On January 1, 2014, Fishbone Corporation sold equipment to Lost Company that cos
ID: 2448447 • Letter: O
Question
On January 1, 2014, Fishbone Corporation sold equipment to Lost Company that cost $250,000 and that had accumulated depreciation of $100,000 on the date of sale. Fishbone received as consideration a 5% interest-bearing note requiring payments of $80,000 annually for 3 years. The first note payment is to be made on December 31, 2014. The prevailing rate of interest for a note of this type on January 1, 2014, was 5%.
Record the 1/1/14 transaction for Fishbone Corporation and all necessary entries from 2014-2016.
Record the 1/1/14 transaction for Lost Company and all necessary entries from 2014-2016.
Take into consideration the present value
Explanation / Answer
In Fish Bone Corporation
on 1/1/2014
5% note .......................a/c dr 240000
accomulated depreciation a/c dr 100000
TO fixed asset a/c 250000
To Profit a/c 90000
From 2014
for recognisation of interest on note(240000 x .05)
5% note ......a/c dr 12000
To Interest a/c 12000
For receipt of note amount
cash/bank.............. a/c dr 92000
To 5% note a/c 92000
From 2015
for recognisation of interest on note(160000 x .05)
5% note ......a/c dr 8000
To Interest a/c 8000
For receipt of note amount
cash/bank.............. a/c dr 88000
To 5% note a/c 88000
From 2014
for recognisation of interest on note(80000 x .05)
5% note ......a/c dr 4000
To Interest a/c 4000
For receipt of note amount
cash/bank.............. a/c dr 84000
To 5% note a/c 84000
In Lost Company
on 1/1/2014
Fixed asset a/c dr 262140
To 5% note a/c 240000
To provision for interest a/c 22140 (at present value)
form 2014
5% note ... .a/c dr 80000
provision for interest a/c dr 12000
TO bank/ cash a/c 92000
form 2015
5% note ... .a/c dr 80000
provision for interest a/c dr 8000
TO bank/ cash a/c 88000
form 2016
5% note ... .a/c dr 80000
provision for interest a/c dr 4000
TO bank/ cash a/c 84000
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