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On December 31, 2019, Gray Company finished consulting services for a client and accepted in exchange a promissory note with a face value of
On December 31, 2019, Gray Company finished consulting services for a client and accepted in exchange a promissory note with a face value of $800,000, a due date of December 31, 2022, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services cannot be readily determined and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. A schedule of the note amortization follows: Schedule of Note Discount Amortization Date Cash Interest Effective Discount Carrying Interest Amortized Value 12/31/19 $700,530 12/31/20 12/31/21 $ 40,000 $ 70,053 $30,053 730,583 40,000 73,058 33,058 763,641 12/31/22 40,000 76,359 36.359 800,000 $120,000 $219.470 $99,470 Prepare the following journal entries: * Issuance of the note on 1/1/19 * Receipt of the first interest payment on 12/31/20 * Collection of the note on 12/31/22
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