MacWilliams Limited sold a $ 45,000 piece of machinery to a customer on 1 January 20X6, and took back a two- year, 1% note receivable. he customer has to pay interest every 31 December, but the $ 45,000 principal is due only after two years. Market interest rates are in the range of 5%.

1. What is the present value of the note receivable?
2. Record the sale/ loan on 1 January 20X6, the interest each 31 December (two times) and the loan repayment on 31 December 20X7. Use the gross method to record the note.
3. If present value was disregarded, and the transaction recorded at its face value, would accounts be misstated in the financial statements? Explain.
4. Record the transaction, interest and repayment on the books of the customer.
5. Repeat requirement 2, assuming that MacWilliams has a fiscal year- end of 31 October.

  • CreatedFebruary 17, 2015
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