1 On January 1 2016 Ott Co sold goods to Flynn Company Flynn

1.    On January 1, 2016, Ott Co. sold goods to Flynn Company. Flynn signed a zero-interest-bearing note requiring payment of $150,000 annually for seven years. The first payment was made on January 1, 2016. The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present value factors is as follows:

                              Present Value                Present Value of Ordinary
Period                      of 1 at 10%                      Annuity of 1 at 10%
   6                                 .5645                                    4.3553
   7                                 .5132                                    4.8684

What is the amount of sales revenue Ott should record in January 2016?

Please show your calculation.

Solution

Year

Payment

Present Value Factor@10%

Present Value of Payment

0

150000

1

150000

1-6

150000

4.3553

653295

803295

Since first payment was made on start of the year that is 1 January 2016 its present value be 1 .

Amount of Sales Revenue to be 803295