Question
In: Accounting
Ben Cleaners Inc. received a 10% $800,000 3-year note on January 1, 2018 for services provided...
Ben Cleaners Inc. received a 10% $800,000 3-year note on January
1, 2018 for services provided to Golden Crest Inn. Interest is paid
semi-annually each Jul 1 and January 1. The market rate for similar
notes is 8%. The financial year ends December 31.
Note: Use financial calculator and state all inputs and their
values.
Required:
i) Discuss the nature of the note.
ii) Prepare the amortization schedule.
iii) Prepare all necessary journal entries for 2018
Solutions
Expert Solution
1)
| Face Value of Note = $800,000 |
| Annual Stated Interest Rate = 10.00% |
| Semiannual Stated Interest Rate = 5.00% |
| Semiannual Stated Interest = 5.00% * $800,000 |
| Semiannual Stated Interest = $40,000 |
| Annual Market Interest Rate = 8.00% |
| Semiannual Market Interest Rate = 4.00% |
| Time to Maturity = 3 years |
| Semiannual Period = 6 |
| Using financial calculator: | |
| Nper | 6 |
| Rate | 4% |
| PMT | 40000 |
| FV | 800000 |
| =PV(A301,A300,A302,A303,0) | $841,937.09 |
| Carrying Value of Note $841,937 |
| Since Carrying value or present value of note is higher than face value of the note, it is a premium note |
2)
| Amortization Schedule | ||||||
| Year | Beginning Balance | Interest Expense | Installment Payment | Premium Amortized | Unamortized Premium | Ending Balance |
| 1/1/2018 | $ 41,937 | $ 841,937 | ||||
| 1/7/2018 | $ 841,937 | $ 33,677 | $ 40,000 | $ 6,323 | $ 35,614 | $ 835,614 |
| 1/1/2019 | $ 835,614 | $ 33,425 | $ 40,000 | $ 6,575 | $ 29,039 | $ 829,039 |
| 1/7/2019 | $ 829,039 | $ 33,162 | $ 40,000 | $ 6,838 | $ 22,201 | $ 822,201 |
| 1/1/2020 | $ 822,201 | $ 32,888 | $ 40,000 | $ 7,112 | $ 15,089 | $ 815,089 |
| 1/7/2020 | $ 815,089 | $ 32,604 | $ 40,000 | $ 7,396 | $ 7,692 | $ 807,692 |
| 1/1/2021 | $ 807,692 | $ 32,308 | $ 40,000 | $ 7,692 | $ (0) | $ 800,000 |
3)
| Journal Entries | |||
| Date | General Journal | Debit | Credit |
| 1/1/2018 | Notes Receivable | $ 841,937.00 | |
| Service Revenue | $ 841,937.00 | ||
| 1/7/2018 | Cash | $ 40,000.00 | |
| Notes Receivable | $ 6,322.52 | ||
| Interest Revenue | $ 33,677.48 | ||
| 1/12/2018 | Interest Receivable | $ 40,000.00 | |
| Notes Receivable | $ 6,575.00 | ||
| Interest Revenue | $ 33,425.00 | ||
ekkarill92 answered 1 year agoRelated Solutions
Question 2 - UNIT 2 Ben Cleaners Inc. received a 10% $800,000 3-year note on January...
Question 2 - UNIT 2 Ben Cleaners Inc. received a 10% $800,000
3-year note on January 1, 2018 for services provided to Golden
Crest Inn. Interest is paid semi-annually each Jul 1 and January 1.
The market rate for similar notes is 8%. The financial year ends
December 31.
Note: Use financial calculator and state all inputs and their
values.
Required:
i) Discuss the nature of the note.
ii) Prepare the amortization schedule.
iii) Prepare all necessary journal entries for...
Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2018, Super...
Since 1970, Super Rise, Inc., has provided maintenance services
for elevators. On January 1, 2018, Super Rise obtains a contract to
maintain an elevator in a 90-story building in New York City for 10
months and receives a fixed payment of $96,000. The contract
specifies that Super Rise will receive an additional $48,000 at the
end of the 10 months if there is no unexpected delay, stoppage, or
accident during the year. At the beginning of the contract, Super
Rise...
Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2018, Super...
Since 1970, Super Rise, Inc., has provided maintenance services
for elevators. On January 1, 2018, Super Rise obtains a contract to
maintain an elevator in a 90-story building in New York City for 10
months and receives a fixed payment of $97,000. The contract
specifies that Super Rise will receive an additional $48,500 at the
end of the 10 months if there is no unexpected delay, stoppage, or
accident during the year. Super Rise estimates variable
consideration to be the...
On January 1, 2019, FLOWERS Inc. rendered services in exchange for a four-year promissory note having...
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?...
On January 1, 2019, FLOWERS Inc. rendered services in exchange for a four-year promissory note having...
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?...
On January 1st 2018 the Black Panther Company issued (sold) $800,000 10 year 6% bonds to...
On January 1st 2018 the Black Panther Company issued (sold)
$800,000 10 year 6% bonds to yield 8%
These bonds
pay interest on July 1 and January 1 each year.
Each of
these $1000 par bonds could be converted into 20 shares of Black
Panther common stock
a) make the journal entry Black Panther makes when they
issue the bonds.
b) make the journal entry Black Panther makes when it
makes the first interest payment on July 1 2018
c) make the...
When Patey Pontoons issued 10% bonds on January 1, 2018, with a face amount of $800,000,...
When Patey Pontoons issued 10% bonds on January 1, 2018, with a
face amount of $800,000, the market yield for bonds of similar risk
and maturity was 11%. The bonds mature December 31, 2021 (4 years).
Interest is paid semiannually on June 30 and December 31. (FV of
$1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use
appropriate factor(s) from the tables provided.) Required: 1.
Determine the price of the bonds...
On January 1, 2018, Red, Inc. borrowed cash by issuing a $500,000, 5-year note that specified...
On January 1, 2018, Red, Inc. borrowed cash by issuing a
$500,000, 5-year note that specified 6% interest to be paid on
December 31 of each year and the $500,000 to be paid at maturity.
If the note had instead been an installment note to be paid in four
equal payments at the end of each year beginning December 31, 2018,
which of the following would be true?
The annual cash payment would have been less.
The first year's interest...
At January 1, 2018, Brainard Industries, Inc., owed Second BancCorp $18 million under a 10% note...
At January 1, 2018, Brainard Industries, Inc., owed Second
BancCorp $18 million under a 10% note due December 31, 2020.
Interest was paid last on December 31, 2016. Brainard was
experiencing severe financial difficulties and asked Second
BancCorp to modify the terms of the debt agreement. After
negotiation Second BancCorp agreed to: a. Forgive the interest
accrued for the year just ended. b. Reduce the remaining two years’
interest payments to $1 million each and delay the first payment
until...
On October 1, 2018, Pipes & Plumbing Company received a 10 percent, six - month note...
On October 1, 2018, Pipes & Plumbing Company received a 10
percent, six - month note receivable from Kirkman Constructions,
one of Pipes & Plumbing Company’s problem credit customers.
Kirkman had owed $75,000 on an account receivable that had
defaulted. Pipes & Plumbing insists that any customer who fails
to pay an account receivable when due must replace their unpaid
account receivable with an interest - bearing note receivable.
Assume the Pipes & Plumbing Company makes adjusting entrie s
for...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Suppose Rialto is the only movie cinema in a small college town, so it is essentially...
- With VMI, members of the supply chain share planning, demand, forecasting, and inventory information.
- Large lots are desirable in supply chain coordination despite increasing holding costs.
- ***Convert the C++ to Python*** #include <iostream> using std::cout; using std::cin; using std::endl; int charClass; char...
- Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable computers at a...
- The following costs were incurred for the single product produced during the first year of operations...
- Non-constant growth model: Do=$2.00 required return on equity= 5% g= 9% n=1,2 g=7% n=3,4 g=3% n=5...
ADVERTISEMENT