Question:
On January 1, 2013, Ott Company sold goods to Fox Company. Fox signed a noninterest-bearing note
requiring payment of $60,000 annually for seven years. The first payment was made on January 1, 2013.
The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present
value factors is as follows:
Ott should record sales revenue in January 2013 of
a. $214,200
b. $261,600
c. $292,600
d. $321,600
Answer:
d. The sales price is equal to the present value of the note payments:
Present value of first payment $ 60,000
Present value of last six payments:
$60,000 x 4.36 261,600
Sales price $321,600
On January 1, 2013, Ott Company sold goods to Fox Company. Fox signed a noninterest-bearing note
requiring payment of $60,000 annually for seven years. The first payment was made on January 1, 2013.
The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present
value factors is as follows:
Ott should record sales revenue in January 2013 of
a. $214,200
b. $261,600
c. $292,600
d. $321,600
Answer:
d. The sales price is equal to the present value of the note payments:
Present value of first payment $ 60,000
Present value of last six payments:
$60,000 x 4.36 261,600
Sales price $321,600
