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Question: P18-3 (LO2,3,4) (Allocate Transaction Price, Discounts, Time Value) Grill Master Company sells total outdoor grilling solutions, providing gas and charcoal grills, accessories, and installation services for custom patio grilling stations.

Instructions

Respond to the requirements related to the following independent revenue arrangements for Grill Master products and services.

On October 1, 2017, Grill Master sold one of its super deluxe combination gas/charcoal grills to a local builder. The builder plans to install it in one of its 鈥淧arade of Homes鈥� houses. Grill Master accepted a 3-year, zero-interest-bearing note with face amount of \(5,324. The grill has an inventory cost of \)2,700. An interest rate of 10% is an appropriate market rate of interest for this customer. Prepare the journal entries on October 1, 2017, and December 31, 2017.

Step by step solution

01

Definition of Zero-Interest-Bearing-Note

The notes issued by the business entity that does not contains any coupon rate are known as a zero-interest-bearing note. Such notes are originally issued at a value lower than face value and then redeemed at par.

02

Journal entries

Date	Accounts and Explanation	Debit $	Credit $
1 Oct 2017	Note receivable	$5,324
	Discount on notes receivable		$1,324
	Sales revenue (PVF:0.7513)		$4,000
1 Oct 2017	Cost of goods sold	$2,700
	Inventory		$2,700
31 Dec 2017	Discount on note receivable	$100
	Interest revenue		$100
		$8,124	$8,124

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