Can you please do this with explanation On 31, 2017, Carla Vista Co. sold to Tam

Question

Can you please do this with explanation On 31, 2017, Carla Vista Co. sold to Tamarisk, Inc. Carla Vista 0, agreed to accept a $310,000 z note due 31, 2019, of the transaction with Carla Vista. Therefore, at that time, Tamarisk at a rate of 8%, Carla Vista has a long and positive credit history. Therefore, Carla Vista has various lines of credit at 6%. entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts, Round present value factor the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts)

Explanation / Answer

Solution:

Maturity Value of Zero Interest Bearing Notes Receivable = $310,000

Present Value of Notes Receivable (which we record as Sales Revenue) = $310,000 x 1/(1+0.08)2

=$310,000 x 0.85734 (rounded to 5 decimal places)

= $265,775

Discount on Notes Receivable (to be recorded at the time of sale Dec31, 2017) = 310,000 – 265,775 = $44,225

Part 1—Journal Entry on Dec 31, 2017

Account Titles and Explanation

Debit

Credit

Notes Receivable

$310,000

Discount on Notes Receivable

$44,225

Sales Revenue

$265,775

Part 2 – Journal Entry to record Interest Revenue on Dec 31, 2018

Discount on Notes Receivable $44,225 will be recognized over the life of Notes Receivable as Interest Revenue on accrual basis.

So the Interest Revenue amount to be recorded on Dec 31, 2018 = 44,225 / 2 = $22,112.50

Account Titles and Explanation

Debit

Credit

Discount on Notes Receivable

$22,112.50

Interest Revenue

$22,112.50

Note – Since it is a Non Interest Bearing Note, it means interest are not paid during the life of bond. These bonds are issued at deep discount and the interest revenue is recorded through the Discount on Notes Receivable Account over the life of notes.

Part 3 – Journal Entry on Dec 31, 2019

Account Titles and Explanation

Debit

Credit

Discount on Notes Receivable

$22,112.50

Interest Revenue

$22,112.50

Cash

$310,000.00

Notes Receivable

$310,000.00

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Account Titles and Explanation

Debit

Credit

Notes Receivable

$310,000

Discount on Notes Receivable

$44,225

Sales Revenue

$265,775

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