Question

Problem 7-9 (Part Level Submission)

Sheridan Inc. had the following long-term receivable account balances at December 31, 2016.

Note receivable from sale of division		$1,500,000
Note receivable from officer		418,000

Transactions during 2017 and other information relating to Sheridan’s long-term receivables were as follows.

1.		The $1,500,000 note receivable is dated May 1, 2016, bears interest at 10%, and represents the balance of the consideration received from the sale of Sheridan’s electronics division to New York Company. Principal payments of $500,000 plus appropriate interest are due on May 1, 2017, 2018, and 2019. The first principal and interest payment was made on May 1, 2017. Collection of the note installments is reasonably assured.
2.		The $418,000 note receivable is dated December 31, 2016, bears interest at 9%, and is due on December 31, 2019. The note is due from Sean May, president of Sheridan Inc. and is collateralized by 10,450 shares of Sheridan’s common stock. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31, 2017. The quoted market price of Sheridan’s common stock was $46 per share on December 31, 2017.
3.		On April 1, 2017, Sheridan sold a patent to Pennsylvania Company in exchange for a $134,000 zero-interest-bearing note due on April 1, 2019. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2017, was 13%. The present value of $1 for two periods at 13% is 0.783 (use this factor). The patent had a carrying value of $53,600 at January 1, 2017, and the amortization for the year ended December 31, 2017, would have been $10,720. The collection of the note receivable from Pennsylvania is reasonably assured.
4.		On July 1, 2017, Sheridan sold a parcel of land to Splinter Company for $191,400 under an installment sale contract. Splinter made a $57,420 cash down payment on July 1, 2017, and signed a 4-year 12% note for the $133,980 balance. The equal annual payments of principal and interest on the note will be $41,601 payable on July 1, 2018, through July 1, 2021. The land could have been sold at an established cash price of $191,400. The cost of the land to Sheridan was $141,400. Circumstances are such that the collection of the installments on the note is reasonably assured. Prepare the long-term receivables section of Sheridan’s balance sheet at December 31, 2017.

Answer 1

a)
Sheridan Inc.
Long-Term Receivables Section of Statement of Financial Position
December 31, 2017
10% note receivable from sale of division, due in annual installments of $500,000 to May 1, 2017, less current installment (Working Notes 1)	$500,000.00
9% note receivable from officer, due Dec. 31,2019, collateralized by 10450 shares of Sheridan Inc., common stock with a fair value of $46 x 10,450	$418,000.00
Zero-interest-bearing note from sale of patent, net of 13% imputed interest, due April 1,2019 (Working note 2)	$115,151.90
Installment contract receivable, due in annual of $41,601 to July 1, 2018, less current installment	$108,456.60
Total long-term receivables	$1,141,608.50
Working Notes
(1) Long-term Portion of 10% Note Receivable at 12/31/17
Face amount, 5/1/16	$1,500,000.00
Less: Installment received 5/1/17	$500,000.00
Balance, 12/31/17	$1,000,000.00
Less: Installment due 5/1/18	$500,000.00
Long-term portion, 12/31/17	$500,000.00
(2) Zero-interest-bearing Note, Net of Imputed Interest at 12/31/17
Face amount 4/1/17	$134,000.00
Less: Imputed interest [$134,000 – ($134,000 X 0.783)]	$29,078.00
Balance, 4/1/16	$104,922.00
Add: Interest earned to 12/31/17 ($134,000 X .783 X 13% X 9/12)	$10,229.90
Balance, 12/31/17	$115,151.90
(3) Long-term Portion of Installment Contract
Receivable at 12/31/17
Contract selling price, 7/1/17	$191,400.00
Less: Down payment, 7/1/17	$57,420.00
Balance, 12/31/17	$133,980.00
Less: Installment due, 7/1/18 [$41,601 – ($133,980 X 12%)]	$25,523.40
Long-term portion, 12/31/18	$108,456.60