Question

Exhibit 13-03 On January 1, 2017, Train, Inc., accepted an $80.000 non-interest bearing 3 year note in exchange for equipment it sold to Steam Company. Train originally purchased the equipment for $125,000, and it had a book value of $75,000 on the date of the sale. The note was non-interest-bearing. An assumed 11% interest rate is implicit in the agreement. Actual information for 11%, three periods, follows: Present value of 1 Present value of annuity of 1 0.73119 2.44371 Refer to Exhibit 13-03. What amount would Train show as the balance for Discount on Notes Receivable on December 31, 2018? Select one a 564,929 D$7.928 c. $15,071 d. 57,142

Answer 1

Answer: $7,928

Calculations:

Face value of the bonds receivable	$80,000
Less: Present value of the bonds receivable ($80,000 x 0.73119)	$58,495
Total discount on bonds receivable	$21,505
Discount amortization for 2017 (58,495.20 x 11%)	$6,434
Discount amortization for 2018 (58,495.20+6,434.47) x 11%	$7,142
Total discount amortized at the end of 2018	$13,577
Total discount on bonds receivable	$21,505
Less: Total discount amortized at the end of 2018	($13,577)
Balance for discount on bonds receivable on Dec 31,2018	$7,928