On December 31, 2020, Tango Corp. sold product to Omat Limited, accepting a 3%, four-year promissory note of $400,000 in exchange. Interest is payable annually on December 31, starting December 31, 2021. Tango Corp. normally pays 6% interest to borrow funds. Omat Limited, however, normally pays 8% to borrow funds. The product sold is carried on Tango’s books at a manufactured cost of $255,000. Assume Tango uses the perpetual inventory system.

Instructions

On Tangerine’s books:

a. Prepare the required journal entries to record the transaction at December 31, 2020. Assume that the effective interest method is used. Use the interest tables on the following page (if needed) and round all values to the nearest dollar. 

b. Prepare all appropriate entries for 2021 in relation to this note. 

c. Prepare all appropriate entries for 2022 in relation to this note.