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On January 1, 2016, Worthylake Company sold used machinery to Brown Company, accepting a $30,000, non-interest-bearing note maturing on January 1, 2018. Worthylake carried the

On January 1, 2016, Worthylake Company sold used machinery to Brown Company, accepting a $30,000, non-interest-bearing note maturing on January 1, 2018. Worthylake carried the machinery on its books at a cost of $21,000 and a current book value of $14,000. Neither the fair value of the machinery nor the note was determinable at the time of sale; however, Browns incremental borrowing rate was 12%.

Table 1 - Future Value of 1: fn,i=(1 + i)n

Table 2 - Future Value of an Ordinary Annuity of 1: FO,n,i=(1 + i)n1i

Table 3 - Present Value of 1: pn,i=1(1 + i)n

Table 4 - Present Value of an Ordinary Annuity of 1: pO,n,i=11(1 + i)ni

Table 5 - Present Value of Annuity Due: pD,n,i=11(1 + i)n-1i+1

Required:

Prepare the journal entries on Worthylakes books to record:
1. sale of the machinery
2. related adjusting entries on December 31, 2016, and 2017
3. payment of the note by Brown on January 1, 2018
CHART OF ACCOUNTS
Worthylake Company
General Ledger
ASSETS
111 Cash
121 Accounts Receivable
125 Notes Receivable
141 Inventory
152 Prepaid Insurance
162 Discount on Notes Receivable
173 Machinery
181 Equipment
189 Accumulated Depreciation
LIABILITIES
211 Accounts Payable
231 Salaries Payable
250 Unearned Revenue
261 Income Taxes Payable
EQUITY
311 Common Stock
331 Retained Earnings
REVENUE
411 Sales Revenue
431 Interest Income
436 Gain on Sale of Machinery
EXPENSES
500 Cost of Goods Sold
511 Insurance Expense
512 Utilities Expense
521 Salaries Expense
532 Bad Debt Expense
540 Interest Expense
541 Depreciation Expense
559 Miscellaneous Expenses
910 Income Tax Expense

Prepare the journal entries on Worthylakes books to record sale of the machinery on January 1, 2016. Additional Instructions

PAGE 1

GENERAL JOURNAL

DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT

1

2

3

4

5

Prepare the journal entries on Worthylakes books to record related adjusting entries on December 31, 2016, and 2017. Additional Instructions

PAGE 2016PAGE 2017

GENERAL JOURNAL

DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT

1

Adjusting Entries

2

3

Prepare the journal entries on Worthylakes books to record payment of the note by Brown on January 1, 2018. Additional Instructions

PAGE 1

GENERAL JOURNAL

DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT

1

2

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