(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 3As a result of a restructuring agreement on January 1, 2018, First Bank agreed tothe following provisions: • The principal obligation is reduced to P7,000,000.• The accrued interest of P640,000 is forgiven.• The date of maturity is extended to December 31, 2021.Annual interest of 10% is to be paid for 4 years every December31.The present value of 1 at 8% for 4 periods is 0.735 and the present value of anordinary annuity of 1 at 8% for 4 periods is 3.31.Requirement:a. What is the gain on extinguishment of debt for 2018?b. What is interest expense for 2018?arrow_forwardA 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_forwardHw.27. Entity A entered into a sale and repurchase agreement for its head office on 1 January 2022, selling the office to Bank B for $78,560,000. On the same date, the head office had a fair value of $97,800,000. Entity A will continue to use the head office for the next 2 years and has the option to buy back the property for $93,765,779, based on an effective interest rate of 9.25% per year over the next 2 years. Property prices are expected to increase over the next 2 years. REQUIRED: Measure the net amount to be shown in the Statement of Profit or Loss for the year ended 31 December 2022. 1. $7,938,979 Expense 2. $19,240,000 Expense 3. $0 4. $7,266,800 Expense 5. None of them.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_forward(Appendix 14.1)Pamlico Company has a 500,000, 15%, 3-year note dated January 1, 2019, payable to Forest National Bank. On December 31, 2020, the bank agreed to settle the note and unpaid interest of 75,000 for 50,000 cash and marketable securities having a current market value of 375,000. Pamlicos acquisition cost of the securities is 385,000. Ignoring income taxes, what amount should Pamlico report as a gain from the debt restructuring on its 2020 income statement? a. 65,000 b. 75,000 c. 140,000 d. 150,000arrow_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
- 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_forward49. A Company acquired a packaging machine from Taylor Corporation. Taylor completed the construction of the machine on January 1, 2029. In payment for the P3 million machine, A Company issued a 4–year interest–bearing note to be paid in four equal payments at the end of each year. Interest is 10% of the unpaid balance to be paid at the end of each year. Assume prevailing interest rate is 14%. What is carrying amount of the note of December 31, 2030? 50. On January 1, 2021, a company issued 1,000 of its 8% 5-year P5,000 convertible bonds at P200,000 premium. Interests on these bonds are payable every December 31. The bonds are convertible into 40,000 of the company’s ordinary shares with par value of P100. On December 31, 2023, 200 bonds were converted while at the end of 2024, 400 bonds were retired at P2,020,000. Without the conversion feature, the market rate of interest for the company’s bonds on January 1, 2021 and December 31, 2024 are 10% and 11%, respectively. The…arrow_forwardImmediate Accounting ll Ch 16 2. Arnold Industries has pretax accounting income of $56 million for the year ended December 31, 2024. The tax rate is 25%. The only difference between accounting income and taxable income relates to an operating lease in which Arnold is the lessee. The inception of the lease was December 28, 2024. An $32 million advance rent payment at the inception of the lease is tax-deductible in 2024 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term. Required: Complete the following table given below and prepare the appropriate journal entry to record Arnold’s income taxes for 2024. Prepare the appropriate journal entry to record Arnold’s income taxes for 2025. Pretax accounting income was $80 million for the year ended December 31, 2025. Assume a new tax law is enacted in 2025 that causes the tax rate to change from 25% to 15% beginning in 2026. Complete the following table given below and…arrow_forward
- QUESTION 40 On January 1, 2020, Smith Company signed a six-year Note for the acquisition of equipment. Annual interest and principal payments of $21,980, based on an interest rate of 9% are to be made every December 31, beginning with December 2020. Compute the value of the Note at 1/1/20. Following are appropriate factors from tables: Table % / n Present Value of annuity due $1 Present Value of ordinary annuity of $1 Present value of $1 Future Value of ordinary annuity of $1 9%/6 4.88965 4.48592 .59627 7.52333 $101,975.34 $98,600.52 $107,474.51 $131,880arrow_forward59. A Company acquired a packaging machine from Taylor Corporation. Taylor completed the construction of the machine on January 1, 2029. In payment for the P3 million machine, A Company issued a 4-year interest-bearing note to be paid in four equal payments at the end of each year. Interest is 10% of the unpaid balance to be paid at the end of each year. Assume prevailing interest rate is 14%. At what amount should the note be recorded on January 1. 2029? On December 31, 2019, A Company issued 5,000 of 8% 10-year P1,000 face value bonds with detachable warrants at 110. Each bond carried a detachable warrant for 10 ordinary shares of P100 par value at a specified option price of P120. Immediately after issuance, the market value of the bonds without warrants was P4,800,000 and the market value of the warrants was P1,200,000. On December 31, 2019, what is the carrying amount of bonds payable?arrow_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 Learning