On July 1, 2014, Agincourt Inc. made two sales. Agincourt Inc. recently had to p

Question

On July 1, 2014, Agincourt Inc. made two sales.

Agincourt Inc. recently had to pay 7% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 11% interest.

Record the two journal entries that should be recorded by Agincourt Inc. for the sales transactions above that took place on July 1, 2014. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

No.

Date

Account Titles and Explanation

Debit

Credit

1. It sold land having a fair value of $912,000 in exchange for a 3-year zero-interest-bearing promissory note in the face amount of $1,247,282. The land is carried on Agincourt’s books at a cost of $597,600. 2. It rendered services in exchange for a 5%, 6-year promissory note having a face value of $404,700 (interest payable annually).

Explanation / Answer

Present Value of the 3 year year zero-interest-bearing promissory note = 1,247,282/1.07^3

= $1018,154

Present value of 5%, 6-year promissory note = (404,700*5%)*PVIFA(7%,6) + 404,700*PVIF(7%,6)

= 20,235*4.7665 + 303,700*0.6663

= $298,805

No Date Accounts Title DEBIT CREDIT 1 July,1 2014 3 Year zero-interest-bearing promissory note 1018,154 Land 597,600 Profit on sale of Land 420,554 2) July,1 2014 5%, 6-year promissory note 298,805 Service Revenue 298,805

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