g Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles. The snowmobiles were delivered on January 1, 2021, and Arctic received a note from Seneca indicating that Seneca will pay Arctic $33,900 on a future date. Unless informed otherwise, assume that Arctic views the time value of money component of this arrangement to be significant and that the relevant interest rate is 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: Assume the note indicates that Seneca is to pay Arctic the $33,900 due on the note on December 31, 2021. Prepare the journal entry for Arctic to record the sale on January 1, 2021. Assume the same facts as in requirement 1, and prepare the journal entry for Arctic to record collection of the payment on December 31, 2021. Assume instead that Seneca is to pay Arctic the $33,900 due on the note on December 31, 2022. Prepare the journal entry for Arctic to record the sale on January 1, 2021. Assume instead that Arctic does not view the time value of money component of this arrangement to be significant, and that the note indicates that Seneca is to pay Arctic the $33,900 due on the note on December 31, 2021. Prepare the journal entry for Arctic to record the sale on January 1, 2021.

Assume the note indicates that Seneca is to pay Arctic the $33,900 due on the note on December 31, 2021. Prepare the journal entry for Arctic to record the sale on January 1, 2021.

Dr Notes receivable 33,900

    Cr Sales revenue 31,389

    Cr Discount on notes receivable 2,511

Discount on notes receivable is a contra asset account that decreases the net amount of notes receivable.

Assume the same facts as in requirement 1, and prepare the journal entry for Arctic to record collection of the payment on December 31, 2021.

Dr Cash 33,900

    Cr Notes receivable 31,389

    Cr Interest revenue 2,511

Assume instead that Seneca is to pay Arctic the $33,900 due on the note on December 31, 2022. Prepare the journal entry for Arctic to record the sale on January 1, 2021.

Dr Notes receivable 33,900

    Cr Sales revenue 29,064

    Cr Discount on notes receivable 4,836

Discount on notes receivable is a contra asset account that decreases the net amount of notes receivable.

Assume instead that Arctic does not view the time value of money component of this arrangement to be significant, and that the note indicates that Seneca is to pay Arctic the $33,900 due on the note on December 31, 2021. Prepare the journal entry for Arctic to record the sale on January 1, 2021.

Dr Notes receivable 33,900

    Cr Sales revenue 33,900

Explanation:

Non interest bearing notes must be recorded at present value, so we need to determine the present value of the payment:

Payment due December 21, 2021, PV = $33,900 / (1 + 8%) = $31,389

Payment due December 21, 2022, PV = $33,900 / (1 + 8%)² = $29,064

We use the discount on notes receivable account (contra asset account) to decrease the net value of notes receivable.

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