Chapter 14, Problem 24E

Spath Company borrows $75,000 by issuing a 4-year, noninterest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spath’s incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate.

Required:

Prepare the journal entries on Spath’s books for 2019 and 2020. (Round answers to 2 decimal places.)