Question

P 8-13 Restructurin te Fish Spotters, Inc., purchased a single-engine aircraft from National Aviation on January 1, 2014. Fish Spotters paid $55,000 cash and signed a three-year, 8% note for the remaining $45,000. Terms of the note require Fish Spotters to pay accrued interest annually on December 31 with the remaining $45,000 balance due with the last interest payment on December 31, 2016. Fish Spotters made the first two interest payments but was unable to make the principal and interest payment due December 31, 2016. On January 1, 2017, National Aviation agreed to restructure the note receivable. Required: 1. Provide the journal entries that National Aviation would record under each of the follow- ing independent scenarios. 2. It agrees to take the aircraft back in return for the outstanding note. Assume that the air- craft has a market value of $40,000. 3. It agrees to accept a $5.000 cash payment and a new $35,000 note receivable due in five years. The note stipulates payment of $4,200 annual interest each December 31. Prepare the note receivable amortization table through December 31, 2021, and all entries through December 31, 2019.

Answer 1

Answer Jawnal entries coach to Page No ③ that Rabional aviation could scored under following independent scenarios :- Debit e I agrees to take the discraft back in returns for the outstanding note. Assume that the air caradt has a manket value of $40,000 Date .. Particular Credit Jan', Aircoralt $40,000 loss on receivable vestructuring $ 8600 $ 45000 Interest receivable $3600 2017 Note receivable Interest receivable = $45000 X 8%. . € 3600 Loss on receivable restructuring - 45000 + 3600 ~ 40,000 = $8600

- Page No ③ Restuchining of note oecivable by taking cash se nate olsceivable neus value exchange for original note receivable Particular | Amount Amount Carrying value of note at Jan !! $ 45000 Accrued interest $3600 2014 $ 48600 (5000) Consideration received O cash Restructured note vicceivable PV of interest payments $16769 PV of note oreceivable $23801 Present value of restructured note receivable (4 40590) Loss on receivable restructuring $ 3010 pr of interest payments = € 4200 X pv of annuity (87, oyna) = 4200 x 1-(+84)

Page No ③ = 4200 X 3.99271 #16769 pv of nobe receivable = $35000 x, tea . (n = 5yrs) Poce (1 +87.75 Cur 87 35000 KO.680583197 = $ 23821 Journal entries On dec 31, 2017 cash = $4200 Restructured note deceivable = 4200 – (40590 X 8'1') = 4200 – 3247 - $953 Interest income = 40590x84. $3247 On dec 31, 2018, - Cash = $4,200 Pesticwed zote verejvable-Carol 10570 965) x 87)

= 4000 - (39637 X 8%) . Page No 4 = 4200 - 3171 = $1029 Interest income a $3171 (39634x84, - $3171) on ckec 31, 2019, Cash 4200 Paterest income - (39634 - 2009) *8). = $3089 Restructioned note receivable = 4200 – 3089 = $1111" 3089 Amortization Schedule Interess frome Restructured Date Nolencceivable (new) note receivable clc 31, 2016 dec 31, 2017 * 40590 $39637 4200 $953 dec. 31,2018 4200 $10,29 $ 38608 dec 31, 2019 4200 $3247 $3171 $ 3089 $ 3000 $2904 $1111 $37497 $36297 4200 dec31,2070 dec 31, 2021 $1000 $1296 4200 $ 35001

Page No 5 Journal entries Gredit Tani, 2017 $ 45000 $3600 Date Particular Debit Cash $ 5000 Restaructured note receivable $40590 Loms on receivable restructuring $ 3010 : Note receivable Interest Yeceivable Idec 31, 2017 Cash $ 4200 Restructured note receivable Interest income - cash Restructuried note receivable - Interest income dec 31,2019 cash $4200 Restructured note receivable Interest income $953 $3247 $4200 dec 31, 2018 $1029 $3171 $1111 $ 3089