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Noninterest-bearing note receivable
• LO7–7
[This is a variation of E 7–14 modified to focus on a noninterest-bearing note.]
On June 30, 2018, the Esquire Company sold some merchandise to a customer for $30,000 and agreed to accept as payment a noninterest-bearing note with an 8% discount rate requiring the payment of $30,000 on March 31, 2019. The 8% rate is appropriate in this situation. Esquire views the financing component of this contract as significant.
Required:
1. Prepare
2. What is the effective interest rate on the note?
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Chapter 7 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
- Exercise 5-16 (Algo) Deferred annuities [LO5-8] President Company purchased merchandise from Captain Corporation on September 30, 2024. Payment was made in the form of a noninterest-bearing note requiring President to make six annual payments of $8,000 on each September 30, beginning on September 30, 2027. Required: Calculate the amount at which President should record the note payable and corresponding purchase on September 30, 2024, assuming that an interest rate of 12% properly reflects the time value of money in this situation. Note: Use tables, Excel, or a financial calculator. Round your final answers to nearest whole dollar amount. Round your intermediate calculations to the nearest whole dollar. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Answer is complete but not entirely correct. Amount recorded 33,645arrow_forwardExercise 5-16 (Static) Deferred annuities [LO5 - 8] President Company purchased merchandise from Captain Corporation on September 30, 2024. Payment was made in the form of a noninterest - bearing note requiring President to make six annual payments of $5,000 on each September 30, beginning on September 30, 2027. Required: Calculate the amount at which President should record the note payable and corresponding purchase on September 30, 2024, assuming that an interest rate of 10% properly reflects the time value of money in this situation. Note: Use tables, Excel, or a financial calculator. Round your final answers to nearest whole dollar amount. Round your intermediate calculations to the nearest whole dollar. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)arrow_forwardProblem 7-8 (Algo) Factoring of accounts receivable; without recourse [LO7-8] Samson Wholesale Beverage Company regularly factors its accounts receivable with the Milpitas Finance Company. On April 30, 2021, the company transferred $890,000 of accounts receivable to Milpitas. The transfer was made without recourse. Milpitas remits 90% of the factored amount and retains 10%. When Milpitas collects the receivables, it remits to Samson the retained amount less a 4% fee (4% of the total factored amount). Samson estimates the fair value of the last 10% of its receivables to be $69,000. Required: Prepare the journal entry for Samson Wholesale Beverage for the transfer of accounts receivable on April 30, assuming the sale criteria are met. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) O Answer is not complete. No Event General Journal Debit Credit 1 Cash 801,000 Loss on sale of receivables 59,720 X Receivable from factor…arrow_forward
- Question 4 On January 1, 2019, Madira Company loaned $216,374 to Virginia Company. A zero-interest- bearing note (face amount, $288,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2021. The prevailing rate of interest for a loan of this type is 10% . The present value of $288,000 at 10% for three years is $216,374. What is the book value (carrying amount) of the note on Virginia's balance sheet on December 31st, 2019 (round to the nearest dollar)? Question 5 The cost of issuing common stock should be reported in Accumulated Other Comprehensive Income in the balance sheet deducted from the Paid-in Capital in Excess of Par account charged to the income statement as an expense in the year the stock is issued None of these statements is correct Question 6arrow_forwardProblem 6-8 (AICPA Adapted) Frame Company has an 8% note receivable dated June 30. 2021, in the original amount of P1,500,000. Payments of P500,000 in principal plus accrued interest are due annually on July 1, 2022, 2023 and 2024. 1. What is the balance of note receivable on July 1, 2022? a. 1,500,000 b. 1,000,000 500,000 d. C. 2. On June 30, 2023, what amount should be reported as accrued interest receivable on the note receivable? a. 120,000 b. 40,000 c. 80,000 d.arrow_forwardExercise 6-12 (Algo) Time value of money for accounts receivable [LO6-6] Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles. The snowmobiles were delivered on January 1, 2021, and Arctic received a note from Seneca indicating that Seneca will pay Arctic $45,800 on a future date. Unless informed otherwise, assume that Arctic views the time value of money component of this arrangement to be significant and that the relevant interest rate is 8%. (FV of $1. PV of $1. FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Assume the note indicates that Seneca is to pay Arctic the $45,800 due on the note on December 31, 2021. Prepare the journal entry for Arctic to record the sale on January 1, 2021. 2. Assume the same facts as in requirement 1, and prepare the journal entry for Arctic to record collection of the payment on December 31, 2021. 3. Assume instead that Seneca is to pay Arctic the $45,800 due on the note on…arrow_forward
