Question: On September 30, 2007, Tiger Machinery Co. sold a machine and accepted the customers zero-interest-bearing note. Tiger normally makes sales on a cash basis. Since

On September 30, 2007, Tiger Machinery Co. sold a machine and accepted the customer’s zero-interest-bearing note. Tiger normally makes sales on a cash basis. Since the machine was unique, its sales price was not determinable using Tiger’s normal pricing practices.
After receiving the first of two equal annual installments on September 30, 2008, Tiger immediately sold the note with recourse. On October 9, 2009, Tiger received notice that the note was dishonored, and it paid all amounts due. At all times prior to default, the note was reasonably expected to be paid in full.

Instructions
(a) (1) How should Tiger determine the sales price of the machine?
(2) How should Tiger report the effects of the zero-interest-bearing note on its income statement for the year ended December 31, 2007? Why is this accounting presentation appropriate?
(b) What are the effects of the sale of the note receivable with recourse on Tiger’s income statement for the year ended December 31, 2008, and its balance sheet at December 31, 2008?
(c) How should Tiger account for the effects of the note being dishonored?

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