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Accounting for Notes Receivable

Question:
On December 31, 2009, TERVO Company accepted Rudolph Company's $20,000, 3-year note, paying 6 percent annually on December 31, as full payment for a specialty piece of equipment. The market rate of interest for similar notes is 10 percent. The following data is provided:
Interest Rate
Table Factors For Three Periods 6% 10%
Future Value of $1 1.19102 1.33100
Present Value of $1 .83962 .75132
Future Value of Ordinary Annuity of $1 3.18360 3.31000
Present Value of Ordinary Annuity of $1 2.67301 2.48685
Instructions
(a) (1) Determine the present value of the note. (Show calculations) and (2) make the appropriate journal entry for TERVO Company on December 31, 2009. Round answers to the nearest dollar
Computation of the Present value of the Note
(b) Make the appropriate journal entry for TERVO Company on December 31, 2010. Round answers to the nearest dollar (show calculation)
(c) Make the appropriate journal entry for TERVO Company on December 31, 2011. Round answers to the nearest dollar (show calculation)
(d) Make the appropriate journal entry for TERVO Company on December 31, 2012. Assuming the note (and interest) is paid in full on that date (show calculations)

Solution Summary

This solution illustrates how to value a note issued for other than its face value and the journal entries related to the note.

$2.19