Question
The next three questions use the below information. A company financed the sale of equipment and recorded a note receivable for the sale. The accountant
The next three questions use the below information.
A company financed the sale of equipment and recorded a note receivable for the sale. The accountant inappropriately recorded the sale at the coupon rate instead of market rate and fair value.
Cash received | $80,000 |
Notes receivable | 339,000 |
Sales price | $419,000 |
Tax rate | 30% |
Estimated tax payment | $23,000 |
Note information:
Term of the note | 4 years |
Coupon rate | 1.5% |
Market rate | 7.7% |
The note is due in equal annual payments of principle and interest.
Incorrect income statement, for the year ended December 31
Sales | $739,000 |
Expenses | 591,000 |
Interest revenue | 5,085 |
Pretax income | 153,085 |
Tax expense | 45,926 |
Net income | 107,159 |
What is the correct amount of sales for 20X1?
Note: You need to back out the incorrect sales amount used (the N/R at face value) and add in the correct sales amount. The correct sales amount is based on fair value of the note. See problem C7-170 as an example.
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