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On January 1, 2020, Jacobs Company sells land financed through a $16,000 note, issued by Andress Company. The note is a $16,000, 4%, annual interest-bearing note. Andress agrees to repay the $16,000 proceeds on December 31, 2021. The prevailing interest rate on similar notes is 8%. Assume that the cost of the land is equal to the fair value of the note

Required:
Prepare all entries for Jacobs over the note term, including any year-end adjustments.

Answer :

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Answer:

Note: See attached picture for journal entry schedule for the question

Fair Value of Land = -PV(I, N, PMT, FV, Type)

Fair Value of Land = -PV(8%, 2, 16000*4%, 16000, 0)

Fair Value of Land = -PV(8%,2,640,16000,0)

Fair Value of Land = $14,859

                                Journal Entry

Date        Account tile and explanation        Debit       Credit    

Jan. 1       Notes Receivable                           $16,000

                       To, Discount on Notes                             $1,141

                       To, Land                                                    $14,859

Dec. 31    Cash                                                  $640

                Discount on Notes                           $549  

                       To, Interest Revenue (14859*8%)             $1,189

Dec. 31     Cash                                                  $640

                 Discount on Notes                           $593

                        To, Interest Revenue (14859+549)*8%    $1,233

Dec. 31      Cash                                                  $16,000

                         To, Notes Receivable                               $16,000

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