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On December 31, 2023, Small INC. sold product to Large Corp., accepting a 3%, four-year promissory note of $400,000 in exchange. Interest is payable annually
On December 31, 2023, Small INC. sold product to Large Corp., accepting a 3\%, four-year promissory note of $400,000 in exchange. Interest is payable annually on December 31 , starting December 31,2024 . Small INC. normally pays 6% interest to borrow funds. Large Corp., however, normally pays 8% to borrow funds. The product sold is carried on Small's books at a manufactured cost of $255,000. Assume Small uses the perpetual inventory system. Instructions On Small's books: a. Prepare the required joumal entries to record the transaction at December 31, 2023. Assume that the effective interest method is used. Use the interest tables in the Appendix and round all values to the nearest dollar. b. Prepare all appropriate entries for 2024 in relation to this note. c. Prepare all appropriate entries for 2025 in relation to this note. Table 1 Future Value of 1 \begin{tabular}{cccccc} Periods & 2% & 3% & 4% & 6% & 8% \\ \hline 1 & 1.02000 & 1.03000 & 1.04000 & 1.06000 & 1.08000 \\ 2 & 1.04040 & 1.06090 & 1.08160 & 1.12360 & 1.16640 \\ 3 & 1.06121 & 1.09273 & 1.12486 & 1.19102 & 1.25971 \\ 4 & 1.08243 & 1.12551 & 1.16986 & 1.26248 & 1.36049 \\ 5 & 1.10408 & 1.15927 & 1.21665 & 1.33823 & 1.46933 \end{tabular} Table 2 Present Value of 1 \begin{tabular}{cccccc} Periods & 2% & 3% & 4% & 6% & 8% \\ \hline 1 & 0.98039 & 0.97087 & 0.96154 & 0.94340 & 0.92593 \\ 2 & 0.96117 & 0.94260 & 0.92456 & 0.89000 & 0.85734 \\ 3 & 0.94232 & 0.91514 & 0.88900 & 0.83962 & 0.79383 \\ 4 & 0.92385 & 0.88849 & 0.85480 & 0.79209 & 0.73503 \\ 5 & 0.90573 & 0.86261 & 0.82193 & 0.74726 & 0.68058 \end{tabular} Table 3 Future Value of Ordinary Annuity of 1 \begin{tabular}{cccccc} Periodic Rents & 2% & 3% & 4% & 6% & 8% \\ \hline 1 & 1.00000 & 1.00000 & 1.00000 & 1.00000 & 1.00000 \\ 2 & 2.02000 & 2.03000 & 2.04000 & 2.06000 & 2.08000 \\ 3 & 3.06040 & 3.09090 & 3.12160 & 3.18360 & 3.24640 \\ 4 & 4.12161 & 4.18363 & 4.24646 & 4.37462 & 4.50611 \\ 5 & 5.20404 & 5.30914 & 5.41632 & 5.63709 & 5.86660 \end{tabular} Table 4 Present Value of Ordinary Annuity of 1 \begin{tabular}{cccccc} Periodic Rents & 2% & 3% & 4% & 6% & 8% \\ \hline 1 & 0.98039 & 0.97087 & 0.96154 & 0.94340 & 0.92593 \\ 2 & 1.94156 & 1.91347 & 1.88609 & 1.83339 & 1.78326 \\ 3 & 2.88388 & 2.82861 & 2.77509 & 2.67301 & 2.57710 \\ 4 & 3.80773 & 3.71710 & 3.62990 & 3.46511 & 3.31213 \\ 5 & 4.71346 & 4.57971 & 4.45182 & 4.21236 & 3.99271 \end{tabular}
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