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ch 10 20

ch 10 20 - 18 Assig nment Pr int View aw ar d 0.62 out of...

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1/30/2014 Assignment Print View http://ezto.mhecloud.mcgraw-hill.com/hm_accounting.tpx?todo=printview 20/21 18. aw ard: 0.62 out of 1.00 point Use Table PV-1 (in Exhibit B-7 ) and Table PV-2 (in Exhibit B-9 ) On December 31, Richland Farms sold a tract of land, which had cost \$930,000, to Skyline Developers in exchange for \$150,000 cash and a five-year, 4 percent note receivable for \$900,000. Interest on the note is payable annually, and the principal amount is due in five years. The accountant for Richland Farms did not notice the unrealistically low interest rate on the note and made the following entry on December 31 to record this sale. General Journal Debit Credit Cash 150,000 Notes Receivable 900,000 Land 930,000 Gain on Sale of Land 120,000 Sold land to Skyline Developers in exchange for cash and five-year note with interest due annually. a. Compute the present value of the note receivable from Skyline Developers at the date of sale, assuming that a realistic rate of interest for this transaction is 12 percent. (Hint: Consider both the annual interest payments and the maturity value of the note.)
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