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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

Sagot :

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Answer:

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

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