Problem 6-5

Face Value 400,000

Present Value (400,000x.7118) (284,720)
Unearned Interest Income 115,280

Present Value 284,720

Down payment ` 125,000
Selling Price 409,720
Carrying amount of equipment (350,000)
Gain on Sale 59,720
Accumulated depreciation (500,000 – 350,000)= 150,000

January 1, 2020
Cash 125,000
Notes Receivable 400,000
Accumulated depreciation-Equipment 150,000
Equipment 500,000
Gain on sale 59,720
Unearned interest income 115,280

Date Interest Income Unearned Interest Present Value

Income
1/1/20 115,280 284,720
12/31/20 34,166 81,114 318,886
12/31/21 38,266 42,848 357,152
12/31/22 42,848 400,000

December 31, 2020

Unearned Interest Income 34,116
Interest Income 34,116

December 31, 2021

Unearned Interest Income 38,266
Interest Income 38,266

December 31, 2022

Unearned Interest Income 42,848
Interest Income 42,848

January 1, 2023
Cash 400,000
Notes Receivable 400,000