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University of the Philippines Diliman *

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1109

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Accounting

Date

Nov 24, 2024

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docx

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2

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To determine the effective interest rate imputed in the note, we can use the formula for calculating the interest rate on a zero-interest-bearing note: Effective Interest Rate=(Face ValuePresent Value)1Time−1Effective Interest Ra te= ( Present ValueFace Value ) Time1 −1 Given: Face Value of the note = $1,062,937 Present Value (fair value) of the goods = $660,000 Time = 5 years Let's calculate the effective interest rate using these values: Effective Interest Rate=(1,062,937660,000)15−1Effective Interest Rate= ( 660,0001, 062,937 ) 51 −1 Effective Interest Rate=(1.6113485)0.2−1Effective Interest Rate=(1.6113485) 0.2 −1 Effective Interest Rate≈1.1025−1Effective Interest Rate≈1.1025−1 Effective Interest Rate≈0.1025Effective Interest Rate≈0.1025 Therefore, the effective interest rate imputed in the note is approximately 10.25% per annum. Now, let's prepare the journal entries for Parnevik Company: (b) March 1, 2023 - Recording the sale of goods for the note: 1. Recording the sale of goods to Goosen Inc.: Parnevik Company sold goods worth $660,000 to Goosen Inc. in exchange for the note. Journal Entry on March 1, 2023: bashCopy code Notes Receivable $1 ,062,937 Sales Revenue $660 ,000 Discount on Notes Receivable $402 ,937 Explanation: Debit Notes Receivable for the face value of the note received ($1,062,937). Credit Sales Revenue for the fair value of the goods sold ($660,000). Credit Discount on Notes Receivable for the difference between the face value of the note and the fair value of the goods
($1,062,937 - $660,000 = $402,937). This represents the imputed interest. (c) December 31, 2023 - Accruing interest income: 2. Accruing interest income at the end of the year: Recognizing the imputed interest income for the year. Journal Entry on December 31, 2023: bashCopy code Discount on Notes Receivable $80 ,587 Interest Income $80 ,587 Explanation: Debit Discount on Notes Receivable for the interest accrued over the year ($402,937 * 0.20, as it's the first year). Credit Interest Income to recognize the imputed interest income for the year.
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