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In: Accounting

On December 31, 2020, Iva Majoli Company borrowed $62,092 from Paris Bank, signing a 5-year, $100,000...

On December 31, 2020, Iva Majoli Company borrowed $62,092 from Paris Bank, signing a 5-year, $100,000 zero-interest-bearing note. The note was issued to yield 10% interest. Unfortunately, during 2022, Majoli began to experience financial difficulty. As a result, at December 31, 2022, Paris Bank determined that it was probable that it would receive back only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%.

1.Instructions: Complete the note amortization table.

Date

Cash Received

Interest Revenue

Discount Amortization

Discount Balance

Carrying Value

2. Instructions: Journalize the transactions for the note origination and interest recognition for the first 2 years.

3. Recalculate the carrying value of the note pursuant to the events that occurred on December 31, 2022.

4. Instructions: Prepare the journal entry to record the note impairment.

Instructions: Provide the net realizable presentation of the notes receivable as it would appear on the December 31, 2022 balance sheet.

12/31/2022

Solutions

Expert Solution

1.

DATE CASH RECEIVED INTEREST REVENUE DISCOUNT AMORTIZATION DISCOUNT VALUE CARRYING VALUE
31-12-2020 62092 0 0.00 37908.00 62092.00
31-12-2021 0 6209 6209.00 31699.00 68301.00
31-12-2022 0 6830.10 6830.10 24868.90 75131.10
31-12-2023 0 7513.11 7513.11 17355.79 82644.21
31-12-2024 0 8264.42 8264.42 9091.37 90908.63
31-12-2025 0 9090.86 9090.86 0.51 99999.49

2.

DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
31-12-2020 IVA MAZOLI LOAN A/C 100000
TO CASH A/C 62092
TO DISCOUNT AMORTIZATION A/C 37908
31-12-2021 DISCOUNT AMORTIZATION A/C 6209
TO INTEREST REVENUE A/C 6209
31-12-2022 DISCOUNT AMORTIZATION A/C 6830
TO INTEREST REVENUE A/C 6830

3. REALIZABLE VALUE ON DEC 31,2025=$75000

MARKET RATE OF INTEREST=11%

TIME TO MATURITY = 3YEARS

CARRYING VALUE AS ON DEC31,2022=$75000/(1+R%)*T

=$75000/1.11*3

=$54839.35

4. EXISTING CARRYING VALUE=$75131.10

NEW CARRYING VALUE=$54839.35

IMPAIRMENT LOSS=$20291.75

DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
31-12-2022 IMPAIRMENT LOSS A/C 20291.75
DISCOUNT AMORTIZATION A/C 4708.25
TO IVA MAZOLI LOAN A/C 25000

BALANCE SHEET VALUES AS ON 31-12-2022

IVA MAZOLI LOAN A/C=$75000

DISCOUNT TO BE AMORTIZED=$20160.35

NET REALIZABLE VALUE=$54839.35

ekkarill92 answered 1 year ago
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