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 Dieland’s incremental borrowing rate of 9%. Prepare the
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- On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park 200,000 and had a book value of 20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is 25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Parks December 31, 2019, balance sheet? a. 28,560 b. 29,000 c. 32,500 d. 36,000arrow_forwardSpath Company borrows 75,000 by issuing a 4-year, noninterest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spaths incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate. Required: Prepare the journal entries on Spaths books for 2019 and 2020. (Round answers to 2 decimal places.)arrow_forwardOn January 1, 2021, Mumbleford & Sons Co. sold equipment to Mulligan Care Service in exchange for a zero-interest bearing note. The note has a face value of $110,000, with payment due in 12 months. The imputed interest rate is 10%. The fair value of the equipment on the date of sale was $100,000. The amount of revenue to be recognized on this transaction in 2021 is Select one: a. $110,000 sales revenue. b. $100,000 sales revenue. c. $100,000 sales revenue and $10,000 deferred revenue. d. $100,000 sales revenue and $10,000 interest revenue.arrow_forward
- 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.arrow_forwardMarigold Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 10% and has a carrying value of $15,000. At year-end, Marigold’s borrowing rate (credit risk) has declined; the fair value of the note payable is now $16,300. Determine the unrealized holding gain or loss on the note. Prepare the entry to record any unrealized holding gain or loss.arrow_forwardAmes, Inc. has $500,000 of notes payable due June 15, year 3. Ames signed an agreement on December 1, year 2, to borrow up to $500,000 to refinance the notes payable on a long-term basis with no payments due until year 4. The financing agreement stipulated that borrowings may not exceed 80% of the value of the collateral Ames was providing. At the date of issuance of the December 31, year 2 financial statements, the value of the collateral was $600,000 and is not expected to fall below this amount during year 3. In Ames Inc., December 31, year 2 balance sheet, the obligation for these notes payable should be classified as Short-term Long-term $500,000 $0 $100,000 $400,000 $ 20,000 $480,000 $0 $500,000arrow_forward
- Stussy Company manufactures and sells electrical generators. On January 1,2019 the entity sold an electrical generator costing P700,000 and P1,000,000. The buyer paid P100,000 down and signed a P900,000 noninterest bearing notes payable in three equal installments every December 31. The prevailing interest rate for a note of this type is 12%. The present value of an ordinary annuity of 1 for three periods is 2.4018. REQUIRED: Prepare journal entries for the current year.arrow_forwardOn January 1, 2020, Gibson Co. purchases equipment having a fair value of $200,000 by issuing a three-year, zero-interest-bearing note in the amount of $251,942. The effective interest rate on the note is 8%. How much interest should Gibson recognize on the note in the year ended December 31, 2020?arrow_forwardOn January 1, Gabriel Company sold land with a carrying value of P1,000,000 in exchange for a 1-year, 8% note with a face value of P1,500,000. The 8% rate properly reflects the time value of money for this type of note.On March 1, Gabriel Company discounted the note with recourse and accounted as a conditional sale. The bank discount rate is 10%.On September 1, the maker dishonored the notes receivable. In return, Gabriel Company pays the factor the maturity value of the note plus a protest fee of P5,000.At the end of the year, Gabriel Company collected the dishonored note in full plus a 10% interest on the total amount due.Requirements:1. Prepare the necessary journal entry to record the above transactions.2. Assuming that the March 1 transaction did not happen, prepare the necessary journal entry to record the above transactions.arrow_forward
- On April 1, 2020, NYC Corporation secures a loan with a finance company, using its accounts receivable of $80,000 as collateral for the loan. NYC Corporation agrees to remit customer collections as payments on the loan. Loan proceeds are 85% of the receivables less a 2% finance charge on the balance of the assigned receivables. In addition, the finance company charges 10% interest on the unpaid loan balance, payable at the end of each month. Record the April 1, 2020, entry for NYC Corporation.arrow_forwardCPA Bank Co. loaned P4,000,000 to a borrower on January 1, 2018. The terms of the loan require principal payments of P800,000 each year for 5 years plus interest at 8%.The first principal and interest payment is due on January 1, 2019. The borrower made the required payments during 2019 and 2020. However, during 2020 the borrower began to experience financial difficulties, requiring the bank to reassess the collectability of the loan. On December 31, 2020, the bank has determined that the remaining principal payment will be collected as originally scheduled but the collection of the interest is unlikely. The bank did not accrue the interest on December 31, 2020. The present value of 1 at 8% is 0.93 for one period, O.86 for two periods and 0.79 for three periods. At what amount is loan receivable presented in the statement of financial position on December 31, 2021?arrow_forwardStellar Corporation purchased equipment and in exchange signed a two-year promissory note. Thenote requires Stellar to make a single payment of $100,000 in two years. Stellar has other promissory notes that charge interest at the annual rate of 5 percent.Required:1. Compute the present value of the note, rounded to the nearest dollar, using Stellar’s typicalinterest rate of 5 percent.2. Show the journal entry to record the equipment purchase (round to the nearest dollar).arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning