On January 1, 2018, A Corporation made a loan to B Corporation. The note documenting this loan agreement is a zero-interest bearing note. The terms of the note require B to pay A $30,000 on January 1, 2020. The market (effective) rate of interest for the level of risk in this situation is 6%. 2. Prepare a discount amortization schedule and show how the not will be reported in the balance sheet as of Dec. 31,2018 and Dec. 31, 2019.
What effect does the note have on the income statement for the years ending December 31, 2018, December 31, 2019 and December 31, 2020?
Solution:
maturity value of note = $30,000
Effective rate of interest = 6%
Maturity period = 2 years
Discounted value of note = $30,000 / (1+0.06)^2 = $26,700
Discount on note = $30000 - $26,700 = $3,300
Discount amortization schedule - Note | |||
Date | Interest Expense | Discount amortized | Carrying value of note |
1-Jan-18 | $26,700.00 | ||
1-Jan-19 | $1,602.00 | $1,602.00 | $28,302.00 |
1-Jan-20 | $1,698.00 | $1,698.00 | $30,000.00 |
Balance Sheet - Partial - B Corporation | ||
As on Dec 31, 2018 | ||
Particulars | Details | Amount |
Notes payable | $30,000.00 | |
Discount on notes | $1,602.00 | $28,398.00 |
Balance Sheet - Partial - B Corporation | ||
As on Dec 31, 2019 | ||
Particulars | Details | Amount |
Notes payable | $30,000.00 | |
Discount on notes | $0.00 | $30,000.00 |
Effect on income statement:
December 31, 2018 - Recognition of interest expense = $1,602
December 31, 2019 - Recognition of interest expense = $1,698
December 31, 2020 - No effect on income statement
On January 1, 2018, A Corporation made a loan to B Corporation. The note documenting this...
Problem C. On January 1, 2019, WESTERN sold equipment to JONES Company, accepting a $70,000 zero-interest bearing note to be paid in full at the end of the third year, December 31,2021. The implicit interest rate is 10%. The present value factor for a single amount (n=3,I=10%)=0.75132 a. At what amount will Western record the sale? b. Complete the amortization table below. c. What journal entries should WESTERN record for the interest revenue recognition on December 2019, 2020, 2021. d....
On January 1, 2018, Young Corporation signed a $100,000, two-year, 12% note. The loan required Young to make payments annually on December 31 of $50,000 principal plus interest. 1. Journalize the issuance of the note on January 1, 2018. 2. Journalize the first payment on December 31, 2018. (Record debits first, then credits. Select explanations on the last line of the journal entry.) Journalize the issuance of the note on January 1, 2018. Date Accounts and Explanation Debit Credit Jan....
Short Answer Question 4 - Non-Interesting bearing note On January 1, 2018, Rose Kim Co performed IT consulting services for Tee Wang Ca Tee Wang was short of cash and Rose Kim agreed to accept an $80,000 na Interest-bearing note due December 31, 2019 as payment in full Tee Wangis somewhat of a credit risk and typically borrows funds at a rate of 8% Rose Kim is much more creditworthy and has various ines of credit al 6% (b) Prepare...
On January 1, 2018, Turner Corporation signed a $240,000, eight-year, 12% note. The loan required Turner to make payments annually on December 31 of $30,000 principal plus interest. 1. Journalize the issuance of the note on January 1, 2018. 2. Journalize the first payment on December 31, 2018. (Record debits first, then credits. Select explanations on the last line of the journal entry.) Date Debit Credit Dec. 31 Accounts and Explanation Notes Payable Interest Expense 30000 28800 Cash 58800 Paid...
On January 1, 2018, Irik Corporation issued $2,550,000 face value, 7%, 10-year bonds at $2.378,893. This price resulted in an effective- interest rate of 8% on the bonds. The bonds pay annual interest, each January 1. Prepare the journal entry to record the issue of the bonds on January 1, 2018. (Credit account titles are automatically Indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Jan. 1, 2018 Prepare an amortization table through...
Chowan Corporation issued $154,000 of 7% bonds dated January 1, 2016, for $148,815.79 on January 1, 2016. The bonds are due December 31, 2019, were issued to yield 8%, and pay interest semiannually on June 30 and December 31. Chowan uses the effective interest method of amortization. Required: Prepare the journal entries to record the issue of the bonds on January 1, 2016, and the interest payments on June 30, 2016, December 31, 2016, and June 30, 2017. In addition,...
Chowan Corporation issued $136,000 of 7% bonds dated January 1, 2016, for $131,421.73 on January 1, 2016. The bonds are due December 31, 2019, were issued to yield 8%, and pay interest semiannually on June 30 and December 31. Chowan uses the effective interest method of amortization. 1. Required: Prepare the journal entries to record the issue of the bonds on January 1, 2016, and the interest payments on June 30, 2016, December 31, 2016, and June 30, 2017. In...
BU Curriculum Corporation issued $900,000 of 8% bonds on November 1, 2018, due on November 1, 2023. The interest is to be paid on Nov. 1 and May. 1. The bonds were sold to yield 10% effective annual interest. BU Curriculum Corporation closes its books annually on December 31. (a) Complete an amortization schedule for the above bond (for all periods) in a similar format as below. (Round all answers to the nearest dollar.) Use the effective interest method. Date...
On December 31, 2018, Squidward Corporation issued $500,000, 8%, 20-year bonds for $414,210 cash when the market rate of Interest was 10%. The bonds pay interest semi-annually each June 30 and December 31. Squidward uses the effective interest method of amortization to amortize and premium or discount. Was this bond issued at a premium or discount? Type in a 1 for discount and a 2 for premium. exact number, no tolerance On December 31, 2018, Squidward Corporation issued $500,000, 8%,...
On January 1, 2018, Loop Raceway issued 700 bonds, each with a face value of $1,000, a stated interest rate of 6 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 7 percent, so the total proceeds from the bond issue were $681,631. Loop uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year. Required: 1. Prepare...