Question

On January 1, 2021, Wright Transport sold four school buses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $515,000 by Elmira on December 31, 2023. The effective interest rate is 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.): Required: 1. How much sales revenue would Wright recognize on January 1, 2021, for this transaction

Answer 1

Answer:

Sales revenue = $408,823.60

Explanation:

we must first determine the present value of the note:

PV = $515,000 / (1 + 8%)³ = $515,000 / 1.08³ = $408,823.60

discount on the note = $515,000 - $408,823.60 = $106,176.40

the journal entry should be:

January 1, 2021, school buses sold to Elmira School District

Dr Notes receivable 515,000

    Cr Sales revenue 408,823.60

    Cr Discount on notes receivable 106,176.40