenue for Equestrian Roads.

Step-by-step explanation:

The student is asking how to record the sale of goods in exchange for a note receivable on a journal entry. When Equestrian Roads sold $120,000 of goods and accepted a customer's $120,000 10%, 1-year note receivable, the market rate of return being 10% implies interest is already factored into the note's face value, and thus, the present value of the note matches its face value.

Therefore, the journal entry to record the sale would be a debit to Notes Receivable for $120,000, since the company is gaining a receivable asset, and a credit to Sales Revenue for the same amount, reflecting the revenue earned from the sale. Here's a breakdown of the entry:

• Debit Notes Receivable $120,000
• Credit Sales Revenue $120,000

This entry increases Equestrian Roads' total assets and total revenue by the amount of the sale.