Question

In: Accounting

E7-14.   (Notes Receivable with Unrealistic Interest Rate) (LO 4, 6) On December 31, 2020, Ed Abbey...

E7-14.  

(Notes Receivable with Unrealistic Interest Rate)

(LO 4, 6) On December 31, 2020, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Abbey Co. agreed to accept a $200,000 zero-interest-bearing note due December 31, 2022, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 10%. Abbey is much more creditworthy and has various lines of credit at 6%. (hint: look back in the notes to see whose rate of interest we used for discounting!)

Instructions

(a)  Prepare the journal entry to record the transaction of December 31, 2020, for the Ed Abbey Co.

(b)  Assuming Ed Abbey Co.'s fiscal year-end is December 31, prepare the journal entry for December 31, 2021.

(c)  Assuming Ed Abbey Co.'s fiscal year-end is December 31, prepare the journal entry for December 31, 2022.

Solutions

Expert Solution

Solution

1.

Date particular Debit Credit
December 31,2020 Notes receivable. Dr $200000
To service revenue $165290
To discount on notes receivable $34710
( Being the service given against the notes receivable)

Note

Calculating PV of service revenue as on December 31,2020

PV = future value* present value of $1 at 10% for 2 years

PV =$200000*0.82645

PV =$165290

2.

Date General journal Debit Credit
December 31 2021 discount on notes receivable. Dr $16529
To interest revenue $16529
(Being interest revenue recorded)

Notes

Discount on notes receivable in 2021

=Discount receivable in 2020*10%

=$165290*10%

=$16529

3.

Date General journal Debit Credit
December 31, 2022 discount on notes receivable. Dr $181818
To interest revenue ($34710-$16529) $18181
( Being interest revenue recorded)
Cash. Dr $200000
To notes receivable $200000
(Being record the cash received against notes receivable)

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Problem # 3 (Notes Receivable with Unrealistic Interest Rate) On December 31, 2015, Tran Co. performed...
Problem # 3 (Notes Receivable with Unrealistic Interest Rate) On December 31, 2015, Tran Co. performed environmental consulting services for Hayden Co. Hayden was short of cash, and Tran Co. agreed to accept a $100,000 zero-interest-bearing note due December 31, 2017, as payment in full. Hayden is somewhat of a credit risk and typically borrows funds at a rate of 15%. Tran is much more creditworthy and has various lines of credit at 8%. Instructions Prepare the journal entry to...
On December 31, 2020 Riverbed Company had the following account balances: Notes Receivable $269,500 Interest Receivable...
On December 31, 2020 Riverbed Company had the following account balances: Notes Receivable $269,500 Interest Receivable 4,125 Detail of the Notes Receivable is as follows: Note 1 - 6-month 9% note dated 10/31/20 55,000 Note 2 - 2-year non-interest bearing note dated 1/1/20 82,500 Note 3 - 5-month interest bearing note dated 9/30/20 132,000 What is the interest rate on Note 3 (5-month interest bearing note)? Interest rate on Note 3 Type your answer here %
On December 31, 2020, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was...
On December 31, 2020, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Abbey Co. agreed to accept a $200,000 zero-interest-bearing note due December 31, 2022, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 10%. Abbey is much more creditworthy and has various lines of credit at 6%. Instructions a. Prepare the journal entry to record the transaction of December 31, 2020,...
On December 31, 2020, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was...
On December 31, 2020, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Abbey Co. agreed to accept a $200,000 zero-interest-bearing note due December 31, 2022, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 10%. Abbey is much more creditworthy and has various lines of credit at 6%. a. Prepare the journal entry to record the transaction of December 31, 2020, for...
On December 31, 2020, Pina Colada Corp. estimated that 4% of its net accounts receivable of...
On December 31, 2020, Pina Colada Corp. estimated that 4% of its net accounts receivable of $455,200 will become uncollectible. The company recorded this amount as an addition to Allowance for Doubtful Accounts. The allowance account had a zero balance before adjustment on December 31, 2020. On May 11, 2021, Pina Colada Corp. determined that the Jeff Shoemaker account was uncollectible and wrote off $2,276. On June 12, 2021, Shoemaker paid the amount previously written off. Prepare the journal entries...
6.   LO 4 On December 31, Talley Company recorded the following information in the Grating Department's...
6.   LO 4 On December 31, Talley Company recorded the following information in the Grating Department's Work in Process Inventory account: Units Cost Beginning balance (80% complete) 5,000 $   56,000 Started into production 115,000 $1,505,800 Completed and transferred to Assembly Department 105,000 ? Ending balance (60% complete) 15,000 LO 4 Refer to question 6. What is the ending balance in the Work in Process Inventory account on December 31? (a) $123,300 (b) $205,500 (c) $195,300 (d) $168,000
On December 31, 2018, when the market interest rate is 14%, O'Brien realty issues $500,000 of...
On December 31, 2018, when the market interest rate is 14%, O'Brien realty issues $500,000 of 11.25%, 10 year bonds payable. The bonds pay interest semi annually. Determine the present value of the bonds at issuance.
Using the effective-interest amortization method On December 31, 2018, when the market interest rate is 6%,...
Using the effective-interest amortization method On December 31, 2018, when the market interest rate is 6%, Benson Realty issues $700,000 of 6.25%, 10-year bonds payable. The bonds pay interest semiannually. Ben- son Realty received $713,234 in cash at issuance. Requirements 1. Prepare an amortization table using the effective interest amortization method for the first two semiannual interest periods. (Round to the nearest dollar.) 2. Using the amortization table prepared in Requirement 1, journalize issuance of the bonds and the first...
CP8-4 Accounting for Accounts and Notes Receivable Transactions [LO 8-2, LO 8-3] [The following information applies...
CP8-4 Accounting for Accounts and Notes Receivable Transactions [LO 8-2, LO 8-3] [The following information applies to the questions displayed below.] Execusmart Consultants has provided business consulting services for several years. The company uses the percentage of credit sales method to estimate bad debts for internal monthly reporting purposes. At the end of each quarter, the company adjusts its records using the aging of accounts receivable method. The company entered into the following partial list of transactions.    a. During...
Culver Corporation had the following long-term receivable account balances at December 31, 2019. Notes receivable $1,850,000...
Culver Corporation had the following long-term receivable account balances at December 31, 2019. Notes receivable $1,850,000 Notes receivable - Employees 500,000 Transactions during 2020 and other information relating to Culver's' long-term receivables were as follows: 1. The $1,850,000 note receivable is dated May 1, 2019, bears interest at 9%, and represents the balance of the consideration received from the sale of Culver's's electronics division to Sunland Company. Principal payments of $616,667 plus appropriate interest are due on May 1, 2020,...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT