Question

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

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

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