• During your examination of the financial statements of Martin Mfg. Co., a new client, for the year ended March 31, 20X0, you note the following entry in the general journal dated March 31, 20X0:

Nicole Lane Chapter 11 11-44 During your examination of the financial statements of Martin Mfg. Co., a new client, for the year ended March 31, 20X0, you note the following entry in the general journal dated March 31, 20X0: Notes Receivable 550,000 Land 500,000 Gain on sale of land 50,000 To record sale of excess plant-site land to Ardmore Corp. for 8 percent note due five years from date. No interest payment required until maturity of note. Your review of the contract for sale between Martin and Ardmore, your inquiries of Martin executives, and your study of the minutes of Martin's directors' meetings uncover the following facts: The land has been carried in your client's accounting records at its cost of $500,000. Ardmore Corp. is a land developer and plans to subdivide and resell the land acquired from Martin Mfg. Co. Martin had originally negotiated with Ardmore on the basis of a 12 percent interest rate on the note. This interest rate was established by Martin after a careful analysis of Ardmore's credit standing and current money market conditions. Ardmore had rejected the 12 percent interest rate because the total outlay on a 12 percent note for $550,000 would amount to $880,000 at the end of five years, and Ardmore thought a total outlay of this amount would leave it with an inadequate return on the subdivision. Ardmore held out for a total cash outlay of $770,000, and Martin Mfg. Co. finally agreed to this position. During the discussions, it was pointed out that the present value of $1 due five years hence at an annual interest rate of 12 percent is approximately $0.567. Required: Ignoring income tax considerations, is the journal entry recording Martin's sale of the land to Ardmore acceptable? Explain fully and draft an adjusting entry if you consider one to be necessary