Answer:
the journal entry made by Dern to record the sales should be:
Date, merchandise sold to Knoll Furniture Store
Dr Notes receivable 21,000
Cr Sales revenue 16,215.85
Cr Discount on notes receivable 4,784.15
the journal entry made by Knoll to record the purchase should be:
Date, merchandise purchased from Dern Company
Dr Merchandise inventory 16,215.85
Dr Discount on notes payable 4,784.15
Cr Notes payable 21,000
Explanation:
Non-interest-bearing notes must be recorded at present value, therefore, we must first determine the present value of the note = $21,000 / (1 + 9%)³ = $16,215.85
the present value of the notes receivable is equivalent to sales revenue, while the difference between the face value of the note and its present value is equal to the discount on notes receivable.
