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Suppose Comet Company provided consulting services to Mustang Inc. on December 31, 2010, but has decided to allow Mustang to pay the balance due over time. Comet is considering several different note options below. The market rate of interest for a company of Mustang's risk level is 10%.

a) For each option, determine the appropriate amount of service revenue that Comet would record on December 31, 2010 and the amount of interest revenue Comet would record for the full year ended December 31, 2012. Use the Present Value tables and do not round the factors. Round all answers to the nearest whole dollar (including interest and cash payments for each year in your calculation).

Option 1: Comet Co. will require Mustang to pay a down payment of $10,000 on 12/31/2010 and the remainder in the form of a $30,000, 8% note due in 5 years. Interest payments will be due semi-annually.

Option 2: Comet Co. will provide the consulting services in exchange for a 3-year, $50,000 non-interest bearing note. Interest compounds annually.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9982446

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