On January 1, 2010, Worthylake Company sold used machinery to Brown Company, accepting a $25,000 non interest bearing note maturing on January 1, 2012. Worthylake Company carried the machinery on its books at a cost of $22,000 and a current book value of $15,000. Neither the fair value of the machinery nor the note was determinable at the time of sale; however, Brown's incremental borrowing rate was 12%.
Required:
Prepare the journal entries on Worthylake Company's books to record:
1. The sale of the machinery
2. The related adjusting entries on December 31, 2010 and 2011
3. The payment of the note by Brown Company on January 1, 2012