Question

Note Receivable: On Jan 1st, 2014, Xena Inc. provided services in exchange for a 2-year $100,000, 8% note receivable that pays interest quarterly on March 31st, June 30th, September 30th, and Dec 31st. The customer’s normal borrowing rate (market rate) is 12%.

On, Jan 1st, 2014, the carrying value of the note receivable is $___________ Round to the nearest dollar.

a. Prepare a well-labeled schedule (with debits/credits shown) for the journal entries through the life of the Note.

b. Prepare the original Journal Entry to record the issue of the Note Receivable

c. Prepare the Journal Entry to record the Interest on 12/31/15 for the Note Receivable

Answer 1

А в C F G H I $ 100,000 $ 2,000 face value of note quarterly interest payments total quarterly periods quarterly market interest rate On, Jan 1st, 2014, the carrying value of the note receivable is 3% $ 92,980 date interest revenuel (credit) interest received debit) discount amortization (debit) Jan 1st, 2014 March 31st, 2014 June 31st, 2014 September 31st, 2014 December 31st, 2014 March 31st, 2015 June 31st, 2015 September 31st, 2015 December 31st, 2015 $ 2,789 $ 2,813 $ 2,837 $ 2,863 $ 2,888 $ 2,915 $ 2,943 $ 2,971 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $2,000 $ 2,000 $ 2,000 $ 789 $ 813 $ 837 $ 863 $ 888 $915 $943 $971 carrying value of note receivable $ 92,980 $ 93,770 $ 94,583 $ 95,420 $ 96,283 $ 97,171 $ 98,087 $ 99,029 $ 100,000

B19 date account titles and explanation debit credit Jan 1st, 2014 $ 100,000 note receivable discout on note receivable service revenue (to record issue of note receivable) $ 7,020 $ 92,980 date account titles and explanation debit credit December 31st, 2015 cash $ 2,000 $971 discout on note receivable interest revenue (to record interest revenue) $ 2,971

for formulas and calculations, refer to the image below -

D face value of note quarterly interest payments total quarterly periods quarterly market interest rate 100000 =D2*8%/4 =2*4 =12%/4 On, Jan 1st, 2014, the carrying value of the note receivable is |--PV(D5,D4,D3,D2) date interest revenue (credit) interest received (debit) discount carrying value of amortization (debit)| note receivable Jan 1st, 2014 March 31st, 2014 June 31st, 2014 September 31st, 2014 December 31st, 2014 March 31st, 2015 June 31st, 2015 September 31st, 2015 December 31st, 2015 =G9*3% =G10*3% =G11*3% =G12*3% =G13*3% =G14*3% G15*3% =G16*3% 2000 2000 2000 2000 2000 2000 2000 2000 =D10-E10 =D11-E11 =D12-E12 =D13-E13 =D14-E14 =D15-E15 1=D16-E16 =D17-E17 =D6 =G9+F10 =G10+F11 =G11+F12 =G12+F13 =G13+F14 =G14+F15 =G15+F16 =G16+F17

B19 date account titles and explanation debit credit Jan 1st, 2014 note receivable discout on note receivable service revenue (to record issue of note receivable) =G21-H23 =D6 date account titles and explanation debit credit December 31st, 2015 -F17 =F17 cash discout on note receivable interest revenue (to record interest revenue) -117

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