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Calculate the present value of the note

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Question - Omega Chemicals Ltd. took a $450,000 two-year note receivable from a customer in connection with a major sale transaction on 1 May 2017. The note required annual 30 April interest payments of 4%, and the principal was due on 30 April 2019. Omega has a 31 December year-end.

Required -

1. Make journal entries to record the initial sale transaction and each payment on the books of Omega, assuming that the market interest rate is 4%.

2. Assume now that the market interest rate is 5%. Calculate the present value of the note, and make a schedule that shows the interest for each year of the note receivable.

3. Make journal entries to record the initial sale transaction and each payment on the books of Omega, consistent with requirement 2. Use the gross method to record the note.

4. Assume that the market interest rate is 7%. Calculate the present value of the note, and make a schedule that shows the annual interest using the straight-line method of amortization.

Reference no: EM132742180

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