MacDonald Company sells large construction equipment. On 1 January 20X5, the company sold Chowdury Company a machine

Question:

MacDonald Company sells large construction equipment. On 1 January 20X5, the company sold Chowdury Company a machine at a quoted price of $ 60,000. MacDonald collected $ 20,000 cash and received a two- year note payable for the balance.

Required:

1. Give MacDonald’s required entries for the two years, assuming an interest- bearing note, face value $ 40,000. (8% interest, simple interest, payable every 31 December.)

2. Assume that the market interest rate is still 8%. Give MacDonald’s required entries for the two years, assuming a 2% interest- bearing note, face value $ 40,000. Prepare the entries based on the gross basis.

3. Compare the interest revenue and sales revenue under requirements 1 and 2.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...