Kieso Chapter 7 Question E7-13 (Note Transactions at Unrealistic Interest Rates) On July 1, 2017, Agincourt Inc. made two sales.It sold land having a fair value of $700,000 in exchange for a 4-year zero-interest-bearingpromissory note in the face amount of $1,101,460. The land is carried on Agincourt’s books at a cost of $590,000.It rendered services in exchange for a 3%, 8-year promissory note having a face value of $400,000 (interest payable annually).Agincourt Inc. recently had to pay 8% interest for money that it borrowedfrom British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest.InstructionsRecord the two journal entries that should be recorded by Agincourt Inc. for the sales transactions above that took place on July 1, 2017. Question E7-14 (Notes Receivable with Unrealistic Interest Rate) On December 31, 2015, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Abbey Co. agreed to accept a $200,000 zero-interest-bearing note due December 31, 2017, as payment in full. Hayduke is somewhat of a 6
Kieso Chapter 7 credit risk and typically borrows funds at a rate of 10%. Abbey is much more creditworthy and has various lines of credit at 6%.Instructions(a) Prepare the journal entry to record the transaction of December 31, 2015, for the Ed Abbey Co.(b) Assuming Ed Abbey Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2016.(c) Assuming Ed abbey Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2017.
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