- Exercise 7-16 (Static) Uncollectible accounts; allowance method; balance sheet approach; financial statement effects [LO7-5, 7-6] Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2024, accounts receivable totaled $625,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $32,000 at the beginning of 2024 and $21,000 in receivables were written off during the year as uncollectible. Also, $1,200 in cash was received in December from a customer whose account previously had been written off. The company estimates bad debts by applying a percentage of 10% to accounts receivable at the end of the year. Required: 1. Prepare journal entries to record the write-off of receivables, the collection of $1,200 for previously written off receivables, and the year-end adjusting entry for bad debt expense. 2. How would accounts receivable be shown in the 2024 year-end balance sheet?…arrow_forwardPlease solve question 25 24) Metro Company sells lawn and garden products to wholesalers. The company’s fiscal year-end is December 31. During 2020, the following transactions related to receivables occurred: 2/28 Sold merchandise to Lennox, Inc., for $10,000 and accepted a 10%, 7-month note. 10% is an appropriate rate for this type of note. 3/31 Sold merchandise to Maddox Co. and accepted a noninterest-bearing note with a discount rate of 10%. The $8,000 payment is due on March 31, 2019. 4/3 Sold merchandise to Carr Co. for $7,000 with terms 2/10, n/30. Metro uses the gross method to account for cash discounts. 4/11 Collected the entire amount due from Carr Co. 6/30 Discounted the Lennox, Inc., note at the bank. The bank’s discount rate is 12%. The note was discounted without recourse. 12/31 An adjusting entry is recorded for the Maddox note .Required: Prepare the necessary journal entries for Metro for each of the above…arrow_forwardRequired information Exercise 7-5 (Algo) Notes payable—discount basis LO 2 Skip to question [The following information applies to the questions displayed below.] On April 15, 2019, Powell Inc. obtained a six-month working capital loan from its bank. The face amount of the note signed by the treasurer was $255,400. The interest rate charged by the bank was 5.00%. The bank made the loan on a discount basis. Exercise 7-5 (Algo) Part a Required:a-1. Calculate the loan proceeds made available to Powell.arrow_forward
- Exercise 5-11 (Algo) Deferred annuities [LO5-8] Lincoln Company purchased merchandise from Grandville Corp. on September 30, 2021. Payment was made in the form of a noninterest-bearing note requiring Lincoln to make six annual payments of $7,000 on each September 30, beginning on September 30, 2024. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Round your final answer to nearest whole dollar amount.) Required: Calculate the amount at which Lincoln should record the note payable and corresponding purchases on September 30, 2021, assuming that an interest rate of 6% properly reflects the time value of money in this situation. Amount recordedarrow_forwardRequired information Exercise 7-5 (Algo) Notes payable—discount basis LO 2 Skip to question [The following information applies to the questions displayed below.] On April 15, 2019, Powell Inc. obtained a six-month working capital loan from its bank. The face amount of the note signed by the treasurer was $255,400. The interest rate charged by the bank was 5.00%. The bank made the loan on a discount basis. Exercise 7-5 (Algo) Part a - Journal entry a-3. Record the journal entry to show the effect of signing the note and the receipt of the cash proceeds on April 15, 2019. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)arrow_forwardRequired information Exercise 7-5 (Algo) Notes payable—discount basis LO 2 Skip to question [The following information applies to the questions displayed below.] On April 15, 2019, Powell Inc. obtained a six-month working capital loan from its bank. The face amount of the note signed by the treasurer was $255,400. The interest rate charged by the bank was 5.00%. The bank made the loan on a discount basis. Exercise 7-5 (Algo) Part b b. Calculate the amount of interest expense applicable to this loan during the fiscal year ended June 30, 2019.arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
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