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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Notes Receivable On January 1, 2019, Crouser Company sold land to Chad Company, accepting a 2-year, $150,000, non-interest-bearing note due January 1, 2021. The fair value of the land was $123,966.90 on the date of sale. The company purchased the land for $120,000 on January 1, 2013.

Required:

Prepare all the journal entries on Grouser’s books for January 1, 2019, through January 1, 2021, in regard to the Chad note.

To determine

Prepare the necessary journal entries related to notes receivable in the books of Company C from January 1, 2019 through January 1, 2021.

Explanation

Prepare the necessary journal entries related to notes receivable in the books of Company C from January 1, 2019 through January 1, 2021.

On January 1, 2019, Company CR accepts 2-year non-bearing interest note of $150,000 from Company CH for sale of land. Due date is January 1, 2021. Cost of the land for Company CR is $120,000. On January 1, 2019, the market value of the land is $123,966.90.

Record the sale of land on January 1, 2019.

Step 1: Determine the amount of discount on notes receivable.

Discount on notes receivable=Notes receivableFair value land on January 1, 2019=$150,000$123,966.90=$26,033.10

Step 2: Determine the amount of gain on sale of land.

Gain on sale of land = Fair market value on the date of saleCost of land=$123,966.90$120,000=$3,966.90

Step 3: Record the entry.

DateAccount Title and Explanation Debit Credit 
January 1, 2019Notes receivable$150,000.00 
         Gain on sale of land $3,966.90
         Discount on notes receivable $26,033.10
         Land $120,000.00
 (To record the gain on sale of land and land is sold on note)  

Table (1)

Record the interest income earned on note receivable for the year ended December 31, 2019.

Step 1: Determine the amount of interest rate.

Present value of land= Futrure value of notes receivable×pn=2,i=?$123,966.90=$150,000×FactorFactor=$123,966.90$150,000Factor=0.826446

While looking down the present value table at the end time value money module, factor of 0

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