(1)
Installment note
Installment note is an obligation in which the defaulter needs to repay the investor total amount includes principal and interest on certain terms and conditions in a series of periodic payments.
Effective interest rate of amortization bond
Effective interest rate method of amortization is a process of amortizing premium on bond or discount on bond, which allocates the different amount of interest expense in each period of interest payment, but at a constant percentage rate.
To Prepare: The
(2)
To Prepare: The amortization schedule for three year term of the installment note.
(3)
To prepare: The journal entry for the first installment payment on December 31, 2018.
(4)
To Prepare: The journal entry for the third installment payment on December 31, 2020.
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Intermediate Accounting
- Problem 25Davao Bank loaned P7,500,000 to a borrower on January 1, 2018. The terms of the loan were payment in full on January 1, 2023, plus annual interest payment at 12%. The interest payment was made as scheduled on January 1, 2019. However, due to financial setbacks, the borrower was unable to make its 2020 interest payment and Davao Bank considers the loan impaired and projects the cash flows from the loan as of December 31, 2020. The bank has accrued the interest at December 31, 2019, but did not continue to accrue interest for 2020 due to the impairment of the loan. The projected cash flows are: Date of cash flow Amount projectedas of Dec. 31, 2020December31, 2021 500,000December31, 2022 1,000,000December31, 2023 2,000,000December31, 2024 4,000,000The present value at l2% is as follows:For one period 0.89For two periods 0.80For three periods 0.71For four periods 0.64 Required:1.Prepare a table of amortization for the loan receivable.2. Prepare journal entries for 2018 – 2024.arrow_forward1. (LO3) Installment Sale Zachary Davis owns several apartment buildings in Los Angeles and has an offer from a business associate, Ace Arnold, to purchase one of the buildings on October 31, 2021. Ace does not have the money to purchase the apartment building outright and offers to pay Zachary over a five-year period beginning next year. Zachary is leery, but he contacts his attorney to draw up a contract with the following information: • Sales price $500,000 • Payments of $100,000 each, to be made on January 1 of 2022, 2023, 2024, 2025, and 2026 • Interest rate 6%, semiannual compounding beginning January 1, 2022. Zachary had paid $385,000 for the building and its adjusted basis as of October 31, 2021 is $351,400. He would like you to prepare his 2021 tax return and believes he should not have to pay any tax on the sale until 2026 when he receives the final payment. Prepare a response to Zachary and the file.arrow_forwardPrepare all necessary entries in general journal form for Garfield Corp. E7.13 (LO 4) (Note Transactions at Unrealistic Interest Rates) On July 1, 2020, Agincourt Inc. made two sales. 1. It sold land having a fair value of $700,000 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,101,460. The land is carried on Agincourt’s books at a cost of $590,000. 2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $400,000 (interest payable annually). Agincourt Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest. Instructions Record the two journal entries that should be recorded by Agincourt Inc. for the sales transactions above that took place on July 1, 2020.arrow_forward
- A 13.2% P600,000 note payable was issued by Robin Company on March 1, 2020. The principal and interest, compounded annually, are due in three years. How much is the interest expense for 2021?arrow_forwardXI. Direct Finance Lease – Lessee (PFRS 16)Problem 13. SMC Inc. leased a machine on January 1,2011 to SM Inc. with the following pertinentinformation:Annual rental payable at the beginning of each year P500,000Lease term 5 yearsUseful life of machine 6 yearsFair value of machine on January 1,2011 2,400,000Incremental borrowing rate of lessee 14%Implicit interest rate of lessor known to lessee 12%Bargain purchase option at the end of lease term 100,000Residual value of the machine 200,000Initial direct cost incurred by lessee 300,000Prepaid bonus paid by lessee 400,000Estimated restoration cost in which lessee has contractual obligation 1,000,000Required: Based on your audit, determine the following: ____________1. Initial amount recognized as right of use asset ____________2. Initial amount recognized as leased liability ____________3. Depreciation Expense