Present Value - Accounting Examples | Lecture Note - Edubirdie

University:
California State University, Northridge
Course:
ACCT 350 | Intermediate Financial Accounting I
Academic year:

2024
Views:

243

Pages:

1
Author:

Lesly Gardner

Present Value - Accounting Examples Example 1: Single payment Note Receivable • XYZ Company has sold goods in exchange for a non-interest bearing note receivable. The note, in the amount of $6,000 is due in two years. XYZ Co. requires a rate of return of 10% on notes of this type. How much sales revenue should be recognized on this transaction? • This is an example of a single-sum present value problem $6,000 * PV(10%, 2) =X $6,000 * .82645 =X Revenue (and net accounts receivable): $ 4,958.70 =X Journal entry: On the Balance Sheet: • dr. Note receivable $5,000 o cr. Revenue $4,959 o cr. discount on N/R $41 what happens to the discount? It becomes (is amortized as) interest income in each of the two years. (You did not really believe the company would not charge interest, did you?) Note receivable (net of discount) using straight-line amortization:end of year1: • dr. discount $ 20.50 o cr. interest income $ 20.50 At the end of the first year, the note will appear on the balance sheet as follows: Note receivable (net of discount) $4,979.50 $4,959

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