On January 1, 2019, MarkManufacturing borrowed and received $2,000,000 from one of its major

customers, Felix Innovations by signing a zero-interest bearing note with a maturity value of

$2,000,000 due in five years. The appropriate rate of interest applicable to this note (based on prime

interest rate, borrower's credit rating and general market interest rate of similar note) is 6%. As a

consideration, Mark agrees to sell inventories to Felix during the loan period of five years at a price

lower than the prevailing market price of inventories.

1. Prepare the journal entry in Marks book to record the initial borrowing transaction on January 1,

2019. Show your supporting calculations.

2. What will be the price adjustment for Felix Innovations each year over the five-year period?

2. Prepare the required journal entries in Marks book to record the adjustments needed on December 31, 2019 assuming that its total sales to Felix Innovations for the year 2019 is $445,000

(gross).