Question

On December 31, Year 13, Onyx Corporation accepted an 8%, 10 year, $300,000 note for consulting services performed at the end of Year 13. Interest on the note will be accrued quarterly, and the note carries an effective rate of 12%.

a. What would be the journal entry to record initial acceptance of the note?

b. What is the carrying value of the note on April 1^st, Year18, assuming 23 interest payments remain to be paid?

c. What is the total interest revenue of the note for the year-end December 31, Year 14 (round to the nearest dollar)?

Answer 1

a

Present value of note is:

Present value of money:	=	FV/ (1+r/M) ^MN
Future value	FV=	300,000.00
Rate of interest	r=	8.0%
Number of compounding periods in a year	M=	4
Number of years	N=	10
Present value	=	300000/ (1+0.08/4)^10*4
	=	$ 135,867.12

Journal to record note:

Account	Debit	Credit
Note receivable	$ 135,867
Consulting revenue		$             135,867

b

Present value of money:	=	FV/ (1+r/M) ^MN
Future value	FV=	300,000.00
Rate of interest	r=	8.0%
Number of compounding periods in a year	M=	4
Number of years	N=	5.75
Present value	=	300000/ (1+0.08/4)^5.75*4
	=	$ 190,246.78

23 payments equal 5.75 years

Value is $190,246.78

c

Payment	Beginning value	Interest for quarter	Ending value
Q1	$ 135,867.12	$   2,717.34	$ 138,584.47
Q2	$ 138,584.47	$   2,771.69	$ 141,356.16
Q3	$ 141,356.16	$   2,827.12	$ 144,183.28
Q4	$ 144,183.28	$   2,883.67	$ 147,066.95
Total		$ 11,199.82

Total interest for year is $11,199.82

Please rate.