LAND

COST 800,000
SELLING PRICE 1,000,000
INTEREST RATE 12% COMPOUNDED ANNUALLY
TERM 3 YEARS

JOURNAL ENTRIES:
FIRST YEAR Not in the ordinary course of business In the ordinary course of business
N/R 1,000,000 N/R 1,000,000
LAND 800,000 SALES 1,000,000
GAIN ON SALE 200,000

INTEREST RECEIVABLE 120,000

INTEREST INCOME 120,000
(12% X 1,000,000)
SECOND YEAR
INTEREST RECEIVABLE 134,400
INTEREST INCOME 134,400
(12% X 1,120,000)

THIRD YEAR
INTEREST RECEIVABLE 150,528 CASH 1,404,928
INTEREST INCOME 150,528 N/R 1,000,000
(12% X 1,254,400) INTEREST RECEIVABLE 254,400
OR INTEREST INCOME 150,528
CASH 1,404,928
N/R 1,000,000
INTEREST RECEIVABLE 404,928
 MACHINERY
COST 280,000
INSTALLMENT PRICE 400,000
CASH PRICE 350,000
TERM PAYABLE IN 4 EQUAL INSTALLMENTS EVERY DECEMBER 31

TO RECORD THE SALE

N/R 400,000 N/R
SALES 350,000
UNEARNED INTEREST INCOME 50,000
TO RECORD THE 1ST INSTALLMENT (COLLECTION)
CASH 100,000
N/R 100,000
amortization table using outstandin
TO RECOGNIZE UNEARNED INTEREST AS INCOME N/R
UNEARNED INTEREST INCOME 20,000 YEAR 1 400,000
INTEREST INCOME 20,000 YEAR 2 300,000
YEAR 3 200,000
YEAR 4 100,000
TOTAL 1,000,000
 400,000
MACHINERY 280,000
GAIN ON SALE 70,000
UNEARNED INTEREST INCOME 50,000

ation table using outstanding balance method

FRACTION INT. INCOME
4/10 20,000
3/10 15,000
2/10 10,000
1/10 5,000
50,000
 MACHINERY
COST 250,000
INSTALLMENT PRI 400,000
DOWNPAYMENT 100,000
TERM BALANCE PAYABLE IN 3 EQUAL INSTALLMENTS EVERY DECEMBER 31
PREVAILING INTEREST RATE: 10%

TO RECORD THE SALE

CASH (Downpayment) 100,000
N/R 300,000
MACHINERY 250,000
GAIN ON SALE 98,690
UNEARNED INTEREST INCOME 51,310
TO RECORD THE 1ST INSTALLMENT

CASH 100,000
N/R 100,000

TO RECOGNIZE INTEREST INCOME amortization table using effective intere

DATE
UNEARNED INT. INC. 24,869 1/1/20
INTEREST INCOME 24,869 12/31/2020
12/31/2021
12/31/2022
 PV ordinary annuity of = 1 - (1/1+i)^n/i
PV 2.4869

FA of the N/R 300,000

PV of the notes receivable 248,690
UNEARNED INT. INC. 51,310

DP 100,000
PV OF THE NOTE 248,690
SALES PRICE (Cash equivalen 348,690
COST OF MACH 250,000
GAIN ON SALE 98,690

mortization table using effective interest method

COLLECTION INT. INC PRINCIPAL PV
248,690
100,000 24,869 75,131 173,559
100,000 17,356 82,644 90,915
100,000 9,085 90,915 0
 EQUIPMENT
DATE OF SALE JANUARY 1, 2020
COST 600,000
ACCUMULATED DEPRECIATION 250,000 PV of 1 = 1/(1+i)^3
DOWNPAYMENT 100,000 PV FACTOR 0.7513
TERM 400,000 PAYABLE ON JANUARY 1, 2023
PREVAILING INTEREST RATE: 10%

TO RECORD THE SALE FA 400,000

CASH 100,000 PV 300,526
N/R 400,000 UII 99,474
ACC. DEPR 250,000
EQUIP 600,000 PV 300,526
GAIN ON SALE 50,526 DP 100,000
UNEARNED INT. INC 99,474 SALES PRICE 400,526
CA 350,000
GAIN 50,526
TO RECOGNIZE INTEREST INCOME
UNEARNED II 30,053 AMORTIZATION TABLE USING EFFECTIVE INTEREST METHOD
INTEREST INCOME 30,053 DATE INT. INC. UNEARNED
1-Jan 99,474
COLLECTION ON JAN. 1 2023 2020 30,053 69,421
CASH 400,000 2021 33,058 36,364
N/R 400,000 2022 36,364 0
G EFFECTIVE INTEREST METHOD
PV
300,526
330,579
363,636
400,000