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Note Receivable Homework On January 1, 2019, The Rusty Moose Corporation sold a building that cost...

Note Receivable Homework

On January 1, 2019, The Rusty Moose Corporation sold a building that cost $300,000 and that had accumulated depreciation of $115,000 on the date of sale. The Rusty Moose received as consideration a $325,000 non-interest-bearing note due on January 1, 2023. There was no established exchange price for the building, and the note had no ready market. The prevailing rate of interest for a note of this type on January 1, 2019, was 6%. At what amount should the gain from the sale of the building be reported?

Prepare journal entries for initial sale and at year end for years 2019-2022. Prepare a final journal entry on January 1, 2023 to record the collection of the note.

1. Date of Sale: How much was the gain on sale of the building?

2. On the date that the note is collected by The Rusty Moose Corporation, how much is debited to cash?

3. How much is the discount on notes receivable?

4. At the end of year 2, how much interest revenue is recorded by the The Rusty Moose Corporation?

5. What is the Present Value of the Non-Interest Bearing Note on January 1, 2019?

Solutions

Expert Solution

All amounts are in $

Computation of present value of bond

Present value of bond = 325,000 x PVF(6%,4years)

= 325,000 x 0.79209

= 257,430 (rounded off)

1) Gain on sale of building

= Consideration - Net book value

= 257,430 - (300,000-115,000)

= 72,430

2) On the date of collection, $325,000 is debited to cash (as the entire amount will be received)

3) Discount on notes receivable

= Face value - Discounted value

= 325,000 - 257,430

= 67,570

4) At the year end of 2 (i.e., 2020) the interest revenue is 16,373 or 16,372.56

5) Present value of non interest bearing note on 1 January 2019 is $257,430

Journal Entries

For Initial Sale

Note Receivable $257,430

Accumulated depreciation $115,000

Gain on Sale of Building $72,430

Building $300,000

At 2019 End

Note Receivable $15,446

Interest Revenue $15,446

Working : 257,430 x 6% = 15,446 rounded off)

At 2020 End

Note Receivable $16,373

Interest Revenue $16,373

Working : (257,430+15,446) x 6% = 16,373 rounded off

At 2021 End

Note Receivable $17,355

Interest Revenue $17,355

Working : (257,430+15,446+16,373) x 6% = 17,355 rounded off

At 2022 End

Note Receivable $18,396

Interest Revenue $18,396

Working : (257,430+15,446+16,373+17,355) x 6% = 18,396 rounded off

On January 1, 2023

Cash $325,000

Note Receivable $325,000

(Note collected in full)

ekkarill92 answered 1 year ago

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