Problem 2

On June 30, 20x3, an entity made a decision to sell an asset. The carrying value of the asset as of this date was $460,000. The fair value of the asset was estimated at $430,000 and costs to sell were estimated at 8% of the fair value.

On October 31, 20x4, the building was sold for $450,000. The transfer of ownership of the asset to the buyer will take place on December 31, 20x4. The entity agreed to accept a 2% interest bearing note for the proceeds. The interest is payable annually and the balance of the note ($450,000) is payable on December 31, 20x7.

The buyers incremental borrowing rate is 5%. Selling costs of $25,000 were incurred.

Required

What is the impact of the above in the:

a. December 31, 20x3 financial statements. b. December 31, 20x4 financial statements.