| Course | AC300 Intermediate Accounting I |
|---|---|
| Unit | Unit 5 |
| Paper type | Present value problem |
| Length | About 560 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Accounting |
| Updated | October 2026 |
Free sample paper for AC300 Unit 5
Five Payments of $40,000 Are Not $200,000 of Revenue: A Unit 5 Present Value Problem on a Combine Sold With No Stated Interest
[Student Name]
Purdue University Global
AC300: Intermediate Accounting I
Unit 5 Present Value Problem
[Instructor Name]
[Date]
Prairie Line Implement Co., the buyer and all figures are composite; the present value factors are exact, and the standards and textbook cited are real.
Facts
The buyer, a grain farm, signed a non-interest-bearing note promising $40,000 every December 31 for five years. A loan of similar risk and term would carry about 8 percent, the rate the farm's bank quoted for equipment financing.
Why the Payments Must Be Discounted
Interest is hidden inside a zero-rate note, because a dollar the farm pays in the fifth year buys the dealer less than a dollar in hand on the day the combine leaves the lot. When a note's stated rate is unreasonable, the transaction is recorded at the present value of the payments discounted at a rate the parties would agree to in an arm's-length loan (Accounting Principles Board, 1971). Revenue standards reach the same result by requiring an adjustment for a significant financing component when payment is deferred more than a year (Financial Accounting Standards Board, 2014).
Computation
Present value of an ordinary annuity of $1 for five periods at 8 percent: 3.99271. Present value of the payments: $40,000 times 3.99271 equals $159,708. Discount: $200,000 minus $159,708 equals $40,292.
Entry at the Sale, January 1
Notes Receivable, debit $200,000; Discount on Notes Receivable, credit $40,292; Sales Revenue, credit $159,708. The dealer also records cost of goods sold for the combine's cost.
Only $159,708 is revenue from selling the combine; the other $40,292 is interest the dealer will earn over five years for waiting to be paid, and it must be recognized as time passes.
Effective Interest Schedule
Year, interest at 8 percent of the opening carrying amount, payment, closing carrying amount:
1. Year 1: interest $12,777; payment $40,000; carrying amount $132,485.
2. Year 2: interest $10,599; payment $40,000; carrying amount $103,084.
3. Year 3: interest $8,247; payment $40,000; carrying amount $71,331.
4. Year 4: interest $5,706; payment $40,000; carrying amount $37,037.
5. Year 5: interest $2,963; payment $40,000; carrying amount $0.
Total interest: $40,292, equal to the original discount.
Entry at December 31, Year 1: Cash, debit $40,000; Notes Receivable, credit $40,000. Discount on Notes Receivable, debit $12,777; Interest Revenue, credit $12,777.
Variation A: Payments at the Start of Each Year
If the first $40,000 were due on the sale date and each later one on the next four anniversaries, the payments form an annuity due. Factor: 4.31213. Present value: $40,000 times 4.31213 equals $172,485. Revenue rises by $12,777 because each payment arrives a year sooner.
Variation B: Pricing the Payment for a $180,000 Cash Price
If Prairie Line wanted the deal to be worth a $180,000 cash price at 8 percent with five year-end payments, each payment must be $180,000 divided by 3.99271, or $45,082.
What the Discounting Changes
Recording $200,000 of revenue at the sale would overstate this year's sales by $40,292 and leave later years with no interest revenue at all, misstating the pattern of income over five years (Kieso et al., 2019). The present value treatment puts the sale and the financing each in the years they belong to.
References
Accounting Principles Board. (1971). Interest on receivables and payables (APB Opinion No. 21). American Institute of Certified Public Accountants.
Financial Accounting Standards Board. (2014). Revenue from contracts with customers (Topic 606) (Accounting Standards Update No. 2014-09). https://www.fasb.org
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
What the AC300 Unit 5 assignment asks for
The fifth unit of AC300 applies present value concepts to accounting measurement, often through notes, leases or deferred payments. The assignment gives a transaction with payments over time and asks for the amount to record, the entries and a schedule. Identify the cash flows and their timing first. Choose a rate and say where it comes from, especially when the note carries none. State the factor you use, whether ordinary annuity or annuity due. Record the initial entry with any discount shown separately. Build an amortization schedule in which each year's interest is the rate times what the note was carried at when that year began. Show at least one year-end entry. Many problems add variations, such as a change in timing or solving for a payment, so work each one. Explain in a sentence or two why discounting changes the revenue and interest pattern. Cite APB 21, ASC 606 or the textbook in APA 7.
