Question

Sheffield Inc. had the following long-term receivable account balances at December 31, 2019.

Note receivable from sale of division		$2,400,000
Note receivable from officer		495,100

Transactions during 2020 and other information relating to Sheffield’s long-term receivables were as follows.

1.		The $2,400,000 note receivable is dated May 1, 2019, bears interest at 10%, and represents the balance of the consideration received from the sale of Sheffield’s electronics division to New York Company. Principal payments of $800,000 plus appropriate interest are due on May 1, 2020, 2021, and 2022. The first principal and interest payment was made on May 1, 2020. Collection of the note installments is reasonably assured.
2.		The $495,100 note receivable is dated December 31, 2019, bears interest at 9%, and is due on December 31, 2022. The note is due from Sean May, president of Sheffield Inc. and is collateralized by 12,378 shares of Sheffield’s common stock. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31, 2020. The quoted market price of Sheffield’s common stock was $44 per share on December 31, 2020.
3.		On April 1, 2020, Sheffield sold a patent to Pennsylvania Company in exchange for a $110,000 zero-interest-bearing note due on April 1, 2022. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2020, was 11%. The present value of $1 for two periods at 11% is 0.812 (use this factor). The patent had a carrying value of $44,000 at January 1, 2020, and the amortization for the year ended December 31, 2020, would have been $8,800. The collection of the note receivable from Pennsylvania is reasonably assured.
4.		On July 1, 2020, Sheffield sold a parcel of land to Splinter Company for $200,000 under an installment sale contract. Splinter made a $60,000 cash down payment on July 1, 2020, and signed a 4-year 10% note for the $140,000 balance. The equal annual payments of principal and interest on the note will be $45,125 payable on July 1, 2021, through July 1, 2024. The land could have been sold at an established cash price of $200,000. The cost of the land to Sheffield was $150,000. Circumstances are such that the collection of the installments on the note is reasonably assured.

1. Prepare the long-term receivables section of Sheffield’s balance sheet at December 31, 2020.
2. Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Sheffield’s balance sheet at December 31, 2020.
3. Prepare a schedule showing interest revenue from the long-term receivables that would appear on Sheffield’s income statement for the year ended December 31, 2020.

Answer 1

BALANCE SHEET AS ON DECEMBER 31, 2020
LIABILITIES	AMOUNT	ASSETS	AMOUNT
		LONG TERM RECEIVABLES
		Note Receivable from Sale of Division	1,680,000
		Note receivable from officer	495,100
		Note receivable from Pennsylvania Company	96,689
		Note receivable from Splinter Company	145,063
			2,416,852

INTEREST RECEIVED A/C
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
		Note Receivable from Sale of Division (Received)	80,000
		Note Receivable from Sale of Division (Accrued)	106,667
		Note receivable from officer (Received)	44,559
		Note receivable from Pennsylvania Company (Accrued)	7,369
		Note receivable from Splinter Company (Accrued)	5,063
			243,658

Total long-term receivables of Sheffield’s balance sheet at December 31, 2020 = $2,416,852.

Total interest revenue from the long-term receivables that would appear on Sheffield’s income statement for the year ended December 31, 2020 = $243,658.

Received Interest = $124,559

Accrued Interest = $119,099

WORKING:-

1. Interest Received A/c:-

> Note Receivable from Sale of Division (Received) = 10% of $2,400,000 for 4 months = $80,000

> Note Receivable from Sale of Division (Accrued) = 10% of $1,600,000 for 8 months = 106,667

> Note receivable from officer (Received) = 9% of $495,100 for 12 months = $44,559

> Note receivable from Pennsylvania Company (Accrued) = 11% of ($110,000 * 0.812) for 9 months = $7,369

> Note receivable from Splinter Company (Accrued) = ($45,125-($140,000/4)) for 6 months = ($45,125-$35,000)/2 = $5,063.

2. Balance Sheet Figures:-

> Note Receivable from Sale of Division = $2,400,000 - $800,000 + $80,000 = $1,680,000

> Note receivable from Pennsylvania Company = ($110,000 * 0.812) + $7,369 = $96,689

> Note receivable from Splinter Company = $140,000 + $5,063 = $145,063.