On January 1, Kilgore Inc. accepts a $20,000 non-interest-bearing, 5-year note from Dieland Company for equipment. Neither the fair value of the note nor the equipment is determinable. Kilgore had originally purchased the equipment for $18,000, and the equipment has a book value of $14,000 on January 1. Kilgore knows Dieland’s incremental borrowing rate of 9%. Prepare the
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- On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park 200,000 and had a book value of 20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is 25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Parks December 31, 2019, balance sheet? a. 28,560 b. 29,000 c. 32,500 d. 36,000arrow_forwardSpath Company borrows 75,000 by issuing a 4-year, noninterest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spaths incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate. Required: Prepare the journal entries on Spaths books for 2019 and 2020. (Round answers to 2 decimal places.)arrow_forwardOn January 1, 2018, Byner Company purchased a used tractor. Byner paid $5,000 down and signed a noninterest-bearing note requiring $25,000 to be paid on December 31, 2020. The fair value of the tractor is not determinable. An interest rate of 10% properly reflects the time value of money for this type of loan agreement. Thecompany’s fiscal year-end is December 31.Required:1. Prepare the journal entry to record the acquisition of the tractor. Round computations to the nearest dollar.2. How much interest expense will the company include in its 2018 and 2019 income statements for this note?3. What is the amount of the liability the company will report in its 2018 and 2019 balance sheets forthis note?arrow_forward
- Leon Acrobats lent $12,174 to Donaldson, Inc., accepting Donaldson's 2-year, $15,000, zero-interest-bearing note. The implied interest rate is 11%. Prepare Leon's journal entries for the initial transaction, recognition of interest each year, and the collection of $15,000 at maturity. (Round answers to O decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries.) Account Titles and Explanation (To record the initial transations) (To record the recognition of interest in year one) (To recognize the interest in year 2) Debit Credit [] |||||arrow_forwardAdams Acrobats lent $17,147 to Donaldson, Inc., accepting Donaldson's 2-year, $20,000, zero-interest-bearing note. The implied interest rate is 8%. Prepare Adams's journal entries for the initial transaction, recognition of interest each year, and the collection of $20,000 at maturity. (Round answers to O decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries.) Account Titles and Explanation (To record the initial transations) (To record the recognition of interest in year one) (To recognize the interest in year 2) (To record the collection of the note) Debit Credit INTarrow_forwardPlease help mearrow_forward
- On January 1, 2021, Mumbleford & Sons Co. sold equipment to Mulligan Care Service in exchange for a zero-interest bearing note. The note has a face value of $110,000, with payment due in 12 months. The imputed interest rate is 10%. The fair value of the equipment on the date of sale was $100,000. The amount of revenue to be recognized on this transaction in 2021 is Select one: a. $110,000 sales revenue. b. $100,000 sales revenue. c. $100,000 sales revenue and $10,000 deferred revenue. d. $100,000 sales revenue and $10,000 interest revenue.arrow_forwardOn January 1, 2019, Somerville Corporation sold a used truck to Cornelius Company and accepted a $28,000 non-interest-bearing note due January 1, 2020. Somerville carried the truck on its books at a cost of $30,000 and a current book value of $23,000. Neither the fair value of the truck nor the note was available at the time of the sale; however, Cornelius’s incremental borrowing rate was 12%. Required: 1. Prepare the journal entries on Somerville’s books to record: a. sale of the truck b. related adjusting entries on December 31, 2019, 2020, and 2021 c. collection of the note on January 1, 2022 2. Prepare the notes receivable portion of Somerville’s December 31, 2019, 2020, and 2021 balance sheets.arrow_forwardMarigold Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 10% and has a carrying value of $15,000. At year-end, Marigold’s borrowing rate (credit risk) has declined; the fair value of the note payable is now $16,300. Determine the unrealized holding gain or loss on the note. Prepare the entry to record any unrealized holding gain or loss.arrow_forward
- Ames, Inc. has $500,000 of notes payable due June 15, year 3. Ames signed an agreement on December 1, year 2, to borrow up to $500,000 to refinance the notes payable on a long-term basis with no payments due until year 4. The financing agreement stipulated that borrowings may not exceed 80% of the value of the collateral Ames was providing. At the date of issuance of the December 31, year 2 financial statements, the value of the collateral was $600,000 and is not expected to fall below this amount during year 3. In Ames Inc., December 31, year 2 balance sheet, the obligation for these notes payable should be classified as Short-term Long-term $500,000 $0 $100,000 $400,000 $ 20,000 $480,000 $0 $500,000arrow_forwardOn January 1, Gabriel Company sold land with a carrying value of P1,000,000 in exchange for a 1-year, 8% note with a face value of P1,500,000. The 8% rate properly reflects the time value of money for this type of note.On March 1, Gabriel Company discounted the note with recourse and accounted as a conditional sale. The bank discount rate is 10%.On September 1, the maker dishonored the notes receivable. In return, Gabriel Company pays the factor the maturity value of the note plus a protest fee of P5,000.At the end of the year, Gabriel Company collected the dishonored note in full plus a 10% interest on the total amount due.Requirements:1. Prepare the necessary journal entry to record the above transactions.2. Assuming that the March 1 transaction did not happen, prepare the necessary journal entry to record the above transactions.arrow_forwardOn April 1, 2020, NYC Corporation secures a loan with a finance company, using its accounts receivable of $80,000 as collateral for the loan. NYC Corporation agrees to remit customer collections as payments on the loan. Loan proceeds are 85% of the receivables less a 2% finance charge on the balance of the assigned receivables. In addition, the finance company charges 10% interest on the unpaid loan balance, payable at the end of each month. Record the April 1, 2020, entry for NYC Corporation.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning