Question

$50,000 zero-interest bear PROBLES The Problem C. On January 1, 2019, Western sold equipment to Jones Company, accepting a $50,000 zero-interese note to be paid in full at the end of the third year (December 31, 2021). The implicit interest rate is 10%. The presa value factor for a single amount (n=3,1 = 1096) -0.75132 a. At what amount will Western record the sale? Carrying amount of note b. Complete the amortization table below. Schedule of Note discount Amortization Effective interest method Cash received Interest revenue Discount amortized Jan 1, 2019 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 c What journal entries should Western s record for the interest revenue recognition on Dec 31, 2019, 2020, and 2021. What will Western record when the note is repaid? Jan 1, 2019 (Date of Sale) Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 (Interest) Dec 31, 2021 (repay note) A PROBLEM D: On January 1, 2020 Lance Co. issued five-year bonds with a face value of $1,000,000 and a stated interest rate of 12% payable semiannually on July 1 and January 1. The bonds were sold to yield 10%. Present value table factors are: Present value of 1 for 5 periods at 10% .62092 Present value of 1 for 5 periods at 12% 56743 Present value of 1 for 10 periods at 5% .61391 Present value of 1 for 10 periods at 6% .55839 Present value of an ordinary annuity of 1 for 5 periods at 10% 3.79079 Present value of an ordinary annuity of 1 for 5 periods at 12% 3.60478 Present value of an ordinary annuity of 1 for 10 periods at 5% 7.72173 Present value of an ordinary annuity of 1 for 10 periods at 6% 7.36009 a. Calculate the issue price of the bonds. b. What journal entry will be made when the bonds are issued?

Answer 1

Answer to Problem C.

Part a.

Present Value of Note Receivable = Note Receivable * PV of $1 (i%, n)
Present Value of Note Receivable = Note Receivable * PV of $1 (10%, 3)
Present Value of Note Receivable = $50,000 * 0.75132
Present Value of Note Receivable = $37,566

Therefore, Western should record the sale at $37,566.

Part b. Schedule of Note Discount Amortization: Effective Interest Method: Discount Cash Received Interest Revenue Amortized Jan 1, 2019 Dec 31, 2019 3,757 3,757 Dec 31, 2020 4,132 4,132 Dec 31, 2021 4,545 4,545 Carrying amount of note 37,566 41,323 45,455 50,000 Part : Credit Debit 37,566 37,566 3,757 3,757 Date Jan 1, 2019 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 Dec 31, 2021 General Journal Note Receivable Equipment Note Receivable Interest Revenue Note Receivable Interest Revenue Note Receivable Interest Revenue Cash Note Receivable 4,132 4,132 4,545 4,545 50,000 50,000