South Company, a public company, sells large construction equipment. On 1 January 20X5, the company sold North Company a machine at a quoted price of $120,000. South collected $40,000 cash and received a two year note payable for the balance.

Required:

1. Give South’s required entries for the two years, assuming an interest bearing note, face value $80,000. (8% interest, simple interest, payable every 31 December.)

2. Assume that the market interest rate is still 8%. Give South’s required entries for the two years, assuming a 2% interest bearing note, face value $80,000. Prepare the entries based on the gross basis.

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

4. Repeat requirement two above. Assume South is a private company that uses ASPE and has decided to use straight line amortization.