On December 31, 2013 Elastigirl Corporation sold some of its product to Edna Com

Question

On December 31, 2013

Elastigirl Corporation sold some of its product to Edna Company, accepting a four-year notebearing 3% stated annual interest rate and having a maturity value of $800,000 (Interest is paid annually on December 31st).

The Elastigirl Corporation usually pays 6% for its borrowed funds. Edna Company, however, usually pays 8% for its borrowed funds. The product sold to Edna originally cost Elastigirl $495,000

to manufacture.

Assume Elastigirl uses a perpetual inventory system.

Required:

(a) prepare the journal entries for Elastigirl Corporation to record the transaction at December 31, 2013.

(b) Make all appropriate entries for 2014 on the books of Elastigirl Corporation.

Explanation / Answer

Interest payable on note annually so maturity balue will have last years interst only So principal value for $8000 maturity value =8000/1.03                   7,767.0 So the sale value is 7767 Interest in 2014=7107.9*3%=                    233.01 Journal Entry Elastigirl Date Account title Dr $ Cr $ Dec 31. 2013. Sales Revenue                       7,767 Note Receivable-Edna                       7,767 Cost Of Goods Sold            495,000.00 Finished Goods Inventory            495,000.00 Dec 31. 2014. Cash                    233.00 Interest Income                    233.00

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