EXERCISE 7-18 (10–15 minutes)
1.
7/1/07
Notes Receivable
..................................
1,101,460.00
Discount on Notes Receivable. .
401,460.00
Land
..............................................
590,000.00
Gain on Sale of Land
..................
110,000.00
($700,000 – $590,000)
Computation of the discount
$1,101,460
Face value of note
.63552
Present value of 1 for 4 periods at 12%
$
700,000
Present value of note
1,101,460
Face value of note
$
401,460
Discount on note receivable
2.
7/1/07
Notes Receivable
..................................
400,000.00
Discount on Notes Receivable. .
178,836.32
Service Revenue
.........................
221,163.68
Computation of the present value of the note:
Maturity value
$400,000.00
Present value of $400,000 due
in 8 years at 12%—$400,000 X .40388
$161,552.00
Present value of $12,000
payable annually for 8 years
at 12% annually—$12,000 X 4.96764
59,611.68
Present value of the note
221,163.68
Discount on note receivable
$178,836.32
EXERCISE 7-19 (20–25 minutes)
(a)
Notes Receivable
..............................................
200,000
Discount on Notes Receivable
...............
34,710
1

Consulting Revenue
...............................
165,290*
*Computation of present value of note:
PV of $200,000 due in 2 years at 10%