INTERMEDIATE ACTG+CONNECT <LOOSE>
INTERMEDIATE ACTG+CONNECT <LOOSE>
9th Edition
ISBN: 9781260517125
Author: SPICELAND
Publisher: MCGRAW-HILL CUSTOM PUBLISHING
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Chapter 7, Problem 7.17P

(1)

To determine

Note receivable:

Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.

To prepare: Journal entries to record the following transaction.

(1)

Expert Solution
Check Mark

Explanation of Solution

Journal entries of FL bank are as follows:

FL bank agreed to settle the debt in exchange for land worth $16 million.

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

  Land   16,000,000  
  Loss on debt restructuring   6,000,000  
   Note receivable     20,000,000
   Accrued interest receivable (1)     2,000,000
  (To record the settlement of land for the debt)      

Table (1)

Working note:

Accruedinterest = 10% of note receivable =10%×20,000,000=2,000,000 (1)

(2)(a)

To determine

Interest accrued from last year.

(2)(a)

Expert Solution
Check Mark

Explanation of Solution

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

January 1, 2018 Loss on troubled debt restructuring   8,584,980  
  Accrued interest receivable (1)     2,000,000
   Note receivable ($20,000,000$13,415,020)     6,584,980
  (To record accrued interest)      

Table (2)

Working note:

$ $
Previous value:    
Interest Accrued 2017 (1) 2,000,000  
Principal 20,000,000  
Carrying amount of the receivables   22,000,000
New value:    
Interest ($1,000,000×3.16987) 3,169,870  
Principal ($15,000,000×0.68301) 10,245,150  
Present value of the receivable   (13,415,02)
Loss   8,584,980

Table (3)

  • PV factor of 3.16987 (Present value of an ordinary annuity of $1: n = 4, i = 10%) is taken from the table value (Refer Table 4 in Appendix from textbook).
  • PV factor of 0.68301 (Present value of $1: n = 4, i = 10%) is taken from the table value (Refer Table 2 in Appendix from textbook).

(b)

To determine

Reduce the interest payment to $1 Million each:

(b)

Expert Solution
Check Mark

Explanation of Solution

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

December 31, 2018 Cash (required by new agreement)   1,000,000  
  Note receivable (Balance)   341,502  
   Interest revenue (10% of $13,415,020)     1,341,502
  (To record the interest revenue )      

Table (4)

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

December 31, 2019 Cash (required by new agreement)   1,000,000  
  Note receivable (Balance)   375,652  
   Interest revenue (10% of $13,756,522)     1,375,652
  (To record the interest revenue )      

Table (5)

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

December 31, 2020 Cash (required by new agreement)   1,000,000  
  Note receivable (Balance)   413,217  
   Interest revenue (10% of $14,132,174)     1,413,217
  (To record the interest revenue )      

Table (6)

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

December 31, 2021 Cash (required by new agreement)   1,000,000  
  Note receivable (Balance)   454,609  
   Interest revenue (10% of $14,545,391)     1,454,609
  (To record the interest revenue )      

Table (7)

(c)

To determine

Reduce the principal to $15 Million:

(c)

Expert Solution
Check Mark

Explanation of Solution

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

December 31, 2021 Cash (required by new agreement)   15,000,000  
  Note receivable (Balance)     15,000,000
  (To record the principal )      

Table (8)

Note:

  • $15,000,000 is rounded to amortize the note.

Working note:

Amortization schedule:

INTERMEDIATE ACTG+CONNECT <LOOSE>, Chapter 7, Problem 7.17P , additional homework tip  1

Image (1)

(3)

To determine

To defer all payments until the maturity date:

(3)

Expert Solution
Check Mark

Explanation of Solution

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

January 1, 2018 Loss on troubled debt restructuring   3,029,397  
  Accrued interest receivable (1)     2,000,000
   Note receivable ($20,000,000$18,970,603)     1,029,397
  (To record the loss on debt )      
December 31, 2018 Note receivable (Balance)   1,897,060  
   Interest revenue (10% of $18,970,603)     1,897,060
  (To record the interest revenue )      
December 31, 2019 Note receivable (Balance)   2,086,766  
   Interest revenue (10% of $18,970,603+1,897,060)     2,086,766
  (To record the interest revenue )      
December 31, 2020 Note receivable (Balance)   2,295,443  
   Interest revenue (Refer schedule)     2,295,443
  To record the interest revenue )      
December 31, 2021 Note receivable (Balance)   2,295,443  
   Interest revenue (Refer schedule)     2,295,443
  To record the interest revenue )      
December 31, 2021 Cash (required by new agreement)   27,775,000  
  Note receivable (Balance)     27,775,000
  (To record the principal )      

Table (8)

Working notes:

$
Previous value:  
Interest Accrued 2017 (1) 2,000,000
Principal 20,000,000
Carrying amount of the receivables  
New value:  
Principal ($27,775,000×0.68301) 18,970,603
Loss 3,029,397

Table (9)

  • PV factor of 0.68301 (Present value of $1: n = 4, i = 10%) is taken from the table value (Refer Table 2 in Appendix from textbook).

