On January 1, 2008, Fountain Valley Realty sold a tract of land to three doctors as an investment. The land, purchased 10 years ago, was carried on Fountain Valley’s books at a value of $190,000. Fountain Valley received a non interest bearing note for $250,000 from the doctors. The note is due December 31, 2009.There is no readily available market value for the land, but the current market rate of interest for comparable notes is 10%.
Instructions:
1. Give the journal entry to record the sale of land on Fountain Valley’s books.
2. Prepare a schedule of discount amortization for the note with amounts rounded to the nearest dollar.
3. Give the adjusting entries to be made at the end of 2008 and 2009 to record the effective interest earned.