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 | ||||||
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