How this AC300 Unit 5 example is built
The sample starts with the facts: a grain farm signs a note for $40,000 every December 31 for five years, and the farm's bank quotes about 8 percent for similar equipment loans. A section explains why a zero-rate note hides interest, citing APB Opinion 21 and the financing component rule in the 2014 revenue update. The computation uses the ordinary annuity factor of 3.99271. The sale entry records a $200,000 note, a $40,292 discount and $159,708 of revenue. The highlighted sentence separates sales revenue from interest. A five-year schedule lists interest, payment and carrying amount, ending at zero, with total interest equal to the discount. Variation A uses the annuity due factor; variation B divides $180,000 by the ordinary factor. The final section shows that recording $200,000 at the sale would overstate this year's sales and leave later years without interest revenue.
Reading the AC300 Unit 5 grading rubric
The AC300 grader starts with the numbers in this problem: the factor, the present value, the discount and every line of the schedule. A wrong factor carries through everything, so accuracy there is worth a great deal. The rate choice is credited when it is justified, not just assumed. Journal entries must show the discount in a contra account or net, consistent with the course's method. The schedule earns points for interest on the opening carrying amount and a final balance of zero. Variations are scored as separate parts, and an annuity due treated as ordinary loses those points. Written explanation of why the revenue is the present value, supported by the authoritative source, shows conceptual understanding. Purdue Global accounting problems also reward a clear layout, with each step labeled so the reader can follow the calculation. APA 7 references round it out.
AC300 Unit 5 help from the desk
The most frequent mistake on present value problems is recording the face amount as revenue. Students also use an annuity due factor for year-end payments, or the reverse, and the error spreads into the whole schedule. Interest is sometimes computed on the original face value instead of the declining carrying amount. The discount is occasionally credited to revenue at the sale. Rounding factors to three decimals produces schedules that do not close to zero, which graders notice. Some papers skip the explanation entirely and present only numbers, losing points that rest on understanding. Others pick a rate without saying why, even when the facts give one. If your problem involves a lease, a bond or an installment sale rather than a note, our writers can set up the cash flows and schedule for the version your instructor assigned.
Get an AC300 Unit 5 example written to your instructions
The payment terms your Unit 5 problem gives, amounts, timing, rate and compounding, decide which factor applies, so send them verbatim with the instructions and rubric. Every part is returned with its timeline, the rate and periods stated, and entries where the facts call for them, within 24-48h. The first custom sample carries no fee. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC300 Unit 5 questions, answered
Why is revenue recorded at present value instead of the total payments?
Because part of every payment is interest for waiting, not the price of the combine. When a note carries no stated interest, ASC 835-30 requires the seller to impute a market rate and split the face amount into a sale price and future interest income. Recording the full 200,000 as revenue would pull five years of interest into the year of delivery.
Should the sample use tables, a financial calculator or spreadsheet functions?
Whatever the course uses, and the answer changes only in the last few cents. Table factors carry five decimals, while calculators and the spreadsheet PV function carry more, so results can differ slightly. The sample names its method in the first part and shows the factor or the function inputs, which is what graders check when an answer differs from the key by pennies.
How is the discount on the note reduced over time?
By the effective interest method. Each year, interest revenue equals the rate times the note's carrying amount at the start of that year, and the discount falls by the same amount because no cash interest is stated. After five payments the discount reaches zero. Many AC300 problems ask only for the first year, and the sample shows that row with the carrying amount it produces.
Where can I find a free AC300 Unit 5 sample paper?
This page gives a complete AC300 Unit 5 present value problem on a composite combine sale with five $40,000 payments and no stated interest, including the discounted revenue, an effective interest schedule, two variations and APA 7 references.
Why is the AC300 Unit 5 revenue only $159,708?
That is what five year-end payments of $40,000 are worth today at 8 percent. The other $40,292 is interest the dealer earns for waiting, recognized year by year on the schedule.