On January 1, 2007 Worthylake Company sold used machinery to Brown Company, accepting a $25,000 non-interest-bearing note maturing on January 1, 2009. Worthylake Company carried the machinery on its 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 was determinable at the time of sale; however, Brown’s incremental borrowing rate was 12%.

Required

Prepare the journal entries on Worthylake Company’s books to record:

1. The sale of the machinery

2. The related adjusting entries on December 31, 2007 and 2008

3. The payment of the note by Brown Company on January 1, 2009