Concept explainers
1.
Prepare the
1.
Explanation of Solution
Note receivable: Note receivable refers to a written promise received by the creditor from the debtor in formal, for the amounts to be settled within a stipulated period of time. This written promise is issued by a debtor or borrower to the lender or creditor. Notes receivable is an asset of a business. Notes receivable often used for the credit periods of more than 60 days.
Record the sale of land on January 1, 2016.
Date | Account Title and Explanation | Debit | Credit |
January 1, 2016 | Cash | $15,000.00 | |
Notes receivable | $15,000.00 | ||
Discount on notes receivable (4) | $2,324.62 | ||
Gain on sale of land (3) | $4,675.38 | ||
Land | $23,000.00 | ||
(To record the gain on sale of land and the land is sold partly for cash and partly for note) |
Table (1)
Working note (1):
Calculate the present value of the note.
Working note (2):
Calculate the present value of the land.
Note:
In the above formula, PO represents present value factor of an ordinary annuity. Factor for POn=2, i=12% is determined using table 4 of the time value of money module.
Working note (3):
Calculate the amount of gain on sale of land.
Working note (4):
Calculate the amount of discount on notes receivable.
Record the interest income earned on note receivable, and the receipt of first instalment for the year ended December 31, 2016.
Date | Account Title and Explanation | Debit | Credit |
December 31, 2016 | Cash | $7,500.00 | |
Discount on notes receivable | $1,521.05 | ||
Interest income (5) | $1,521.05 | ||
Notes receivable | $7,500.00 | ||
(To record the earnings of interest income on non-bearing-interest note, and collection of first instalment) |
Table (2)
Working note (5):
Calculate the amount of interest income.
Record the interest income earned on note receivable, and the receipt of first instalment for the year ended December 31, 2017.
Date | Account Title and Explanation | Debit | Credit |
December 31, 2017 | Cash | $7,500.00 | |
Discount on notes receivable | $803.57 | ||
Interest income (6) | $803.57 | ||
Notes receivable | $7,500.00 | ||
(To record the earnings of interest income on non-bearing-interest note, and collection of second instalment) |
Table (3)
Working note (6):
Calculate the amount of interest income.
2.
Record the journal entries in the books of Company S for July 1, 2016, through July 1, 2018, in regard to the Company H.
2.
Explanation of Solution
Record the
Date | Account Title and Explanation | Debit | Credit |
July 1, 2016 | Depreciation expenses (7) | $2,250.00 | |
$2,250.00 | |||
(To record the depreciation expenses for 6 month) |
Table (4)
Working note (7):
Calculate the depreciation expenses for 6 months from January 1, 2016 to July 1, 2016.
Record the sale of building on July 1, 2016.
Date | Account Title and Explanation | Debit | Credit |
July 1, 2016 | Notes receivable | $100,000.00 | |
Accumulated depreciation (8) | $24,750.00 | ||
Discount on notes receivable (9) | $17,394.60 | ||
Gain on sale of building (10) | $17,355.40 | ||
Building | $90,000.00 | ||
(To record the gain on sale of building and the building is sold on note) |
Table (5)
Working note (8):
Calculate the amount of accumulated depreciation.
Working note (9):
Calculate the amount of discount on notes receivable.
Working note (10):
Calculate the amount of gain on sale of building.
Record the interest income earned on note receivable for the year ended December 31, 2016.
Date | Account Title and Explanation | Debit | Credit |
December 31, 2016 | Discount on notes receivable | $4,132.23 | |
Interest income (12) | $4,132.23 | ||
(To record the earnings of interest income for 6 months) |
Table (6)
Working note (11):
Calculate the amount of interest rate.
Working note (12):
Calculate the amount of interest income earned for 6 months (from July 1 to December 31, 2016).
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 | Discount on notes receivable | $8,677.68 | |
Interest income (13) | $8,677.68 | ||
(To record the earnings of interest income for 1 year) |
Table (7)
Working note (13):
Calculate the amount of interest income.
Record the interest income earned on note receivable for the last 6 months.
Date | Account Title and Explanation | Debit | Credit |
July 1, 2018 | Discount on notes receivable (14) | $4,545.49 | |
Interest income | $4,545.49 | ||
(To record the earnings of interest income for last 6 months) |
Table (8)
Working note (14):
Calculate the amount of interest income.
Record the collection of cash on note on due date.
Date | Account Title and Explanation | Debit | Credit |
July 30, 2018 | Cash | $100,000.00 | |
Notes receivable | $100,000.00 | ||
(To record the collection on note) |
Table (9)
3.
Prepare the notes receivable portion of Company S’s
3.
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 S’s balance sheet on December 31, 2016 and 2017.
Company S | ||
Balance sheet (Partial) | ||
As at December 31 | ||
Assets | December 31, 2016 | December 31, 2017 |
Notes receivable | $107,500.00 (14) | $100,000.00 (16) |
Less: Discount on notes receivable | ($14,026.74) (15) | ($4,545.49) (17) |
$93,473.26 | $95,454.51 |
Table (10)
Working note (14):
Calculate the amount of notes receivable at December 31, 2016.
Working note (15):
Calculate the amount of discount on notes receivable at December 31, 2016.
Working note (16):
Determine the amount of notes receivable at December 31, 2017.
Working note (17):
Determine the amount of discount on notes receivable at December 31, 2017.
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