On July 1, 2014, Agincourt Inc. made two sales. 1. It sold land having a fair va
ID: 2711609 • Letter: O
Question
On July 1, 2014, Agincourt Inc. made two sales. 1. It sold land having a fair value of $915,000 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,389,036. The land is carried on Agincourt’s books at a cost of $591,100. 2. It rendered services in exchange for a 4%, 8-year promissory note having a face value of $409,300 (interest payable annually). Agincourt 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 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.)
Explanation / Answer
Description debit credit Note Receivable $1,389,036 Land $591,100 Discount on Note Receivable $474,036 Gain on Sale $323,900 Notes Receivable $409,300.00 Discount on Notes Receivable $175,089.22 Service Revenue $234,210.78 To calculate the Discount on Notes Receivable: PV of $409300 due in 8 years at 11% = $409300*0.43392 177603.456 PV of $11,000 payable annually for 8 years at 11% = $11,000*5.14612 56607.32 PV of the note and interest = $177603.456 + $56607.32 = $234210.776 Discount = $409300- $234210.776 = $175089.224
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