In: Accounting
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 1st, 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)?
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.