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On January 1 of Year 1, Stealth Company sold a machine (classified as inventory) that had a list price of $ 36,000. The customer paid $6,000 cash and signed a three-year, $30,000 note that specified a stated rate of 3%. Annual interest on the full amount of the principal is payable each December 31. The principal is payable on December 31, three years later. The market rate for a note of this risk is 10%. Required a. Compute the present value of this note. b. Prepare an effective interest schedule for this note. c. Prepare entries required by Stealth for this note on January 1 of Year 1, and December 31 of Year 1, Year 2, and Year 3. Note: Round answers to the nearest whole dollar. a. Present value of note: 24,770 c. C. Note Date Cash Interest Revenue Discount on N.R. Receivable, Net (Stated (Market (Carrying Interest) Interest) Amortization Value) Jan. 1, Year 1 S 24,778 Dec. 31, Year 1 $ 900 $ 2,478 1,578 26,355 Dec. 31, Year 2 900 2,636 1,736 28,091 Dec. 31, Year 3 900 -> 2,809 1,909 -> 30,000 Total $ 2,700 $ 7,923 $ 5,223 Date Account Name Dr. Cr. Jan. 1, Year 1 Financing Revenue 24,777 0 x Cash 6,000 0 Sales Revenue 0 30,777 N/A 0 0 x To record sale of equipment. Dec. 31, Year 1 Discount on Note Receivable Cash Interest Revenue 1,578 0 900 0 0 2,478 To record interest on note. Dec. 31, Year 2 Discount on Note Receivable 1,736 900 0 0 0 2,636 Cash Interest Revenue To record interest on note. Dec. 31, Year 3 Discount on Note Receivable 1,909 0 Cash Interest Revenue To record interest on note, Dec. 31, Year 3 Cash 30,000 0 Note Receivable 0 30,000 900 0 0 2,809 To record settlement of note,

On January 1 of Year 1, Stealth Company sold a machine (classified as inventory) that had a list price of $ 36,000. The customer paid $6,000 cash and signed a three-year, $30,000 note that specified a stated rate of 3%. Annual interest on the full amount of the principal is payable each December 31. The principal is payable on December 31, three years later. The market rate for a note of this risk is 10%. Required a. Compute the present value of this note. b. Prepare an effective interest schedule for this note. c. Prepare entries required by Stealth for this note on January 1 of Year 1, and December 31 of Year 1, Year 2, and Year 3. Note: Round answers to the nearest whole dollar. a. Present value of note: 24,770 c. C. Note Date Cash Interest Revenue Discount on N.R. Receivable, Net (Stated (Market (Carrying Interest) Interest) Amortization Value) Jan. 1, Year 1 S 24,778 Dec. 31, Year 1 $ 900 $ 2,478 1,578 26,355 Dec. 31, Year 2 900 2,636 1,736 28,091 Dec. 31, Year 3 900 -> 2,809 1,909 -> 30,000 Total $ 2,700 $ 7,923 $ 5,223 Date Account Name Dr. Cr. Jan. 1, Year 1 Financing Revenue 24,777 0 x Cash 6,000 0 Sales Revenue 0 30,777 N/A 0 0 x To record sale of equipment. Dec. 31, Year 1 Discount on Note Receivable Cash Interest Revenue 1,578 0 900 0 0 2,478 To record interest on note. Dec. 31, Year 2 Discount on Note Receivable 1,736 900 0 0 0 2,636 Cash Interest Revenue To record interest on note. Dec. 31, Year 3 Discount on Note Receivable 1,909 0 Cash Interest Revenue To record interest on note, Dec. 31, Year 3 Cash 30,000 0 Note Receivable 0 30,000 900 0 0 2,809 To record settlement of note,

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1 of Year 1, Stealth Company sold a machine (classified as inventory) that had a list price of $ 36,000. The customer paid $6,000 cash and signed a three-year, $30,000 note that specified a stated rate of 3%. Annual interest on the full amount of the principal is payable each December 31. The principal is payable on December 31, three years later. The market rate for a note of this risk is 10%. Required a. Compute the present value of this note. b. Prepare an effective interest schedule for this note. c. Prepare entries required by Stealth for this note on January 1 of Year 1, and December 31 of Year 1, Year 2, and Year 3. Note: Round answers to the nearest whole dollar. a. Present value of note: 24,770 c. C. Note Date Cash Interest Revenue Discount on N.R. Receivable, Net (Stated (Market (Carrying Interest) Interest) Amortization Value) Jan. 1, Year 1 S 24,778 Dec. 31, Year 1 $ 900 $ 2,478 1,578 26,355 Dec. 31, Year 2 900 2,636 1,736 28,091 Dec. 31, Year 3 900 -> 2,809 1,909 -> 30,000 Total $ 2,700 $ 7,923 $ 5,223 Date Account Name Dr. Cr. Jan. 1, Year 1 Financing Revenue 24,777 0 x Cash 6,000 0 Sales Revenue 0 30,777 N/A 0 0 x To record sale of equipment. Dec. 31, Year 1 Discount on Note Receivable Cash Interest Revenue 1,578 0 900 0 0 2,478 To record interest on note. Dec. 31, Year 2 Discount on Note Receivable 1,736 900 0 0 0 2,636 Cash Interest Revenue To record interest on note. Dec. 31, Year 3 Discount on Note Receivable 1,909 0 Cash Interest Revenue To record interest on note, Dec. 31, Year 3 Cash 30,000 0 Note Receivable 0 30,000 900 0 0 2,809 To record settlement of note,
Transcribed Image Text:On January 1 of Year 1, Stealth Company sold a machine (classified as inventory) that had a list price of $ 36,000. The customer paid $6,000 cash and signed a three-year, $30,000 note that specified a stated rate of 3%. Annual interest on the full amount of the principal is payable each December 31. The principal is payable on December 31, three years later. The market rate for a note of this risk is 10%. Required a. Compute the present value of this note. b. Prepare an effective interest schedule for this note. c. Prepare entries required by Stealth for this note on January 1 of Year 1, and December 31 of Year 1, Year 2, and Year 3. Note: Round answers to the nearest whole dollar. a. Present value of note: 24,770 c. C. Note Date Cash Interest Revenue Discount on N.R. Receivable, Net (Stated (Market (Carrying Interest) Interest) Amortization Value) Jan. 1, Year 1 S 24,778 Dec. 31, Year 1 $ 900 $ 2,478 1,578 26,355 Dec. 31, Year 2 900 2,636 1,736 28,091 Dec. 31, Year 3 900 -> 2,809 1,909 -> 30,000 Total $ 2,700 $ 7,923 $ 5,223 Date Account Name Dr. Cr. Jan. 1, Year 1 Financing Revenue 24,777 0 x Cash 6,000 0 Sales Revenue 0 30,777 N/A 0 0 x To record sale of equipment. Dec. 31, Year 1 Discount on Note Receivable Cash Interest Revenue 1,578 0 900 0 0 2,478 To record interest on note. Dec. 31, Year 2 Discount on Note Receivable 1,736 900 0 0 0 2,636 Cash Interest Revenue To record interest on note. Dec. 31, Year 3 Discount on Note Receivable 1,909 0 Cash Interest Revenue To record interest on note, Dec. 31, Year 3 Cash 30,000 0 Note Receivable 0 30,000 900 0 0 2,809 To record settlement of note,
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