E7-18b (note transactions at unrealistic interest rates) on july 1,

E7-18B (Note Transactions at Unrealistic Interest Rates) On July 1, 2014, Taylor Inc. made two sales.

1. It sold land having a fair market value of $500,000 in exchange for a 4-year, zero-interest-bearing promissory note in the face amount of $732,053.70. The land is carried on Taylor’s books at a cost of $375,000.

2. It rendered services in exchange for a 4%, 8-year promissory note having a face value of $400,000 (interest payable annually).

Taylor Inc. recently had to pay 7% interest for money that it borrowed from British National Bank. The

customers in these two transactions have credit ratings that require them to borrow money at 10% interest.


Record the two journal entries that should be recorded by Taylor Inc. for the sales transactions above that took place on July 1, 2014.

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