Amortization schedule:

INTERMEDIATE ACTG+CONNECT <LOOSE>, Chapter 7, Problem 7.17P , additional homework tip  2

Image (2)

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Chapter 7 Solutions

INTERMEDIATE ACTG+CONNECT <LOOSE>

Ch. 7 - Prob. 7.11QCh. 7 - Is any special accounting treatment required for...Ch. 7 - Explain any possible differences between...Ch. 7 - Prob. 7.14QCh. 7 - What is meant by the discounting of a note...Ch. 7 - What are the key variables that influence a...Ch. 7 - Explain how the CECL model (introduced in ASU No....Ch. 7 - Prob. 7.18QCh. 7 - Prob. 7.19QCh. 7 - (Based on Appendix 7B) Marshall Companies, Inc.,...Ch. 7 - Prob. 7.21QCh. 7 - Prob. 7.1BECh. 7 - Prob. 7.2BECh. 7 - Prob. 7.3BECh. 7 - Cash discounts; gross method LO73 On December 28,...Ch. 7 - Prob. 7.5BECh. 7 - Sales re turns LO74 During 2018, its first year...Ch. 7 - Sales re turns LO74 Refer to the situation...Ch. 7 - Prob. 7.8BECh. 7 - Prob. 7.9BECh. 7 - Uncollectible accounts; balance sheet approach ...Ch. 7 - Uncollectible accounts; solving for unknown LO75,...Ch. 7 - Prob. 7.12BECh. 7 - Note receivable LO77 On December 1, 2018,...Ch. 7 - Long-term notes receivable LO74 On April 19,...Ch. 7 - Prob. 7.15BECh. 7 - Factoring of accounts receivable LO78 Refer to...Ch. 7 - Prob. 7.17BECh. 7 - Discounting a note LO78 On March 31, Dower...Ch. 7 - Receivables turnover LO78 Camden Hardwares credit...Ch. 7 - Prob. 7.20BECh. 7 - Prob. 7.21BECh. 7 - Impairments of Accounts Receivable Appendix 7B...Ch. 7 - Credit Losses on Accounts Receivable (CECL Model) ...Ch. 7 - Prob. 7.1ECh. 7 - Prob. 7.2ECh. 7 - Prob. 7.3ECh. 7 - Prob. 7.4ECh. 7 - Trade and cash discounts; the gross method and the...Ch. 7 - Prob. 7.6ECh. 7 - Cash discounts; the net method LO73 [This is a...Ch. 7 - Sales returns LO74 Halifax Manufacturing allows...Ch. 7 - Prob. 7.9ECh. 7 - Prob. 7.10ECh. 7 - Uncollectible accounts; allowance method; balance...Ch. 7 - Uncollectible accounts; allowance method and...Ch. 7 - Uncollectible accounts; allowance method; solving...Ch. 7 - Note receivable LO77 On June 30, 2018, the...Ch. 7 - Noninterest-bearing note receivable LO77 [This is...Ch. 7 - Long-term notes receivable LO77 On January 1,...Ch. 7 - Prob. 7.17ECh. 7 - Prob. 7.18ECh. 7 - Prob. 7.19ECh. 7 - Factoring of accounts receivable with recourse ...Ch. 7 - Factoring of accounts receivable with recourse...Ch. 7 - Discounting a note receivable LO78 Selkirk...Ch. 7 - Concepts; terminology LO71 through LO78 Listed...Ch. 7 - Receivables; transaction analysis LO73, LO75...Ch. 7 - Prob. 7.25ECh. 7 - Prob. 7.26ECh. 7 - Prob. 7.27ECh. 7 - Prob. 7.28ECh. 7 - Prob. 7.29ECh. 7 - Prob. 7.30ECh. 7 - Impairments of Notes Receivable Appendix 7B At...Ch. 7 - Prob. 7.32ECh. 7 - Prob. 7.33ECh. 7 - Prob. 7.34ECh. 7 - Uncollectible accounts; allowance method; income...Ch. 7 - Uncollectible accounts; Amdahl LO75 Real World...Ch. 7 - Bad debts; Nike, Inc. LO75 Real World Financials...Ch. 7 - Uncollectible accounts LO75, LO76 Raintree...Ch. 7 - Prob. 7.5PCh. 7 - Notes receivable; solving for unknowns LO77...Ch. 7 - Prob. 7.7PCh. 7 - Prob. 7.8PCh. 7 - Prob. 7.9PCh. 7 - Prob. 7.10PCh. 7 - Prob. 7.11PCh. 7 - Accounts and notes receivable; discounting a note...Ch. 7 - Prob. 7.13PCh. 7 - Prob. 7.14PCh. 7 - Prob. 7.15PCh. 7 - Prob. 7.16PCh. 7 - Prob. 7.17PCh. 7 - Prob. 7.1BYPCh. 7 - Prob. 7.2BYPCh. 7 - Prob. 7.3BYPCh. 7 - Real World Case 74 Sales returns; Green Mountain...Ch. 7 - Ethics Case 75 Uncollectible accounts LO75 You...Ch. 7 - Prob. 7.6BYPCh. 7 - Prob. 7.7BYPCh. 7 - Prob. 7.8BYPCh. 7 - Prob. 7.9BYPCh. 7 - Prob. 7.10BYPCh. 7 - Prob. 7.11BYPCh. 7 - Prob. 1CCTC
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