On July 1, 2020, Bonita Inc. made two sales. 1. It sold land having a fair value of $904,970 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,423,984. The land is carried on Bonita's books at a cost of $596,000.
2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $409,570 (interest payable annually).
Bonita Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest.
Record the two journal entries that should be recorded by Bonita Inc. for the sales transactions above that took place on July 1, 2020.

Date                  Account Title                                          Debit             Credit

July 1, 2020     Notes receivable                                   $1,423,984

                        Land                                                                           $596,000

                        Discount on notes receivable                                   $519,014

                        Gain on disposal                                                       $308,970

Working

Gain on disposal = 904,970 - 596,000 = $308,970

Discount on notes receivable = 1,423,984 - 596,000 - 308,970 = $519,014

Date                  Account Title                                              Debit           Credit

July 1, 2020      Notes receivable                                    $409,570

                         Discount on Notes receivable                                    $183,115

                         Service revenue                                                       $226,455

Working

Maturity value of Note = 409,570 / ( 1 + 12%)⁸ = $165,418

Interest payable = 3% * 409,570 = $12,287.10

Present value of interest payable = Interest * PVIFA, 12% , 8 years

= 12,287.10 * 4.9676 = $61,037

Service revenue = Maturity value of note + Present value of interest

= 165,418 + 61,037

= $226,455

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