Question 5 (18 marks)

On January 1, 2019, Smith Co. sold services to a customer in exchange for a four year $50,000 promissory note with an annual interest rate of 4%. Interest only payments are due SEMI-ANNUALLY, beginning on June 30, 2019. The market rate for an equivalent loan to this customer would have been 6%*.

Smith Co. uses IFRS, has a Dec 31 year end, and prepares adjusting entries annually.

Required:

1. Calculate the amount of revenue to be recorded on January 1^st2019 by Smith Co for the sale of the equipment.

1. Calculate using the present value tables
2. Calculate using EXCEL PV formula. Copy your Excel formula to another cell as text so it can be viewed (put in front of it for text.) (Remember that the payment and the future value must be negative.)

2. Prepare the journal entries for Smith Co. at Jan 1, 2019, June 30, 2019, and Dec 31, 2019. (Show all calculations.)
3. Prepare the note amortization schedule. Be sure to show the semi-annual interest payments and the payment of the note on Jan 1, 2023.

*HINT: semi-annual payments, therefore, there is a payment every 6 months. Interest rates are always quoted on an annual basis.