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Major Shoe Inc. agreed to sell 50,000 pairs of shoes to a small local store...

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Question

Accounting

Major Shoe Inc. agreed to sell 50,000 pairs of shoes to a small local store called Foot and Soul. The deal's terms are that Foot and Soul promises to pay Major Shoe Inc. $10,000 at the end of every month for the next 12 months, which will total $120,000 by the end of the agreement. There is no risk to Major Shoe Inc. that Foot and Soul will pay all of these payments.

Questions:

1. What is the value at the time of the delivery of the shoes (present day) of the promised payments? There is an annual interest rate of 6%.

2. What is the journal entry that Major Shoes Inc. will make on the date of sale to record this transaction assuming the cost of the shoes is $80,000?

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