On July 1, 2020, Agincourt Inc. made two sales. 1. It sold land having a fair value of $700,000 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,101,460. The land is carried on Agincourt's books at a cost of $590,000. 2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $400,000 (interest payable annually).

Record the two journal entries that should be recorded by Agincourt Inc. for the sales transactions above that took place on July 1, 2020.

Sale of land:

Promissory note Dr $1101460

Land Cr $590000

Discount on note Cr $401460

Gain on disposal Cr $110000

Sale of services:

Promissory note Dr $400000

discount on note Cr $179000

services rendered Cr $221000

Explanation:

For the sale of the land, we have to first dispose of the land and record gain on disposal as the sales proceeds of land are greater than it's book value. Then the promissory note has to be recorded as an asset but the note is issued at a discount (i. e less than the value of land being exchanged so the difference is recorded as a discount received on note, the effect of which will increase income). The entry is as follows:

Promissory note Dr $1101460

Land Cr $590000

Discount on note Cr $401460

Gain on disposal Cr $110000

The second sale is of rendering of services in exchange for promissory note. Here, Agnicourt Inc. is selling her services instead of any tangible asset in exchange for a promissory note. Similarly, here also the promissory note has been issued at a discount therefore discount on promissory note is also recorded the same way as for the land. The value of services rendered is not mentioned in the question, therefore we assume that services amount to $221000. The entry is as follows:

Promissory note Dr $400000

discount on note Cr $179000

services rendered Cr $221000