1.
Prepare the necessary
1.
Explanation of Solution
Note receivable: Note receivable refers to a written promise by the debtor for the amounts to be received within a stipulated period of 60-90 days or longer time. This written promise is issued by a debtor or, a borrower to the lender or, creditor. Notes receivable is an asset of a business.
Record the sale of machinery on January 1, 2016.
Date | Account Title and Explanation | Debit | Credit |
January 1, 2016 | Notes receivable | $180,000.00 | |
$42,000.00 | |||
Gain on sale of machinery (2) | $31,211.12 | ||
Discount on notes receivable (1) | $30,788.88 | ||
Machinery | $160,000.00 | ||
(To record the gain on sale of machinery and the machinery is sold on note) |
Table (1)
Working note (1):
Calculate the amount of discount on notes receivable.
Working note (2):
Calculate the amount of gain on sale of land.
Working note (3):
Calculate the amount of accumulated depreciation.
Record the interest income earned on note receivable and the collection of note receivable for the year ended December 31, 2016.
Date | Account Title and Explanation | Debit | Credit |
December 31, 2016 | Cash | $60,000.00 | |
Discount on notes receivable | $14,921.11 | ||
Interest income (5) | $14,921.11 | ||
Notes receivable | $60,000.00 | ||
(To record the earnings of interest income on non-bearing-interest note and the collection of first instalment) |
Table (2)
Working note (4):
Calculate the amount of interest rate.
Working note (5):
Calculate the amount of interest income.
Record the interest income earned on note receivable for the year ended December 31, 2017.
Date | Account Title and Explanation | Debit | Credit |
December 31, 2017 | Cash | $60,000.00 | |
Discount on notes receivable | $10,413.22 | ||
Interest income (6) | $10,413.22 | ||
Notes receivable | $60,000.00 | ||
(To record the earnings of interest income on non-bearing-interest note and the collection of second instalment) |
Table (3)
Working note (6):
Calculate the amount of interest income.
Record the interest income earned on note receivable for the year ended December 31, 2018.
Date | Account Title and Explanation | Debit | Credit |
December 31, 2018 | Cash | $60,000.00 | |
Discount on notes receivable | $5,454.55 | ||
Interest income (7) | $5,454.55 | ||
Notes receivable | $60,000.00 | ||
(To record the earnings of interest income on non-bearing-interest note and the collection of second instalment) |
Table (4)
Working note (7):
Calculate the amount of interest income.
2.
Prepare the notes receivable portion of Company L’s
2.
Explanation of Solution
Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare the notes receivable portion of Company L’s balance sheet on December 31, 2016 and 2017.
Balance sheet (Partial) | ||
As at December 31 | ||
Assets | December 31, 2016 | December 31, 2017 |
Notes receivable | $120,000.00 (8) | $60,000.00 (10) |
Less: Discount on notes receivable | ($15,867.77) (9) | ($5,454.55) (11) |
Total notes receivable | $104,132.23 | $54,545.45 |
Table (5)
Working notes (8):
Determine the amount of notes receivable at December 31, 2016.
Working notes (9):
Determine the amount of discount on notes receivable at December 31, 2016.
Working notes (10):
Determine the amount of notes receivable at December 31, 2017.
Working notes (11):
Determine the amount of discount on notes receivable at December 31, 2017.
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- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning