Question

Braddock Inc. had the following long-term receivable account balances at December 31, 2016.

Note receivable from sale of division $1,500,00

Note receivable from officer $400,000

Transactions during 2017 and other information relating to Braddocks long-term recievables were as follows.

1. The $1,500,000 note receivable is dated May 1, 2016, bears interest at 9%, and represents the balance of the consideration recieved from the sale of Braddock's electronics divison to New York Company. Principal payments of $500,000 plus appropriate interest are due on May 1, 2017, 2018, and 2019. The first principal and interest payment was made on May 1, 2017. Collection of the note installments is reasonably assured.

a) Prepare all journal entries related to this note for 2016 and 2017. For the journal entry to record the note issuance credit "Miscellaneous Accounts."

b) How much interest revenue would Braddock report related to this note in 2016?

c) How much interest revenue would Braddock report related to this note in 2017?

d) How much interest receivable would Braddock report reltaed to this note in 2016?

e) What is the current portion of this Notes Receivables at 12/31/2017?

Answer 1

The solution to part A is in the image attached.

Part B: Interest revenue Braddock would report related to this note in 2016 is :

Since the payment is due next year in May 2017 we will not receive anything in this year 2016.

As per accrual concept of accounting Interest Receivable for 8 months(from May 1 2016 to Dec 31 2016) would be 15,00,000*9/100*8/12=90000.

So,Interest revenue Braddock would report related to this note in 2016 is 90,000.

Part C: Interest revenue Braddock would report related to this note in 2017 is:

[15,00,000*9/100*4/12] + [10,00,000*9/100*8/12] = 45000+60000 = 105000.

So Interest revenue Braddock would report related to this note in 2017 is 105000.

Part D: Interest Receivable for 8 months is 15,00,000*9/100*8/12 = 90000.

Part E:Current portion of this Notes Receivables at 12/31/2017 is 15,00,000 subtracted by payment of principle of 5,00,000 would be 10,00,000.