Question

On July 1, 2020, Culver Inc. made two sales. 1. It sold land having a fair value of $902,220 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,419,656. The land is carried on Culver's books at a cost of $590,900. 2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $402,150 (interest payable annually). Culver Inc. recently had to pay 8% 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 12% interest.
Record the two journal entries that should be recorded by Sunland Inc. for the sales transactions above that took place on July 1, 2020. (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 o 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. July 1, 2020
2. July 1, 2020

Answer 1

Answer:

1) July 1, 2020, sale of land

Dr Notes receivable 1,419,656

    Cr Land 590,900

    Cr Discount on notes receivable 517,436

    Cr Gain on sale of land 311,320

Discount on notes receivable $1,419,656 - $902,220 = $517,436

Gain on sale of land $902,220 - $590,900 = $311,320

2) July 1, 2020, service revenue

Dr Notes receivable 402,150

    Cr Service revenue 342,218.69

    Cr Discount on notes receivable 59,931.31

annual interests = $402,150 x 3% = $12,064.50

discount on notes payable = present value of annual interest = $12,064.50 x 4.9676 (PV annuity factor, 12%, 8 periods) = $59,931.31