Question

On April 19, 2021, Millipede Machinery sold a tractor to Thomas Hartwood, accepting a note promising payment of $120,000 in five years. The applicable effective interest rate is 7%.

Required:
What amount of sales revenue would Millipede recognize on April 19, 2021, for the Hartwood transaction?

Answer 1

$85,558.34

Step-by-step explanation:

The Transaction Price will be the Present Value of the amount to be received in 5 years.

We can simply calculate the Present Value (PV) using a financial calculator as follows :

FV= - $120,000

I = 7 %

N = 5

P/YR = 1

PMT = $0

PV = ?

Entering the data as above gives a Present (PV) as $85,558.34

therefore,

Millipede will recognize an amount of sales revenue of $85,558.34