Question

On December 31, 2015, 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, 2017, 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%. Your answer is partially correct. Try again. Prepare the journal entry to record the transaction of December 31, 2015, for the Ed Abbey Co. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to O decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically Indented when the amount is entered. Do not indent manually.)

Answer 1

Journal Entry

Step-by-step explanation:

The Journal Entry is shown below:-

1. Notes receivable Dr, $200,000

To Discount on notes receivable $34,710

To sales revenue $165,290

(Being sales revenue provided against notes receivable)

Working Note :-

Present value of $200,000 due in 2 years at 10%

= $200,000 × 0.82645

= $165,290

2. Discount on notes receivable Dr, $16,529

To interest revenue $16,529

(Being Interest revenue is recorded)

Working Note

Discount = 0.1 × $165,290

= $16,529

3. Discount on notes receivable Dr $18,181

To interest revenue $18,181

(Being interest revenue is recorded)

Working Note

($34,710 - $16,529)

4. Cash $200,000

To Notes receivable $200,000

(Being collection of note is recorded)