Homework Answers
Answer: the borrower's incremental borrowing rate.
Reason: When a non-interest bearing note is a loan is sold to the third party, it would be sold generally at a discount so the purchaser will get some gain on loan. this will goes on again and again for each time loan transfer. Hence non-interest bearing note's interest is the borrower's incremental borrowing rate.
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Under current GAAP, the rate of interest assigned to non-interest-bearing notes is the prime rate the...
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On January 1, 2019, Worthylake Company sold used machinery to Brown Company, accepting a $25,000, non-interest-bearing...
On January 1, 2019, Worthylake Company sold used machinery to
Brown Company, accepting a $25,000, non-interest-bearing note
maturing on January 1, 2021. Worthylake carried the machinery on
its books at a cost of $21,000 and a current book value of $16,000.
Neither the fair value of the machinery nor the note was
determinable at the time of sale; however, Brown’s incremental
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Required:
Prepare the journal entries on Worthylake’s books to
record:
1.
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earned income
1. When a company exchanges a long-term, non-interest-bearing note for cash and no interest rate is stated, how does it determine the effective interest?
On January 1, 2019, Worthylake Company sold used machinery to
Brown Company, accepting a $25,000, non-interest-bearing note
maturing on January 1, 2021. Worthylake carried the machinery on
its books at a cost of $21,000 and a current book value of $16,000.
Neither the fair value of the machinery nor the note was
determinable at the time of sale; however, Brown’s incremental
borrowing rate was 10%.
Required:
Prepare the journal entries on Worthylake’s books to
record:
1.
sale of the machinery...
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