Solution:
1. (i)
Sales revenue = Present value of the note receivable
= $528,000 x .86384 = $456,108
Present value of $1: n = 3, i = 5% (PV of $1)
(ii)
December 31, 2018:
Interest revenue: ($456,108 x 5%) = $22,805
December 31, 2019:
Interest revenue: (($456,108 + $22,805) x 5%) = $23,946
December 31, 2020:
Interest revenue: (($456,108 + $22,805 + $23,946) x 5%) = $25,143
2. Journal entries to record the sale of merchandise on January 1, 2020
Date General Journal Debit Credit.
Jan 01, 2018 Note receivable 528,000
Discount on note receivable 71,892
Sales revenue 456,108
Dec 31' 2018 Discount on note receivable 22,805
Interest revenue 22,805
Dec 31, 2019 Discount on note receivable 23,946
Interest revenue 23,946
Dec 31' 2020 Cash 528,000
Discount on note receivable 25,143
Interest revenue 25,143
Note receivable 528,000
