I asked this question yesterday and received my answer.. I am stuck on how to calculate the present value of $1 after 4 yrs at 10% or the present value of $1 at 10% for 8 years. I am having trouble calculating the rate Question(Note Transactions at Unrealistic Interest Rates) On July 1, 2020, Taylor Inc. made two sales.1. It sold land having a fair market value of $500,000 in exchange for a 4-year, zero-interest-bearing promissory note in the face amount of $732,053.70. The land is carried on Taylor’s books at a cost of $375,000.2. It rendered services in exchange for a 4%, 8-year promissory note having a face value of $400,000 (interest payable annually).Taylor Inc. recently had to pay 7% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 10% interest.InstructionsRecord the two journal entries that should be recorded by Taylor Inc. for the sales transactions above that took place on July 1, 2020.

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Asked Sep 24, 2019
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I asked this question yesterday and received my answer.. I am stuck on how to calculate the present value of $1 after 4 yrs at 10% or the present value of $1 at 10% for 8 years. I am having trouble calculating the rate

 

Question

(Note Transactions at Unrealistic Interest Rates) On July 1, 2020, Taylor Inc. made two sales.
1. It sold land having a fair market value of $500,000 in exchange for a 4-year, zero-interest-bearing promissory note in the face amount of $732,053.70. The land is carried on Taylor’s books at a cost of $375,000.
2. It rendered services in exchange for a 4%, 8-year promissory note having a face value of $400,000 (interest payable annually).
Taylor Inc. recently had to pay 7% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 10% interest.

Instructions
Record the two journal entries that should be recorded by Taylor Inc. for the sales transactions above that took place on July 1, 2020.

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Expert Answer

Step 1

Prepare journal to record sale of land:

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Account Titles and Explanation Date Debit Credit Notes receivable $732,053.70 Land Discount on notes payable ($732,053.70-$375,000-S125,000) $375,000 $232,053.70 Gain on sale ($500,000-S375,000) (To recordsale of land) $125,000

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Step 2

Prepare to record the service revenue:

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Account Titles and Explanation Debit Date Credit Notes receivable S400,000 Discount on notes payable $272,160 Sales revenue $127,840 (To recordthe service revenue)

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Step 3

Calculate present value of promissory notes (sales revenue):

Note: Refer to working n...

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Present value of Slat10% for 8th year Present value of promissory notes (sales revenue xFace value of notes 0.467x$400,000 =S186,800

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