Question: Sumarah Corporation accepted a $ 225,000 two- year note receivable from a customer in connection with a major inventory sale transaction on 1 October 20X5.

Sumarah Corporation accepted a $ 225,000 two- year note receivable from a customer in connection with a major inventory sale transaction on 1 October 20X5. he note was interest- free, although market interest rates were in the range of 8%.

Required:

1. Can the company record a sale for $ 225,000? Explain.

2. Calculate the present value of the note, and prepare a schedule that shows the annual interest using the efective interest method. Prepare a second schedule using the straight line method.

3. Compare the two alternate measures of interest revenue as calculated in requirement 2. Which is more accurate? Explain. What method( s) are permitted under ASPE? IFRS?

4. Prepare journal entries to record the initial sale transaction and each payment on the books of Sumarah, using the straight- line method. Use the gross method to record the note.

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