Note Receivable Part 2

 

Notes receivables

Inial measurement of notes receivable Face value

Interest beairing Problem 1 January 1, 2021 Carlo Company owned a tract of land cosng 500,000 Land

500,000 Cash

500,000

 January 1, 2022 Carlo Company sold 1,500,000 to Fernandez corporaon and received 3yr note for 1,500,000 plus interest of 10% annually. Note receivable

1,500,000

Land

500,000

Gain on sale

1,500,000

December 31, 2022 Accrued interest receivable Interest income

150,000 150,000

1,500,000 x 10% = 150,000

December 31, 2023 Accrued Interest receivable Interest income Face Value 1st Accrued interest

165,000 165,000 1,500,000 150,000

 

Total

1,650,000

Interest rate

10%

2nd accrued interest

165,000

January 1, 2024 At the me of payment of Fernandez corporaon Cash

1,996,500 Note receivable

1,500,000

Accrued interest receivable

315,000

Interest income

181,500

Computaon of accrued interest receivable 2022:1st Acrued interest (1,500,000 x 12%)

150,000

2023:2nd Acrued interest (1,650,000 x 12%)

165,000

Total

315,000

Computaon of interest income Face Value Accrued interest Total 3rd yr interest income (1,815,000x10%)

Cash received

1,500,000 315,000 1,815,000 181,500

1,996,500

 

Noninterest bearing Problem 2 Covid company manufactures and sells computers. computers. On January 1, 2021, the enty sold a computer cosng 400,000 for 600,000. The buyer signed a Noninterest bearing note for 600,000 payable in three equal installments every December 31. The cash selling price of the computer is 540,000.

January 1, 2021 Note receivable

600,000

Sales

540,000

Unearned income

60,000

Fair Value

600,000

Present Value

(540,000)

Unearned income

60,000

December 31, 2021 Cash

200,000 Note receivable

200,000

Noninterest bearing amounted 600,000 and 3 equal installments 600,000 divide 3 = 200,000

 

To determined the interest income 1st step: fracon 2021

600,000

6/12

2022

400,000

4/12

2023

200,000

2/12

Total

1,200,000

2nd step: allocate the amount of interest income 2021

60,000 x 6/12 = 30,000

2022

60,000 x 4/12 = 20,000

2023

60,000 x 2/12 = 10,000

3rd step: Prepare journal entry 2021 Unearned interest in income

30,000

Interest income

30,000

2022 unearned interest income

20,000

interest income

20,000

2023 Unearned interest income Interest income

10,000 10,000

 

Problem 3 Gerber company is a dealer in equipment. On December 31, 2021, the enty sold an equipment in exchange for a Noninterest bearing note requiring ve annual payments of 500,000. The rst payment was made on December 31, 2022. The market interest for similar notes was 8%. The relevant present value factors are: PV of 1 at 8% for 5 periods

0.68

PV of an ordinary annuity of 1 at 8% for 5 periods

3.99

1. How to calculate the present Value rate? Using Ordinary Calculator Step 1: 100% + 8% = 108% or 1.08

Step 2 1.08 one click ÷ and click 5 mes bakit 5 kase 5 yrs = 0.680583197 or 0.68

2. How to calculate the present value of an ordinary annuity rate? Step 1: 0.680583197 or 0.68 minus 1 = -0.319416803

Step 2: Click +/- removed negave sign = 0.319416803

Step 3  0.319416803 divide 8% simplied 0.08 = 3.9927100375 or 3.99

 

Problem 4 Villan company has an 8% note receivable dated June 30, 2021, in original amount of 1,500,000. Payments of 500,000 in principal plus accrued interest are due annually on July 1, 2022, 2023 and 2024 In June 30, 2023 statement of nancial posion, what amount should be reported as a current asset for interest on the note receivable? Accrued interes estt recei eiv vable

80,000

Interest income

80,000

(1,000,000 x 8%) Masipag Company is a dealer in equipment. On December 31, 2021 the enty sold an equipment in exchange for a Noninterest bearing note requiring ve annual payments of 500,000. The rst payment was made on December 31, 2022 The market interest rate for similar notes was 8% PV of 1 at 8% for 5 periods

0.68

PV of an ordinary annuity of 1 at 8% for 5 periods

3.99

1. On December 31, 2021, what is the carrying amount of note receivable? Note receivable

2,500,000

Sales

1,995,000

Unearned interest income

505,000

2. What amount of interest income should be reported for December 31, 2022? Unearned interest income interest income

159,600 159,600

(1,995,000 x 8% ) 3. What is the carrying amount of the note receivable re ceivable on December 31, 2022? Notes Receivable

2,500,000

 

Payment annually

(500,000)

Total

2,000,000

Unearned income using general ledger total

Total carrying amount

(345,400)

1,654,600

4. What amount of interest income should be reported for 2023? 1,654,600 x 8% = 132,368