in 2011 assuming cost model ____________4. Book value of right of use asset on December 31, 2012 ____________5. Current Lease…arrow_forwardProblem 24Safari Bank granted a loan to a borrower on Jan. 1, 2020. The interest on the loan is 8% payable annually starting Dec. 31,2020. The loan matures in three years on Dec. 31,2022. Data related to the loan are:Principal amount 1,500,000Origination fees charged against the borrower 50,000Direct Origination cost incurred 130,150After consideration of the origination fees charged against the borrower and the direct origination cost incurred, the effective rate on the loan is 6%. Required:1. Compute the carrying amount of the loan receivable on December 31,2020, December 31,2021, December 31,2022.2. Prepare a table of amortization for the loan receivable.arrow_forward
- Problem 24Safari Bank granted a loan to a borrower on Jan. 1, 2020. The interest on the loan is 8% payable annually starting Dec. 31,2020. The loan matures in three years on Dec. 31,2022. Data related to the loan are:Principal amount 1,500,000Origination fees charged against the borrower 50,000Direct Origination cost incurred 130,150After consideration of the origination fees charged against the borrower and the direct origination cost incurred, the effective rate on the loan is 6%. Required:1. Prepare a table of amortization for the loan receivable.2. Prepare the journal entries for 2020, 2021 and 2022.arrow_forward(Appendix 13.1) Derivatives Danburg. Company has a 5 million, 9% bank loan outstanding with its local bank. On January 1, 2019, when the loan has 4 years remaining, Danburg contracts with Bradford Investment Bank to enter into a 4-year interest-rate swap with a 5 million notional amount. Danburg agrees to receive from Bradford a fixed interest rate of 9% and to pay Bradford an interest amount each year that is variable based on the LIBOR interest rate at the beginning of the year. The interest payments are made at year-end. The applicable interest rate on the swap is reset each year after the annual interest payment is made. The LIBOR interest rate is 8.6% and 9.5% at the beginning of 2019 and 2020, respectively. The 3-year fixed interest rate is 10% at December 31, 2019, and the 2 year rate is 8% at December 31, 2020. Required: 1. Prepare the journal entries of Danburg for the bank loan and derivative for 2019 and 2020. Round calculations to the nearest dollar. 2. Prepare the appropriate disclosures in Danburgs financial statements for 2019 and 2020.arrow_forwardCurrent liabilities Bon Nebo Co. sold 25,000 annual subscriptions of Bjorn for 85 during December 20Y5. These new subscribers will receive monthly issues, beginning in January 20Y6. In addition, the business had taxable income of 840,000 during the first calendar quarter of 20Y6. The federal tax rate is 40%. A quarterly tax payment will be made on April 12, 20Y6. Prepare the current liabilities section of the balance sheet for Bon Nebo Co. on March 31, 20Y6.arrow_forward
- Problem 13NOREEN INC, a truck dealer, sells a truck on January 1, 2019, to MENDOZA INC for P3,000,000. NOREEN agrees to repurchase the truck on December 31, 2020 for P3,630,000. How much should NOREEN INC record interest and retirement of its liability to MENDOZAINC on December 31, 2020?None C. 330,000; 3,630,000 300,000; 3,600,000 D. 630,000; 3,630,000arrow_forward12. 12 Multiple Choices. A company pledged its entire accounts receivable amounting to P2,500,000 to a financing institution to a loan approved for P2,000,000. The term of the loan requires the company to pay the principal when it becomes mature 4 years from now and also to pay 12% annual interest every end of the year. Should the company has made no collateral for the loan, interest rate could have been 18%. Assuming the transaction occurred on June 30, 20A, what shall be the proper accounting treatment for the pledged accounts? a.disclose the loan to notes to financial statements and derecognize the pledged accounts b.derecognize the pledged accounts c.disclose it to the notes to financial statements d.recognized the loan and derecognize the pledged accounts e.do nothingarrow_forwardProblem 13NOREEN INC, a truck dealer, sells a truck on January 1, 2019, to MENDOZA INC for P3,000,000. NOREEN agrees to repurchase the truck on December 31, 2020 for P3,630,000 Using the information above, what is the interest expense for 2019?2.A. None C. 330,000 B. 300,000 D. 630,000arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCorporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning