Question

By December 31, 2020, Bramble Corp. had performed a significant amount of environmental consulting services for Cullumber Ltd. Cullumber was short of cash, and Bramble agreed to accept a $131,000, non–interest-bearing note due December 31, 2022, as payment in full. Cullumber is a bit of a credit risk and typically borrows funds at a rate of 12%. Bramble is much more creditworthy and has various lines of credit at 8%. Bramble Corp. reports under IFRS. The tables in this problem are to be used as a reference for this problem. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.

Prepare the journal entry to record the transaction on December 31, 2020, for Bramble Corp. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount SHOW LIST OF ACCOUNTS

Assuming Bramble’s fiscal year end is December 31, prepare the journal entry required at December 31, 2021. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount SHOW LIST OF ACCOUNTS

Assuming Bramble’s fiscal year end is December 31, prepare the journal entry required at December 31, 2022. (Round answers to 0 decimal places, e.g. 58,971. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit enter an account title to record interest income enter a debit amount enter a credit amount enter an account title to record interest income enter a debit amount enter a credit amount (To record interest income) enter an account title to record maturity enter a debit amount enter a credit amount enter an account title to record maturity enter a debit amount enter a credit amount (To record maturity) SHOW LIST OF ACCOUNTS

What are the amount and classification of the note on Bramble Corp.’s statement of financial position as at December 31, 2021? (Round answer to 0 decimal places, e.g. 58,971.) The balance of the note at December 31, 2021 $enter The balance of the note at December 31, 2021 in dollars rounded to 0 decimal places The note would be classified as a select an option current assetnon-current asset on the balance sheet. SHOW LIST OF ACCOUNTS

Assume instead that Bramble reports under ASPE and uses the straight-line method to amortize the discount on the note. What would the interest income be relating to the note for 2021 and 2022? (Round answer to 0 decimal places, e.g. 58,971.) Interest income for 2021 $enter a dollar amount rounded to 0 decimal places Interest income for 2022 $enter a dollar amount rounded to 0 decimal places

Answer 1

Answer:

(a)	Notes Receivable .............................................................	104431.89
	Service Revenue ..................................................		104431.89*

Using a financial calculator:

PV	?	Yields  $ (104431.89)
I	12%
N	2
PMT	0
FV	$ 131000
Type	0
Excel formula: =PV(rate,nper,pmt,fv,type)

* Present value of note:               PV of $131000 due in 2 years at 12%               $131000 X .79719 = $104431.89
(b)	Notes Receivable...............................................................................	12531.8268
	Interest Income .....................................................................		12531.8268*
*$104431.89 X 12% = $12531.8268
(c)	Notes Receivable...............................................................................	14035.646*
	Interest Income......................................................................		14035.646
*($104431.89 + $12531.8268) X 12% = $14035.646
	Cash    ...............................................................................................	131000
	Notes Receivable ..................................................................		131000

(d)       The balance of the note at December 31, 2020 is $116964.354 ($131000 less discount balance of $14035.646). The note would be classified as a current asset on the balance sheet as the maturity date of the note of December 31, 2021 is within the next fiscal year.

(e)        2020 & 2021 interest income would be $13284.055 per year.

[($131000 – 104431.89) / 2 = $26568.11 / 2 years = $13284.055]

(f)        Fair value of the consulting services provided can be used to value and record the transaction, instead of fair value of the note received.