Problem 6-5

Non-interest bearing
Face value of note 400,000
Present value (400,000 x 0.7118) (284,720)
Unearned interest income 115,280

Present value 284,720

Cash received 125,000
Sales price 409,720
Carrying amount (350,000)
Gain on sale 59,720

Cost 500,000
Carrying amount (350,000)
Accumulated depreciation 150,000

Interest rate – 12%

Date Interest Income Unearned Interest Present Value
(PV x 12%) (UII – II) (PV + II)
Jan. 1, 2020 115,280 284,720
Dec. 31, 2020 34,166 81,114 318,886
Dec. 31, 2021 38,266 42,848 357,152
Dec. 31, 2022 42,848 400,000

JOURNAL ENTRIES
2020
Jan. 1 Cash 125,000
Notes receivable 400,000
Accumulated depreciation 150,000
Equipment 500,000
Gain on sale 59,720
Unearned interest income 115,280

Dec. 31 Unearned interest income 34,166

Interest income 34,166
2021
Dec. 31 Unearned interest income 38,266
Interest income 38,266
2022
Dec. 31 Unearned interest income 42,848
Interest income 42,848
2023
Jan. 1 Cash 400,000
Notes receivable 400,000
 Problem 6-6

1.
Note receivable from sale of building due 5/1/2021 2,500,000
Accrued interest on note receivable from sale of building
From 5/1/2020 to 12/31/2020 (5,000,000 x 9% x 8/12) 300,000

Principal payment of note receivable from sale of land due in 7/1/2021:

Annual installment 880,000
Interest from 7/1/2020 to 12/31/2020 (10% x 2,800,000) 280,000 600,000
Accrued interest on notes receivable from sale of land from
7/1/2020 to 12/31/2020 (1/2 x 280,000) 140,000
Total current receivables 3,540,000

2.
Notes receivable from sale of building due 5/1/2022 2,500,000
Notes receivable from officer 2,000,000
Notes receivable from sale of land – NC
Principal 2,800,000
Due 7/1/2021 (600,000) 2,200,000
Total noncurrent notes receivables 6,700,000