Prepare journal entries to record initial sale transaction

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Omega Chemicals Ltd. took a $420,000 two-year note receivable from a customer in connection with a major sale transaction on 1 May 20X7. the note required annual 30 April interest payments of 3%, and the principal was due on 30 April 20X9. Omega has a 31 December year end.

Required:

Problem 1: Prepare journal entries to record the initial sale transaction and each payment on the books of Omega assuming that the market interest rate is 3%.

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

Problem 3: Prepare 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.

Reference no: EM132961065

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