= On January 1, 2016, Worthylake Company sold used machinery to Brown Company, accepting a $25,000, non-interest-bearing...

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Accounting

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On January 1, 2016, Worthylake Company sold used machinery toBrown Company, accepting a $25,000, non-interest-bearing notematuring on January 1, 2018. Worthylake carried the machinery onits books at a cost of $22,000 and a current book value of $15,000.Neither the fair value of the machinery nor the note wasdeterminable at the time of sale; however, Brown’s incrementalborrowing rate was 12%.
Required:
Prepare the journal entries onWorthylake’s books to record:
1. sale of the machinery
2. related adjusting entries onDecember 31, 2016, and 2017
3.
payment of the note by Brown on January 1, 2018
Jan 1,16 Notes Receivable 25,000
Accumulated Depreciation 7,000
Gain on sale of Machinery 4,929.85
Discount on Notes Receivable 5,070.15
Machinery 22,000
Dec 31,16 ???? 2,391.58
Interest Income 2,391.58
Dec 31, 17 ???? 2,678.57
Interest Income 2,678.58
Jan 1, 18 Cash ???? (NOT 25,000 as stated on another post)
Notes Receivable ????

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4.3 Ratings (534 Votes)

All working forms part of the answer Note is Non interest bearing hence we have to calculate the implied interest revenue in that revenue Interest rate 12 and Notes Receivable amount 25000 maturing after 2 years PV See Answer

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Transcribed Image Text

=On January 1, 2016, Worthylake Company sold used machinery toBrown Company, accepting a $25,000, non-interest-bearing notematuring on January 1, 2018. Worthylake carried the machinery onits books at a cost of $22,000 and a current book value of $15,000.Neither the fair value of the machinery nor the note wasdeterminable at the time of sale; however, Brown’s incrementalborrowing rate was 12%.Required:Prepare the journal entries onWorthylake’s books to record:1.sale of the machinery2.related adjusting entries onDecember 31, 2016, and 20173.payment of the note by Brown on January 1, 2018Jan 1,16 Notes Receivable 25,000Accumulated Depreciation 7,000Gain on sale of Machinery 4,929.85Discount on Notes Receivable 5,070.15Machinery 22,000Dec 31,16 ???? 2,391.58Interest Income 2,391.58Dec 31, 17 ???? 2,678.57Interest Income 2,678.58Jan 1, 18 Cash ???? (NOT 25,000 as stated on another post)Notes Receivable ????