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Bento Corp took a $500,000 four-year 4% note receivable from a customer in connection with a...

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Accounting

Bento Corp took a $500,000 four-year 4% note receivable from acustomer in connection with a major sale transaction. The noterequires annual blended payment s to be paid at end of each year.The market interest rate is 4%.

1. Calculate the required blended payment. round to the nearestdollar.

2. Prepare a schedule that shows annual interest and theprincipal portion of the four payments.

3. Prepare journal entries to record the initial saletransaction and each payment.

Answer & Explanation Solved by verified expert
4.5 Ratings (799 Votes)

1) Annual payment =Value of note /PVA 4%,4

                       = 500000/ 3.62990

                       = 137744.84    [rounded to 137,745]

2)

Year Payment [A] Interest [B] principal [A-B] Carrying value of note
0 500000
1 137745 20000 [500000*.04] 117745 500000-117745= 382255
2 137745 15290.2 [382255*.04] 122454.8 382255-122454.8= 259800.2
3 137745 10392.01 127352.99 259800.2-127352.99= 132447.01
4 137745 5297.99 132447.01 0

3)

Date Account Debit credit
year 1 -Beginning Note receivable 500000
Accounts receivable 500000
Year 1-end cash 137745
Note receivable 117745
Interest revenue 20000
Year 2 -end cash 137745
Note receivable 122454.8
Interest revenue 15290.2
year3-end cash 137745
note receivable 127352.99
Interest revenue 10392.01
year 4- end cash 137745
Note receivable 132447.01
Interest revenue 5297.99

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