On January 2, 2016, Jay’s Junkets sold land in exchange for a $ 550,000 zero-int

Question

On January 2, 2016, Jay’s Junkets sold land in exchange for a $ 550,000 zero-interest bearing note due December 31, 2019. The land was originally purchased in 2011 for $ 365,000. The interest rate charged on notes of this type is 12%. (Hint: calculate the present value of the note; see class example E7-16.)

Prepare the 01/02/16 journal entry.

(A)What account(s) and amount(s) would be reported on a 2016 year-end income statement?

(B) What account(s) and amount(s) would be reported on a 2016 post-closing trial balance for the note?

Explanation / Answer

1) Journal entry: Account Description Debit Credit Notes receivable $    550,000 Loss on sale of land (balancing figure) $       15,465 Unearned interest revenue ($550,000-$349,535) $        200,465 Land $        365,000 ( To record sale of land in exchange of zero-interest bearing note) 2) Amount to be reported on a 2016 year-end income statement Interest Revenue ($200,465/4) $       50,116 Loss on sale of land   $       15,465 3) Amount be reported on a 2016 post-closing trial balance for the note. Notes receivable $    550,000 Unearned interest revenue ($200,465-$50,116) $    150,349

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