Purpose: This exercise will illustrate the accounting for a situation involving the exchange of a noncash asset or service for a promissory note where the fair value of the asset or service is known.
General Host's annual accounting period ends on December 31. On July 1, 2014, General Host Company sold land having a fair market value of $700,000 in exchange for a four-year noninterest-bearing promissory note in the face amount of $1,101,460. The land is carried on General Host Company's books at a cost of $620,000.
Instructions
(a) Prepare the journal entry that should be recorded by General Host company for the sale of the land in exchange for the note.
(b) Prepare the amortization schedule for the note receivable accepted in the transaction.
(c) Prepare the necessary journal entries at December 31, 2014 and December 31, 2015 that relate to the note receivable.