Lainney Inc decides to offer its consulting services valued at $125,000 to Ari Inc. Ari pays $16,000 down and Lainney agrees to accept a three-year instalment note for the balance owing. Notes of similar risk charge interest at 11.51%

The instalment note requires Ari to make three annual equal payments of $45,000. Each payment pays down part of the note's principal and interest due to Lainney.

Required:

i) Prepare the entry on Lainney's books to record the issuance of the note receivable (2 marks)

ii) Using the effective interest method, set up an amortization table with the following headings to show the amount of interest revenue booked each period and the carrying value of the note receivable at the end of each period for Lainney. (4 marks)

Period, Cash Received

Interest Revenue

Payment on the Note Receivable

Carrying value - Note receivable

iii) Prepare the journal entry to record cash received, interest revenue and note repayments for each year. (3 marks)

iv) Prepare the partial statement of financial position for Lainney at the end of Year 1 to show how the note would be presented. (2 marks)

v) From Lainney's perspective, what are the advantages of an installment note compared with a non-interest bearing long term note? Be specific. Do not use point form. Use proper sentence structure (2 marks)