Use Table PV-1 (in Exhibit B-7) and Table PV-2 (in Exhibit B-9) On December 31,
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Use Table PV-1 (in Exhibit B-7) and Table PV-2 (in Exhibit B-9) On December 31, Richland Farms sold a tract of land, which had cost $930,000, to Skyline Developers in exchange for $150,000 cash and a five-year, 4 percent note receivable for $900,000. Interest on the note is payable annually, and the principal amount is due in five years. The accountant for Richland Farms did not notice the unrealistically low interest rate on the note and made the following entry on December 31 to record this sale. General Journal Debit Credit Cash 150,000 Notes Receivable 900,000 Land 930,000 Gain on Sale of Land 120,000 Sold land to Skyline Developers in exchange for cash and five-year note with interest due annually. a. Compute the present value of the note receivable from Skyline Developers at the date of sale, assuming that a realistic rate of interest for this transaction is 12 percent. (Hint: Consider both the annual interest payments and the maturity value of the note.) (Round your PV factor to 3 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.) Present value $ b. Prepare the journal entry on December 31 to record the sale of the land correctly. (Round your PV factor to 3 decimal places and final answers to the nearest dollar amount. Omit the "$" sign in your response.) Date General Journal Debit Credit Dec. 31 c-1 Explain what effects the error made by Richland Farms's accountant will have on the net income in the year of the sale. Ignore income taxes. (Omit the "$" sign in your response.) Net income for the year of the sale will be by $ . c-2 Explain what effects the error made by Richland Farms's accountant will have on the combined net income of the next five years. Ignore income taxes. (Omit the "$" sign in your response.) The combined net income of the next five years will be by $ .Explanation / Answer
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