Tractor Entity Sells and Delivers a Large Tractor for $1,000,000

Essay

Tractor Entity sells and delivers a large tractor for $1,000,000 to Agriculture Entity. Agriculture Entity will make $200,000 payments at the end of each year for the next five years to Tractor Entity. The interest rate built into the sale is 12%. What is the total revenue recognized in year 1? What is the interest revenue recognized in year 3?
$$\begin{array} { l r r r r } \text { Year } & \text { Interest Revenue } & \text { Cash received } & \text { Repayment } & \text { Carrying Value } \\\text { Year 1, beginning } & \$ 0 & \$ 0 & \$ 0 & \$ 720,955 \\\text { Year 1 } & \$ 86,515 & \$ 200,000 & \$ 113,485 & \$ 607,470 \\\text { Year 2 } & \$ 72,896 & \$ 200,000 & \$ 127,104 & \$ 480,366 \\\text { Year 3 } & \$ 57,644 & \$ 200,000 & \$ 142,356 & \$ 338,010 \\\text { Year 4 } & \$ 40,561 & \$ 200,000 & \$ 159,439 & \$ 178,571 \\\text { Year 5 } & \$ 21,429 & \$ 200,000 & \$ 178,571 & \$ 0 \\& & & & \\\text { PMT } & \$ 200,000 & & & \\\text { Interest Rate } & \$ 0 & & & \\\text { Years } & \$ 5 & & &\end{array}$$