Alfa Romeo incurs direct cash costs of $30,000 in manufacturing a red convertible automobile during 2009. Assume that it incurs all of these costs in cash. Alfa Romeo sells this automobile to you on January 1, 2010, for $50,000. You pay $5,000 immediately and agree to make Three annual equal payments on December 31, 2010, 2011 and 2012.The note receivable bears interest rate at 5% and the interest rate won't change over next three years.
Assume that Alfa Romeo accounts for this note throughout the three years using its initial present value and the historical interest rate (Approach 1). Indicate the effects of the following events on the balance sheet and income statement.
1) Manufacture of the automobile during 2009. If no records are needed, simply write "No Records Needed"
2) Sale of the automobile on January 1, 2010. If no records are needed, simply write "No Records Needed"
3) Cash received and interest revenue recognized on December 31, 2010.
4) Cash received and interest revenue recognized on December 31, 2011.
5) Cash received and interest revenue recognized on December 31, 2012.