On January 1, 2019, Worthylake Company sold used machinery to Brown Company, accepting a $25,000, non-interest-bearing note maturing on January 1, 2021. Worthylake carried the machinery on its books at a cost of $22,000 and a current book value of $15,000. Neither the fair value of the machinery nor the note was determinable at the time of sale; however, Brown’s incremental borrowing rate was 12%. Required: Prepare the journal entries on Worthylake’s books to record:

On January 1, 2019, Worthylake Company sold used machinery to Brown Company, accepting a $25,000, non-interest-bearing note maturing on January 1, 2021. Worthylake carried the machinery on its books at a cost of $22,000 and a current book value of $15,000. Neither the fair value of the machinery nor the note was determinable at the time of sale; however, Brown’s incremental borrowing rate was 12%. Required: Prepare the journal entries on Worthylake’s books to record:

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 14RE: On January 1, 2019, Boater Company issues a 20,000 non-interest-bearing, 5-year note for equipment....

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On January 1, 2019, Boater Company issues a 20,000 non-interest-bearing, 5-year note for equipment. Neither the fair value of the note nor the equipment is determinable. Boaters incremental borrowing rate is 9%. The asset has a useful life of 7 years. Prepare the journal entry for Boater to record the issuance of the note on January 1.
On January 1, 2019, Northfield Corporation becomes delinquent on a 100,000, 14% note to First National Bank, on which 16,651 of interest has accrued. On January 2, 2019, the bank agrees to restructure the note. It forgives the accrued interest, extends the repayment date to December 31, 2021, and reduces the interest rate to 10%. Required: Prepare a schedule for Northfield to compute the annual interest expense in regard to the preceding note for each year of the restructuring agreement.
On July 1, 2019, Aldrich Company purchased as an available-for-sale security 200,000 face value, 9% U.S. Treasury notes for 194,000. The notes mature July 1, 2020, and pay interest semiannually on January 1 and July 1. The notes were sold on December 1, 2019, for 199,000. Aldrich normally uses straight-line amortization on all of its notes. In its income statement for the year ended December 31, 2019, what amount should Aldrich report as a gain on the sale of the available-for-sale security? a. 2,500 b. 3,500 c. 5,000 d. 6,000
On January 1, Kilgore Inc. accepts a 20,000 non-interest-bearing, 5-year note from Dieland Company for equipment. Neither the fair value of the note nor the equipment is determinable. Kilgore had originally purchased the equipment for 18,000, and the equipment has a book value of 14,000 on January 1. Kilgore knows Dielands incremental borrowing rate of 9%. Prepare the journal entry for Kilgore to record the sale of the equipment on January 1.
On January 1, 2019, Worthylake Company sold used machinery to Brown Company, accepting a $25,000, non-interest-bearing note maturing on January 1, 2021. Worthylake carried the machinery on its books at a cost of $21,000 and a current book value of $15,000. Neither the fair value of the machinery nor the note was determinable at the time of sale; however, Brown’s incremental borrowing rate was 10%. Required: Prepare the journal entries on Worthylake’s books to record: 1. sale of the machinery 2. related adjusting entries on December 31, 2019, and 2020 3. payment of the note by Brown on January 1, 2021
On January 1, 2019, Somerville Corporation sold a used truck to Cornelius Company and accepted a $28,000 non-interest-bearing note due January 1, 2020. Somerville carried the truck on its books at a cost of $30,000 and a current book value of $23,000. Neither the fair value of the truck nor the note was available at the time of the sale; however, Cornelius’s incremental borrowing rate was 12%. Required: 1. Prepare the journal entries on Somerville’s books to record: a. sale of the truck b. related adjusting entries on December 31, 2019, 2020, and 2021 c. collection of the note on January 1, 2022 2. Prepare the notes receivable portion of Somerville’s December 31, 2019, 2020, and 2021 balance sheets.
On January 1, 2021, Suga Company sold an equipment to Jin Company which had a carrying value on Suga’s books of P100,000. Jin gave Suga a P600,000, non-interest bearing note, payable in five equal annual installment of P120,000 with the first payment due on December 31, 2021. There was no established price for the equipment and the note has no ready market value. The prevailing rate of interest for a similar note at January 1, 2021 was 12%. Present value (PV) factors for 5 periods at 12% are:PV of P1 - 0.5674PV of an ordinary annuity of P1 – 3.6048How much is the carrying amount (amortized cost) of the notes receivable at December 31, 2021?
On January 1, 2021, Suga Company sold an equipment to Jin Company which had a carrying value on Suga’s books of P100,000. Jin gave Suga a P600,000, non-interest bearing note, payable in five equal annual installment of P120,000 with the first payment due on December 31, 2021. There was no established price for the equipment and the note has no ready market value. The prevailing rate of interest for a similar note at January 1, 2021 was 12%. Present value (PV) factors for 5 periods at 12% are:PV of P1 - 0.5674 PV of an ordinary annuity of P1 – 3.6048How much is the interest revenue for the year ended December 31, 2021?
On January 1, 2021, Ree Company sold a machine to Say Company. In lieu of cash payment, Say gave Ree a 5-year, P500,000 note. The machinery has a cost of P500,000 and accumulated depreciation as of January 1, 2021 of P150,000. The note is a non-interest bearing note and the prevailing rate of interest for a note of this type is 10%. Required: Answer the following questions: (Round off PV factors to 4 decimal places before multiplying.) 1. Current portion of the notes receivable 2. Non current portion of the notes receivable
On January 1, 2021, Gobert Company sold property to Beasley Company. There was no established exchange price for the property, and Beasley gave Gobert a $751,000 zero-interest- bearing note payable on January 1, 2025. The prevailing rate of interest for a note of this type is 6%. The property had a book value of $341,000 to Gobert. What should be the balance of the Discount on Notes Payable account on the books of Beasley at December 31, 2021 after adjusting entries are made, assuming that the effective-interest method is used?
On January 1, 2021, Bambam Company sold an equipment to Lucas Company which had a carrying value on Bambam’s books of P100,000. Lucas gave Bambam a P600,000, non-interest bearing note, payable in five equal annual installment of P120,000 with the first payment due on December 31, 2021. There was no established price for the equipment and the note has no ready market value. The prevailing rate of interest for a similar note at January 1, 2021 was 12%. Present value (PV) factors for 5 periods at 12% are:PV of P1 - 0.5674PV of an ordinary annuity of P1 – 3.6048How much is the carrying amount (amortized cost) of the notes receivable at December 31, 2021?
Webb Corporation purchased equipment from Shaw Corporation on January 1, 2019. Shaw accepted a 3-year, non-interest-bearing note of $18,000 due December 31, 2021, in exchange for the equipment. Neither the fair value of the equipment nor that of the note is available. Webb’s incremental borrowing rate is 12%. Required: Prepare the journal entries to record the issuance of the note, retirement, and any interest expense on the books of Webb on each of the following dates: 1. January 1, 2019 2. December 31, 2019 3. December 31, 2020 4. December 31, 2021