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Question 15

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Intermediate Accounting (Kieso)
Found in: Page 362

Short Answer

On January 1, 2017, Lombard Co. sells property for which it had paid $690,000 to Sargent Company, receiving in return Sargent’s zero-interest-bearing note for $1,000,000 payable in 5 years. What entry would Lombard make to record the sale, assuming that Lombard frequently sells similar items of property for a cash sales price of $640,000?

Since Lombard is a property dealer, sales revenue is credited for $640,000

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Step by Step Solution

Definition of Zero-Interest Bearing Note

The notes issued by the business entity that does not have any coupon rate are known as zero interest-bearing notes. The issuer is not required to pay any interest periodically. These notes are generally issued at a price lower than face value and redeemed at par.

Journal Entry

Date

Accounts and Explanation

Debit $

Credit $

1 Jan 2017

Note receivable

$1,000,000

Discount on note receivable

$360,000

Sales revenue

$640,000

Note: It is asked to assume that Lombard is a property dealer.

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