Question

In: Accounting

Show the journal entries to account for the following N/R at initial lending, and at each...

Show the journal entries to account for the following N/R at initial lending, and at each subsequent

accounting period until redemption at maturity when payment is received.

a.

N/R face value $100,000, coupon rate is 10%, market interest is 10%, 3-

year

note initiated on

1/1/2017

b.

N/R face value $100,000, zero coupon, market interest is 10%, 3-

year

note initiated on

1/1/2017

c.

N/R face value $100,000, coupon rate is 15%, market inter

est is 10%, 3-

year

note initiated on

1/1/2017

d.

N/R face value $100,000, coupon rate is 5%, market interest is 10%, 3-

year

note initiated on

1/1/2017

Solutions

Expert Solution

Please bear with me as answer is lengthy. I have passed journal entry with all the requirement simultanously. Ignore zero whenever it comes.
Working Note for
a Period ending on Cashflow
January 1, 2017 -100000
December 31, 2017 10000
December 31, 2018 10000
December 31, 2019 10000
December 31, 2019 100000
b Period ending on Cashflow Discount Factor @10% Present Value Effective interest Unamortized Discount Carrying value of note
January 1, 2017 -100000 1 24868.51991 75131.48009
December 31, 2017 0 0.909090909 7513.148009 17355.3719 82644.6281
December 31, 2018 0 0.826446281 8264.46281 9090.909091 90909.09091
December 31, 2019 0 0.751314801 9090.909091 0 100000
December 31, 2019 100000 0.751314801 75131.48009
c Period ending on Cashflow Discount Factor @10% Present Value Effective interest Unamortized Premium Carrying value of note
January 1, 2017 -100000 1 12434.25995 112434.26
December 31, 2017 15000 0.909090909 13636.36364 11243.426 8677.68595 108677.686
December 31, 2018 15000 0.826446281 12396.69421 10867.7686 4545.454545 104545.4545
December 31, 2019 15000 0.751314801 11269.72201 10454.54545 0 100000
December 31, 2019 100000 0.751314801 75131.48009 0 0 0
112434.26
d Period ending on Cashflow Discount Factor @10% Present Value Effective interest Unamortized Discount Carrying value of note
January 1, 2017 -100000 1 12434.25995 87565.74005
December 31, 2017 5000 0.909090909 4545.454545 8756.574005 8677.68595 91322.31405
December 31, 2018 5000 0.826446281 4132.231405 9132.231405 4545.454545 95454.54545
December 31, 2019 5000 0.751314801 3756.574005 9545.454545 100000
December 31, 2019 100000 0.751314801 75131.48009
87565.74005
Requirement a Requirement b Requirement c Requirement d
Date Account Title & Explanation Debit Credit Debit Credit Debit Credit Debit Credit
Amount in $ Amount in $ Amount in $ Amount in $ Amount in $ Amount in $ Amount in $ Amount in $
January 1. 2017 Note Receivable 100000 100000 100000 100000
Premium on Note receivable 0.00 0.00 12434.26 0.00
Discount on Note receivable 0.00 24868.52 0.00 12434.26
Party/Loan/Accounts receivable 100000.00 75131.48 112434.26 87565.74
To record the receipt of note
December 31, 2017 Cash 10000.00 0.00 15000.00 5000.00
Discount on Note receivable 0.00 7513.15 0.00 3756.57
Premium on Note receivable 0.00 0.00 3756.57 0.00
Interest Revenue 10000.00 7513.15 11243.43 8756.57
To record the interest revenue
December 31, 2018 Cash 10000.00 0.00 15000.00 5000.00
Discount on Note receivable 0.00 8264.46 0.00 4132.23
Premium on Note receivable 0.00 0.00 4132.23 0.00
Interest Revenue 10000.00 8264.46 10867.77 9132.23
To record the interest revenue
December 31, 2019 Cash 10000.00 0.00 15000.00 5000.00
Discount on Note receivable 0.00 9090.91 0.00 4545.45
Premium on Note receivable 0.00 0.00 4545.45 0.00
Interest Revenue 10000.00 9090.91 10454.55 9545.45
To record the interest revenue
December 31, 2019 Cash 100000.00 100000.00 100000.00 100000.00
Note Receivable 100000.00 100000.00 100000.00 100000.00

ekkarill92 answered 1 year ago
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