Question

On January 1, 2017, Lombard Co. sells property for which it had paid \(690,000 to Sargent Company, receiving in return Sargent’s zero-interest-bearing note for \)1,000,000 payable in 5 years. What entry would Lombard make to record the sale, assuming that Lombard frequently sells similar items of property for a cash sales price of $640,000?

Short answer

Since Lombard is a property dealer, sales revenue is credited for$640,000

Step-by-step solution

Definition of Zero-Interest Bearing Note

The notes issued by the business entity that does not have any coupon rate are known as zero interest-bearing notes. The issuer is not required to pay any interest periodically. These notes are generally issued at a price lower than face value and redeemed at par.

Journal Entry

Date	Accounts and Explanation	Debit $	Credit $
1 Jan 2017	Note receivable	$1,000,000
	Discount on note receivable		$360,000
	Sales revenue		$640,000

Note: It is asked to assume that Lombard is a property dealer.