1. On 12/31/2019, Philip Co. provided services to Galler Co. Galler was cash constrained and so Philip agreed to accept a $620,000 non-interest bearing note due 12/31/2022 as payment in full. Galler is somewhat of a credit risk and typically borrows funds at a rate of 7%. Philip is much more creditworthy and has various lines of credit at 5%. Philip's controller has asked you to consult the FASB's codification to determine the appropriate interest rate to use. The controller suggests that you read the guidance in FASB ASC 835-30-25-12. \

1a) Which interest rate (7% or 5%) is appropriate to use to account for the sale of the services and the note? Explain your answer

1b) Provide all of Philip's entries to account for this note from the date of issuance through maturity. Use the appropriate interest rate, the effective interest method, and the gross method of accounting for non-interest bearing notes. Provide supporting calculations for all calculated amounts.

1c) What would Philip report on its 2021 classified balance sheet related to the Note (ignore the cash account)? Provide supporting calculations (t-accounts).