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1 Filename: K17 C06 P50 A VER V1 NOTE REC XLS -- Note Receivable Discount Amortization Schedule
2 K17 C06 P50 A VER A
3 PROBLEM:
4 Ferry and Students Inc. issued the following note receivable on January 1, 2019:
5 $90,000 0% note receivable due 1/1/2021 with payment due on the settlement date.
6 The current market rate of interest on the date of issue was 1%
7
8 Required: (1) Use the effective interest rate method of amortization to prepare the
9 Schedule of Note Discount Amortization for the Note Receivable.
10 Assume the issue price (present value) was $88,227
11
12 Please footnote every number in the schedule (or table) and
13 show all of your work starting with the formula in words
14 and symbols, showing all of the substitutions, the intermediate
15 calculations and the final answers for every number to receive
16 credit for the problem.
17
18 (2) Prepare the journal entry to issue the note on January 1, 2019.
19 (3) Prepare the adjusting entry (adusting journal entry) for December 31, 2019.
20 (4) Prepare the adjusting entry for December 31, 2020.
21 (5) Prepare the journal entry to redeem the note on January 1, 2021.
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49 INPUT:
50 Settlement 1/1/2019 Use the date function
51 Maturity 1/1/2021 Use the date function
52 + Bond rate 0% Use Integers i.e. .08 double the table values
53 + Yield rate 1% > 0%
54 Redemption 100 Not input = 100
55 Frequency 1 2 = semiannual, 1=ANNUAL
56 Basis 0 0 = USA days
57 + Par value $90,000
58
59 Note: I can only input four values with the plus signs. Maybe not Maturity!!!!
60 I had to use all cell references in PRICE TO GET IT TO WORK!!!
61
62 SOLUTION:
63
64 (1) Schedule of Note Discount Amortization
65 Effective interest Method
66 2 year, 0% Note Discounted at 1%
67 Carrying
68 Cash Interest Discount Amount
69 Date Paid Revenue Amortized of Note
70 ---------------- ---------------- ---------------- ---------------- ----------------
71 1/1/2019 $88,227 (A)
72 1/1/2020 $0 (a) $882 (b) $882 © $89,109 (d)
73 1/1/2021 $0 (a) $891 € $891 (f) $90,000 (g)
74
75
76 ---------------- ---------------- ----------------
77 $0 $1,773 $1,773
78 ========== ========== ==========
79
80 (A) Given. The carrying value (amount) of the note on the day it is sold is the
81 sales price or proceeds of the sale. Note(s): There may be some rounding error on every number!
82 (a) Cash Paid = Par value * stated rate * time
83 $90,000 * 0% * 6/12
84 = $90,000 * 0% * 0.5 = $0
85 (b) Interest Expense = Carrying Amount * Yield rate * time
86 $88,227 * 1% * 12/12
87 = $88,227 * 1% * 1 = $882
88 © Discount Amortized = Interest Expense - Cash Paid
89 $882 - $0 = $882
90 (d) New carrying amount = Previous carrying amount + discount amortized
91 $88,227 + $882 = $89,109
92 =
93 € $89,109 * 1% * 12/12
94 = $89,109 * 1% * 1 = $891
95 =
96 (f) $891 - $0 = $891

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97 =
98 (g) $89,109 + $891 = $90,000
99 =
100
101 Note(s): There may be some rounding error when you use the present value tables.
102
103
104 (2) January 1, 2019
105 Notes Receivable $90,000 (a)
106 Discount on Notes Receivable $1,773 (b)
107 Service Revenue $88,227 ;©
108 (Record Note Receivable)
109
110 (a) Face value of the note
111 (b) Face value of the note - present value of the note
112 $90,000 - $88,227 = $1,773
113 © The present value of the note
114
115 (3) December 31. 2019
116 Discount on Notes Receivable $882
117 Interest Revenue $882 (d)
118 (Record interest revenue)
119
120 (d) Carrying value * effective interest rate
121 $88,227 * 1% = 882
122
123 (4) 31-Dec-20
124 Discount on Notes Receivable $891
125 Interest Revenue $891 €
126 (Record interest revenue)
127
128 € Carrying value * effective interest rate
129 $89,109 * 1% = 891
130
131 or Total discount - 1st year discount
132 $1,773 - 882 = $891
133 or Total interst - 1st year's interst
134 $1,773 - 882 = $891
135
136 or (previous carrying value + discount amortized) * effective rate
137 ( $88,227 + 882 ) * 1% = $891
138
139 (5) January 1, 2021
140 Cash 90,000 (f)
141 Notes Receivable 90,000
142 (Redeem the note receivable)
143
144 (f) The face value of the note

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