On July 1, 2017, Vaughn Inc. made two sales. Vaughn Inc. recently had to pay 9%

Question

On July 1, 2017, Vaughn Inc. made two sales.

Vaughn Inc. recently had to pay 9% 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 Vaughn Inc. for the sales transactions above that took place on July 1, 2017. (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 $909,890 in exchange for a 3-year zero-interest-bearing promissory note in the face amount of $1,244,396. The land is carried on Vaughn's books at a cost of $594,900. 2. It rendered services in exchange for a 4%, 6-year promissory note having a face value of $409,660 (interest payable annually).

Explanation / Answer

Journal Entries :-

Working Note 1:-

Computation of the present value of the note = $409660 * 0.53464 + $16386.4 * 4.23053

= 219020.62 + 69323.16

= 288343.8

Particulars Debit ($) Credit ($) Notes Receivable A/c Dr. 1244396 To Discount on Notes Receivable 334506 To Land 594900 To Gain on Sale of Land ($909890 - $594900) 314990 Notes Receivable 409660 To Discount on Notes Receivable ($409660 - $288343.8) 121316.2 To Service Revenue (Working Note 1) 288343.8

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