On January 1, 2020, Jacobs Company sells land financed through an $80,000 note, issued by Andress Company. The note is an $80,00

Question

2 years ago

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On January 1, 2020, Jacobs Company sells land financed through an $80,000 note, issued by Andress Company. The note is an $80,00

0, 8%, annual interest-bearing note. Andress agrees to repay the $80,000 proceeds on December 31, 2021. The prevailing interest rate on similar notes is 11%. Assume that the cost of the land is equal to the fair value of the note.
Required:
Prepare all entries for Jacobs over the note term, including any year-end adjustments. Use the effective interest method to amortize the discount.

Business

1 answer:

12345 [234] · Answer 1 · 2022-09-23T13:46:42+03:00

Answer:

Entries are shown below.

Explanation:

To record the journal entries, we first need to calculate interest payment and principal as per the present value. This is done below:

PV Factor Present Value

Interest Payment $6,400 1.7125 $10,960

Principal $80,000 0.8116 $64,928

$75,888

<u>Journal Entries</u>

Date Particular Debit ($) Credit ($) Working

Jan 1, 2020 Note Receivable 80,000

Discount on Receivable 4,112

Land 75,888

Dec 31, 2020 Cash 6,400

Discount on Receivable 1,948 (8348-6400)

Interest Revenue 8,348 (75888*11%)

Dec 31, 2021 Cash 6,400

Discount on Receivable 2,162 (4279-3600)

Interest Revenue 8,562

(75888+1,948)*11%

Dec 31, 2021 Cash 80,000

Notes Receivable 80,000