Preparing Entries and Interest Schedule for Long-Term Note Receivable; Effective Interest Method On January 1 of Year 1, Stealth Company sold a machine (classified as inventory) that had a list price of $21.600. The customer paid $3,600 cash and signed a three-year. $18.000 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: $ 25,301 b. Date Jan. 1. Year Dec. 31, Year 1 $ Dec. 31, Year 2 Dec. 31, Year 3 Total 5 Cash (Stated Interest) Oxs 0x 0x 05 x Interest Revenue (Market Interest) Discount on N.R. Amortization 0x $ 0 x 0x OS 0x 0 x 0x 0 Note Receivable, Net (Carrying Value) ox 0 x 0 0

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Preparing Entries and Interest Schedule for Long-Term Note Receivable; Effective Interest Method
On January 1 of Year 1, Stealth Company sold a machine (classified as inventory) that had a list price of $21,600. The customer paid $3,600 cash and signed a three-year, $18,000 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: $ 25,301
b.
Date
Jan. 1. Year 1
Dec. 31, Year 1 $
Dec. 31, Year 2
Dec. 31, Year 3
Total
S
Cash
(Stated
Interest)
0x S
0x
05
x
Interest
Revenue
(Market
Interest)
Discount on
N.R.
Amortization
0x $
0 x
0x
05
0x
0x
0x
0
Note
Receivable,
Net
(Carrying
Value)
$
0x
0 x
0
0
Transcribed Image Text:Preparing Entries and Interest Schedule for Long-Term Note Receivable; Effective Interest Method On January 1 of Year 1, Stealth Company sold a machine (classified as inventory) that had a list price of $21,600. The customer paid $3,600 cash and signed a three-year, $18,000 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: $ 25,301 b. Date Jan. 1. Year 1 Dec. 31, Year 1 $ Dec. 31, Year 2 Dec. 31, Year 3 Total S Cash (Stated Interest) 0x S 0x 05 x Interest Revenue (Market Interest) Discount on N.R. Amortization 0x $ 0 x 0x 05 0x 0x 0x 0 Note Receivable, Net (Carrying Value) $ 0x 0 x 0 0
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