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. On April 1, 2017, Braddock sold a patent to Pennsylvania Company in exchange for a $100,000 zero-interest-bearing note due on April 1, 2019. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2017, was 12%. The present value of $1 for two periods at 12% is 0.797 (use this factor). The patent had a carrying value of $40,000 at January 1, 2017, and the amortization for the year ended December 31, 2017, would have been $8,000. The collection of the note receivable from Pennsylvania is reasonably assured.

a) Calculate the Present Value of this zero-interest-bearing note when it is issued.

b) Is this zero-interest-bearing note issued at face value, a premium, or a discount?

c) Prepare the journal entry necessary at 12/31/2017 related to this zero-interest-bearing note.

d) How much of the discount is unamortized as of 12/31/2017?

e) What amount should be reported in the long term receivables portion of the balance sheet related to this note as of 12/31/2017?

Answer 1