Question

In: Accounting

On July 1, 2020, Metlock Inc. made two sales: 1. It sold excess land in exchange...

On July 1, 2020, Metlock Inc. made two sales:

1. It sold excess land in exchange for a four-year, non–interest-bearing promissory note in the face amount of $1,094,530. The land’s carrying value is $560,000.
2. It rendered services in exchange for an eight-year promissory note having a face value of $470,000. Interest at a rate of 3% is payable annually.


The customers in the above transactions have credit ratings that require them to borrow money at 11% interest. Metlock recently had to pay 6% interest for money it borrowed from British Bank.

3. On July 1, 2020, Metlock also agreed to accept an instalment note from one of its customers in partial settlement of accounts receivable that were overdue. The note calls for four equal payments of $21,700, including the principal and interest due, on the anniversary of the note. The implied interest rate on this note is 8%.


The tables in this problem are to be used as a reference for this problem.

Solutions

Expert Solution

No Date Account titles and explanation Debit Credit
1 July 1,2020 Note receivable (1094530 * 0.65873) 721000
Land 560000
Gain on sale of land 161000
(Land sold in exchange of note)
2 July 1,2020 Note receivable (Note:1) 294883
Sales revenue 294883
(Sales revenue recorded)
3 July 1,2020 Note receivable (Note:2) 71873
Accounts receivable 71873
(Instalment note accepted for partial settlement)
Note:1
Face value of note=$ 470000
It is received at the time of maturity
Now, let's find the present value of face value of bonds
Discount factor=Interest on money borrowed=6%
Present value of face value of notes=Face value of the bonds*Discount factor at 6% for the 8th year=470000*0.62741=$ 294883
Note:2
Equal payment=$ 21700
Discount factor=Implied interest rate=8%
Present value of note=Equal payment*Discount factor at 8% for 4 years=21700*3.31213=$ 71873
Instalment note receivable schedule
Date Cash collected Interest revenue Principal collected Note carrying amount
July 1,2020 71873
July 1,2021 21700 5750 15950 55923
July 1,2022 21700 4474 17226 38697
July 1,2023 21700 3096 18604 20093
July 1,2024 21700 1607 20093 0
Interest revenue=Beginning note carrying amount*Implied interest rate
Principal collected=Cash collected-Interest revenue
Ending note carrying amount=Beginning note carrying amount-Principal collected

Please give me a Thumbs up ?.Thanks!!

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

On July 1, 2020, Skysong Inc. made two sales: 1. It sold excess land in exchange...
On July 1, 2020, Skysong Inc. made two sales: 1. It sold excess land in exchange for a four-year, non–interest-bearing promissory note in the face amount of $1,147,860. The land’s carrying value is $620,000. 2. It rendered services in exchange for an eight-year promissory note having a face value of $500,000. Interest at a rate of 3% is payable annually. The customers in the above transactions have credit ratings that require them to borrow money at 10% interest. Skysong recently...
On July 1, 2020, Skysong Inc. made two sales: 1. It sold excess land in exchange...
On July 1, 2020, Skysong Inc. made two sales: 1. It sold excess land in exchange for a four-year, non–interest-bearing promissory note in the face amount of $1,147,860. The land’s carrying value is $620,000. 2. It rendered services in exchange for an eight-year promissory note having a face value of $500,000. Interest at a rate of 3% is payable annually. The customers in the above transactions have credit ratings that require them to borrow money at 10% interest. Skysong recently...
On July 1, 2020, Metlock Inc. made two sales. 1. It sold land having a fair...
On July 1, 2020, Metlock Inc. made two sales. 1. It sold land having a fair value of $908,350 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,429,302. The land is carried on Metlock's books at a cost of $593,500. 2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $403,990 (interest payable annually). Metlock Inc. recently had to pay 8% interest for money that it borrowed from...
On July 1, 2020, Buffalo Inc. made two sales. 1. It sold land having a fair...
On July 1, 2020, Buffalo Inc. made two sales. 1. It sold land having a fair value of $904,970 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,423,984. The land is carried on Buffalo's books at a cost of $596,000. 2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $409,570 (interest payable annually). Buffalo Inc. recently had to pay 8% interest for money that it borrowed from...
On July 1, 2020, Culver Inc. made two sales. 1. It sold land having a fair...
On July 1, 2020, Culver Inc. made two sales. 1. It sold land having a fair value of $917,020 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,442,944. The land is carried on Culver's books at a cost of $590,500. 2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $408,520 (interest payable annually). Culver Inc. recently had to pay 8% interest for money that it borrowed from...
On July 1, 2017, Monty Inc. made two sales. 1. It sold land having a fair...
On July 1, 2017, Monty Inc. made two sales. 1. It sold land having a fair value of $915,830 in exchange for a 3-year zero-interest-bearing promissory note in the face amount of $1,252,520. The land is carried on Monty's books at a cost of $597,600. 2. It rendered services in exchange for a 5%, 6-year promissory note having a face value of $402,550 (interest payable annually). Monty Inc. recently had to pay 8% interest for money that it borrowed from...
Metlock Inc. issued $3,180,000 of convertible 10-year bonds on July 1, 2020. The bonds provide for...
Metlock Inc. issued $3,180,000 of convertible 10-year bonds on July 1, 2020. The bonds provide for 13% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $54,000, which is being amortized monthly on a straight-line basis. The bonds are convertible after one year into 8 shares of Metlock Inc.’s $100 par value common stock for each $1,000 of bonds. On August 1, 2021, $318,000 of bonds were turned in for conversion into...
On January 1, 2011, Crabb & Co. sold land to Chiles, Inc. in exchange for a...
On January 1, 2011, Crabb & Co. sold land to Chiles, Inc. in exchange for a note with a maturity value of $500,000. The note is due December 31, 2013 and interest is owed each December 31 at a rate of 6%. Chiles’ market rate of borrowing is 12%. Crabb originally purchased the land for $80,000 in 1978. Answer the following. Show your work. 1. Was the note issued at a discount or a premium? 2. What is the fair...
SHOW ALL WORK ON HOW ANSWER WAS ACQUIRED On July 1, 2020, Crane Inc. made two...
SHOW ALL WORK ON HOW ANSWER WAS ACQUIRED On July 1, 2020, Crane Inc. made two sales. 1. It sold land having a fair value of $915,830 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,441,072. The land is carried on Crane's books at a cost of $597,600. 2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $402,550 (interest payable annually). Crane Inc. recently had to pay...
On March 1, 2020, Crane Company sold goods to Goosen Inc. for $702,000 in exchange for...
On March 1, 2020, Crane Company sold goods to Goosen Inc. for $702,000 in exchange for a 5-year, zero-interest-bearing note in the face amount of $1,182,911 (an inputed rate of 11%). The goods have an inventory cost on Crane’s books of $395,000. (a) Prepare the journal entries for Crane on March 1, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT