ACCOUNTING?101/6101-TESTNG YOUR KNOWLEDGE Page 4 CHAPTER 5) On December 31, 20x1 Peter Stanley, a general building contractor, completed renovation work on office space for the Ace Company. Mr. Stanley was offered three different forms of payment (on December 31, 20x1), as follows: a) A non-interest bearing note due on December 31, 20x4 (3-year note) for: 200,000 Face Value: $ 185,000 396 b) A promissory note due on December 31, 20x4: Stated Interest Rate: Interest payable dates: December 31, 20x2, 20x3 and 20x4. c) A series of three cash payments to Mr. Stanley: Each payment amount: 57,500 Payment dates: December 31, 20x1, December 31, 20x2 and December 31, 20x3. The fair value of the services is not known and the notes are not readily marketable. the current circumstances, the recent interest rate incurred by Mr. Stanley was: The recent interest rate incurred by the Ace Company was: Unde Ma. 8% 6% The effective interest method of amortization is used by both parties to this transaction.) REQUIRED: (Reminder: Round to the nearest dollar.) 1) Determine which form of payment Mr. Stanley should select (from choices A, B or C above) and indicate WHY that form of payment was chosen. Based on your answer to (1) above (for the choice you selected): a] Prepare the appropriate journal entry (ies) that Mr. Stanley should make on 2) December 31, 20x1. b) Prepare the appropriate journal entry (ies) on December 31, 20x2. Ic] Indicate the proper balance sheet presentation for the outstanding note rece as of December 31, 20x2