Starstruck
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SolutionsAssignment 7-17 Requirement 1 Present value: Maturity value $45,000 (P/F, 5%, 2) = $40,816 Interest $450 (P/A, 5%,2) = 837 $ 41,653 Requirement 21 January 20×6 Note receivable ………………………………………………… 45,000 Discount on note receivable* ………………………………… 3,347 Sales revenue …………………………………………………… 41,653 *$45,000 – $41,653 31 December 20×6 Cash ……………………………………………………………….. 450 Discount on note receivable ……………………………… 1,633 Interest revenue ($41,653 x 5%) …………………………………. 2,083 31 December 20×7 Cash ……………………………………………………………… 45,450 Discount on note receivable ………………………………. 1,714 Interest revenue ($41,653 + $1,633 = $43,286) x 5% ……… 2,164 Note receivable ………………………………………………………… 45,000 Requirement 3 If discounting were disregarded, 20×6 sales would be recorded at $45,000 and overstated. Notes receivable would be recorded at $45,000, and also overstated. Interest revenue in 20×6 and 20×7 would be $450, the cash received, and would be understated; revenue would not reflect the market rate of 5%. Requirement 41 January 20×6 Machinery ……………………………………………………. 41,653
Discount on note payable ……………………………….. 3,347 Notes payable …………………………………………………………. 45,000 31 December 20×6 Interest expense ……………………………………………….. 2,083 Discount on note payable …………………………………….. 1,633 Cash ………………………………………………………………………. 450 31 December 20×7 Interest expense ……………………………………………….. 2,164 Note payable ………………………………………………….. 45,000 Discount on note payable …………………………………………… 1,714 Cash …………………………………………………………………….. 45,450 Requirement 51 January 20×6 Note receivable …………………………………………. 45,000 Discount on note receivable* …………………………. 3,347 Sales revenue ……………………………………………. 41,653*$45,000 – $41,653 31 October 20×6 Interest receivable ($450 x 10/12) ……………………….. 375 Discount on note receivable ($1,633 x 10/12) ……… 1,361 Interest revenue ($2,083 x 10/12) …………………………….. 1,736 31 December 20×6 Cash ……………………………………………………………… 450 Discount on note receivable ($1,633 x 2/12) ……….. 272 Interest receivable …………………………………………………….. 375 Interest revenue ($2,083 x 2/12) ………………………………….. 347 31 October 20×7 Interest receivable ($450 x 10/12) ………………………………….375 Discount on note receivable ($1,714 x 10/12) ……………….1,428 Interest revenue ($2,164 x 10/12) ………………………………. 1,80331 December 20×7 Cash ……………………………………………………………….. . 45,450 Discount on note receivable ($1,714 x 2/12) ……………….. 286