Question

On January 1, 2019, FLOWERS Inc. rendered services in exchange for a four-year promissory note having a face value of $10,000. Interest at a rate of 3% is payable annually on January 1 (first payment Jan 1, 2020). The customer has credit ratings that require it to borrow money at 8% interest. FLOWERS uses IFRS. Required: Show and label all calculations. (Round to the nearest dollar.)

What would be the value of the service revenue recorded on January 1, 2019?

Prepare the full amortization table for note.

What is the value of the interest revenue recorded by FLOWERS in 2019?

What is the value of the interest revenue recorded by FLOWERS in 2020?

What is the value of note / interest receivable recorded by FLOWERS at its year end of December 31, 2020

Answer 1

1			Present Values
		Interest	$ 300 X 3.31213*	=	$          994
		Principal	$10,000 X 0.73503**	=	$      7,350
		Present value of the note			$      8,344
		Interest = $10,000 x 3% = $300
		*Present value of an ordinary annuity of $1: n = 4, i = 8%.
		**Present value of $1: n = 4,i = 8%.
	Jan 1, 2019	Notes Receivable		$        10,000
		Discount on notes receivable (difference)				$        1,656
		Service Revenue(Cash price)				$        8,344
		(Service revenue recorded at present value of notes
		Service revenue would be recorded at $8,344
2	Date	Cash Interest	Eflfective Interest	Increase in Balance			Outstanding Balance
		(3% x face amount)	(8% x Outstanding balance)	(Discount reduction)
	1/1/2019						$                            8,344
	1/1/2020	300	668	368			8,712
	1/1/2021	300	697	397			9,108
	1/1/2022	300	729	429			9,537
	1/1/2023	$                                                  300	$                                              763	$                                       463			$                          10,000
		$                                              1,200	$                                           2,856	$                                   1,656
3	Interest revenue recorded by flowers in 2019 is $668 (plz see amortization table)
4	Interest revenue recorded by flowers in 2020 is $697 (plz see amortization table)
5	Value of note on Dec 31, 2020 is $9,108
	Interest receivable on Dec 31, 2020 is $300
	Following entry will be prepared on Dec 31, 2020
		Interest receivable	$                                              300
		Discount on notes receivable	$                                              397
		Interest Revenue		$              697