Question

The $1,500,000 note receivable is dated May 1, 2016, bears interest at 9%, and represents the balance of the consideration received from the sale of Braddock’s electronics division to New York Company. Principal payments of $500,000 plus ap- propriate 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 the long-term receivables section of Braddock’s balance sheet at December 31, 2017.

(b) Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Braddock’s balance sheet at December 31, 2017.

(c) Prepare a schedule showing interest revenue from the long-term receivables that would appear on Braddock’s income statement for the year ended December 31, 201

Answer 1

(a) Braddock' Balance Sheet

Long Term Receivables Section of Braddocks Balance Sheet as at December 31 2017:

When a customer signs a note for any due , the principal amount is recorded on the balance sheet by debiting accounts receivable and crediting notes receivable. As these notes receivable are due more than one year after the date recorded on the balance sheet they are reported as Long Term Assets.

9% Note Receivable from sale division $ 5,00,000

(b) Braddock' Balance Sheet

Long Term Receivables Schedule of Braddocks Balance Sheet as at December 31 2017:

Current Portion of the long term receivables: Note receivable from Sales Division $ 500,000

Accrued Interest Receivable= 1000000 balance * 9%/12 * 8 months (May to Dec) $ 60,000

(c) Interest Revenue from Long Term Receivables

1500000 * (9% / 12 months) * 4 months = $ 45000 ( Jan to April)

1000000 * (9% / 12 months) * 8 months = $ 60000   ( May to Dec )

$ 105000