Question
E7-18 (Note Transactions at Unrealistic Interest Rates) On July 1, 2012, Rentoul Inc. made two sales. 1. It sold land having a fair value of
E7-18 (Note Transactions at Unrealistic Interest Rates) On July 1, 2012, Rentoul Inc. made two sales.
1. It sold land having a fair value of $900,000 in exchange for a 4-year zero-interest-bearing promissory
note in the face amount of $1,416,163. The land is carried on Rentoul's books at a cost of $590,000. (Zero-interest bearing note)
2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $400,000 (interest payable annually). (Interest bearing note)
Rentoul Inc. recently had to pay 8% 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 12% interest.
Instructions
Record the two journal entries that should be recorded by Rentoul Inc. for the sales transactions above that took place on July 1, 2012.
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