Modification of ... E7.13 (LO 4) (Note Transactions at Unrealistic Interest Rates) On July 1, 2020, Agincourt Inc. made two sales. 1. It sold land having a fair value of $700,000 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,101,460. The land is carried on Agincourt's books at a cost of $590,000. 2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $400,000 (interest payable -annually). Agincourt 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 Agincourt Inc. for the sales transactions above that took place on July 1, 2020. Modifications for Illustration: 1) Modified - Assume 8% is market rate (i.e. customers interest rate at 8%, also) Face Value 400,000 Stated Rate 8% Market Rate 8% # of Periods 8 Effective Int. Rev Increase in NR Payment Balance $0.00 PV Calculation: Principal Receipt Interest receipts Present Value of CF $0.00 Date 1/1/20 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 12/31/25 12/31/26 12/31/27 1/1/20 Note Receivable Cash 12/31/20 Cash Interest Rev. 2) Original - Assume 12% is market rate (i.e. customers interest rate at 12%, also) Face Value 400,000 Stated Rate 8% Market Rate 12% # of Periods 8 Effective Int. Rev Increase in NR Payment Balance $0.00 PV Calculation: Principal Receipt Interest receipts Present Value of CF $0.00 Date 1/1/20 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 12/31/25 12/31/26 12/31/27 1/1/20 $400,000 Note Receivable Discount on Notes Payable Cash $400,000 $0.00 12/31/20 Cash Discount on Notes Payable Interest Revenue $0 $0.00 3) Original - Assume 12% is market rate (i.e. customers interest rate at 12%, also) # of Periods Face Value 1,101,460 Stated Rate NA Market Rate 12% PV Calculation: Principal Receipt Interest receipts Present Value of CF Effective Int. Rev Increase in NR Date Payment Balance $0.00 $0.00 1/1/20 1/1/20 12/31/20 12/31/21 12/31/22 12/31/23 Note Receivable Discount on Notes Payable Land Gain on Sale of Land $0 $0.00 12/31/20 Discount on Notes Payable Interest Revenue $0 17.13-10 4 Cute Tractions at realistic Interest Rate On July 1.2020. Acincourt I made two les 1. It sold and having a fair value of $700,000 in exchange for a year eve interest bearing promiy note in the face amount of SL.101.460. The land is carried on Apico's books at a cost of $590.000 2. It rendered wervices in eachange for a year promisery nate having a face value of $400,00 (interest payable anual) Arincourt Ine recently had to pay sisteret for money that is bored from Betish National Bank. The customers in these te transactions have credit ratings that require them to borrow money at 12interest Instructions Record the two journal entries that should be recorded by Agincourt Ene, for the sales transactions above that took place on July 1.2000 Medication for Thestration 1) Modified in market rate me interest rate at all Scared Raic Market Rate 3000 ffective TAGE IN Date Balance PV Solution Principat Receipt Interest receipts Present Value of CF 128GR 132121 MO 1/1/20 Note Receivable Call TRAC ORBI es IRUT 1331/20 Interest Nov 2) Original. Assume 12 is market rate former interest rate at 12. alo) Face Stated Rate Market Rate Dof Periods 1000L Inc Date Panty Rance Panation Principal Receipt Interest receipts Present VECE 12.1.20 1912 102 11/20 Note Receivable -0.000 Discount on Notes Payable $400.000 000 PALLI 092 LIURE ama 1931/20 $0 Discount on Notes Povable Interest Tace Original. Assume 12 is market rate fe customers interest rate at 12% also Stated Ratclarket Rate of Periods NA 12 PV Calculation Principal Receipt Interest receipt Present Valve CE Este IntRey Increase NR Payment Balance SOO 1221220 11/20 $0 Note Receivable Discount Notes Payable Landl Gain on Sale of Land TRAP $0.00 1931/20 Discount on Notes Parade Interest Revenge SO
