Question

I need give me example in every step. Do not use Excel. Thank you.

On January 1,2018, Vidalia Company accepted a 14 % note, dated January 1, 2018 with a face amount of $ 2,480,000 in exchange for cash. The note is due in 10 years. For notes of similar risk and​ maturity, the market interest rate is 16 %Interest is paid each December 31.

Requirement a.   Determine the present value of the note at January ​1,2018. (Use the present value and future value​ tables, a financial​ calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula​ method, use factor amounts rounded to five decimal​ places, X.XXXXX. Round intermediary currency computations and your final answers to the nearest whole​ dollar.)

Solution:

The present value of the note receivable is $ (.............)

Requirement b. Prepare the journal entry at the issuance of the note. Before recording journal​ entry, first calculate the discount on notes receivable using the below formula.

Notes receivable		Notes receivable		Discount on
(face value)	-	(present value)	=	notes receivable

Solution:

Now, record the journal entry for issuance of the note. In this journal​ entry, we will increase notes receivable account and decrease cash and discount on notes receivable accounts. ​(Record debits​ first, then credits. Exclude explanations from any journal​ entries.)

Requirement c. Prepare the journal entry to record the interest revenue for the first 2 years.

The discount represents deferred interest revenue to be earned over the life of the note. Companies amortize the discount to interest

revenue over the loan term using the effective interest method. There are two primary effects of the discount amortization.

1.	Increases the interest revenue so that the​ corporation's effective rate of return is brought up to the higher market rate.
2.	Reduces the discount and increases the carrying value of the note receivable until the carrying value is brought up to its face value at the maturity date.

-To determine the interest revenue each​ period, we construct an amortization table using the effective interest rate method. The amortization table will show us the effective interest for each​ period, the discount amortization​ (the difference between the effective interest for the period and the interest​ received), and the amortized cost​ (the prior amortized cost balance plus the current discount​ amortization). Use the table headings as a guide to walk you through the calculations. The opening amortized cost balance and the annual interest revenue amounts that you have previously calculated have been entered for you. Go ahead and complete the amortization table for the first year. ​(Round all amounts you enter into the amortization table to the nearest whole dollar and enter all amounts as positive​ numbers.)

Solution:

Use the amortized cost balance you calculated at the end of the first year to determine the effective​ interest, discount​ amortization, and updated amortized cost for the second year. ​(Round all amounts you enter into the amortization table to the nearest whole dollar and enter all amounts as positive​ numbers.)

Solution:

-Begin by preparing the journal entry to record interest income for the first year.

​-Now, prepare the journal entry to record the interest revenue for December 31, 2019. Review the December ​31,2019

Answer 1

a.	Present value of notes receivable=Present value of interest+Present value of principal
	Interest=2480000*14%=$ 347200
	Discount rate=Market rate=16%
	Present value of interest= 347200*PVIAF(16%,10 years)=347200*4.83323=$ 1678097
	Present value of principal=2480000*PVIF(16%,10 year)=2480000*0.22668=$ 562166
	Present value of notes receivable=1679097+562166=$ 2241263
b.	Discount on notes receivable=Notes receivable (face value)-Notes receivable (Present value)
	Discount on notes receivable=2480000-2241263=$ 238737
	Journal entry:
	Date	General journal					Debit	Credit
	Jan 1,2018	Note receivable					2480000
		Cash						2241263
		Discount on note receivable						238737
		(Issuance of note)
c.			Amortization table
	Date	Interest revenue	Interest received	Discount amortized	Carrying value
	Jan 1,2018				2241263
	Dec 31,2018	358602	347200	11402	2252665
	Dec 31,2019	360426	347200	13226	2265891
	Interest revenue=Beginning carrying value*Market rate of interest rate
	Interest received=2480000*14%=$ 347200
	Discount amortized=Interest revenue-Interest received
	Ending carrying value=Beginning carrying value+Discount amortized
	Journal entry:
	Date	General journal					Debit	Credit
	Dec 31,2018	Cash					347200
		Discount on note receivable					11402
		Interest revenue						358602
		(Interest received)
	Dec 31,2019	Cash					347200
		Discount on note receivable					13226
		Interest revenue						360426
		(Interest received)