On January 1, 2020, Sandhill Co. borrowed and received $468,000 from a major customer evidenced by a zero-interest-bearing note due in 4 years. As consideration for the zero-interest-bearing feature, Sandhill agrees to supply the customer's inventory needs for the loan period at lower than the market price. The appropriate rate at which to impute interest is 9%.
(a) Prepare the journal entry to record the initial transaction on January 1, 2020.
(b) Prepare the journal entry to record any adjusting entries needed at December 31, 2020.
Assume that the sales of Sandhill's product to this customer occur evenly over the 4-year period. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Date Account Titles and Explanation Debit Credit (a) (b ) (To record Interest Expense) (To record Unearned Sales Revenue)

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andromache andromache · Answer 1 · 2020-09-19T04:12:19+02:00

Answer and Explanation:

As on Jan 1 2020

Cash $468,000

Discount on Notes Payable ($468,000 - ($468,000 × 0.70843) $136,454.76

To Notes Payable $468,000

To Unearned Sales Revenue $136,454.76

(Being the initial transaction is recorded)

On 31-Dec-20

Interest Expenses ($468,000 × 0.70843 × 9%) $29,839

To Discount on Notes Payable $29,839

(Being the interest expense is recorded)

(To record Interest Expense)

On 31-Dec-20

Unearned Sales Revenue ($136,454.74 ÷ 4) $34,113.69

To Sales Revenue $34,113.69

(Being the Unearned Sales Revenue is recorded)