Question

On December 31, 2020, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Abbey Co. agreed to accept a $200,000 zero-interest-bearing note due December 31, 2022, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 10%. Abbey is much more creditworthy and has various lines of credit at 6%.

Required:
Prepare the journal entry to record the transaction of December 31, 2015

Answer 1

Date Account titles and Explanation Debit ($) Credit ($)

Notes receivable 200,000

Discount on notes receivable 34,711

Sales revenue 165,289

(To record notes receivable)

Workings:

The PV of $200,000 due in 2 years at 10% = $200,000*0.82645 = $165,290