Question

On January 1, 2024, Ott Co. sold goods to Flynn Company. Flynn signed a zero-interest-bearing note requiring payment of $160,000 annually for seven years. The first payment was made on January 1, 2024. The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present value factors is as follows: ?Period PresentValue of 1 at 10%? Present Value of Ordinary Annuity of 1 at 10% 6?.5645? 4.3553 7?.5132? 4.8684 Ott should record sales revenue in January 2024 of

Answer 1

Ott Co. should record sales revenue of $856,848 in January 2024, based on the immediate payment of $160,000 and the present value of the remaining six payments calculated using the provided present value factor for an ordinary annuity of 1 at 10% for six periods.

Step-by-step explanation:

To answer how much Ott Co. should record as sales revenue in January 2024 from the zero-interest-bearing note issued to Flynn Company, the present value of the note payable should be calculated using the prevailing interest rate of 10%. Since the first payment of $160,000 is made immediately on January 1, 2024, the present value of an ordinary annuity should be used for the remaining six payments.

To calculate the present value of the ordinary annuity of the remaining six payments, we use the provided present value factor for an ordinary annuity of 1 at 10% for six periods:

Present Value of Ordinary Annuity of 1 at 10% for 6 periods: 4.3553

Sales revenue is calculated as follows:

Immediate payment on January 1, 2024: $160,000

Present Value of the remaining six payments: $160,000 × 4.3553 = $696,848

Total sales revenue recorded in January 2024: $160,000 + $696,848 = $856,848

Therefore, Ott Co. should record sales revenue of $856,848 in January 2024.

Answer 2

Answer:$856,838.40

Step-by-step explanation:

The sales revenue will should be the present value of paying $160,000 annually for 7 years. This is an Annuity but one that is paid at the beginning of a period making it an Annuity due.

Present Value of Annuity Due = Payment * (Present value of Annuity Interest factor, rate, period) * ( 1 + rate)

Present Value of Annuity Due = Payment * (Present value of Annuity Interest factor, 10%, 7) * ( 1 + 10%)

= 160,000 * 4.8684 * 1.1

= $856,838.40