Question

Problem 7-09

Pharoah Inc. had the following long-term receivable account balances at December 31, 2019. Note receivable from sale of division $2,100,000 Note receivable from officer 464,800 Transactions during 2020 and other information relating to Pharoah’s long-term receivables were as follows.

1. The $2,100,000 note receivable is dated May 1, 2019, bears interest at 10%, and represents the balance of the consideration received from the sale of Pharoah’s electronics division to New York Company. Principal payments of $700,000 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 $464,800 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 Pharoah Inc. and is collateralized by 11,620 shares of Pharoah’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 Pharoah’s common stock was $45 per share on December 31, 2020.

3. On April 1, 2020, Pharoah sold a patent to Pennsylvania Company in exchange for a $112,000 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 13%. The present value of $1 for two periods at 13% is 0.783 (use this factor). The patent had a carrying value of $44,800 at January 1, 2020, and the amortization for the year ended December 31, 2020, would have been $8,960. The collection of the note receivable from Pennsylvania is reasonably assured.

4. On July 1, 2020, Pharoah 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 12% 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 Pharoah was $150,000. Circumstances are such that the collection of the installments on the note is reasonably assured.

Prepare the long-term receivables section of Pharoah’s balance sheet at December 31, 2020. (Round answers to 0 decimal places, e.g. 5,125.) P

PHARAOH INC. Long-Term Receivables Section of Balance Sheet $ 700000 464800 $ LINK TO TEXT Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Pharoah’s balance sheet at December 31, 2020. (Round answers to 0 decimal places, e.g. 5,129.)

PHAROAH INC. Selected Balance Sheet Balances $ $ $ $ LINK TO TEXT Prepare a schedule showing interest revenue from the long-term receivables that would appear on Pharoah’s income statement for the year ended December 31, 2020. (Round answers to 0 decimal places, e.g. 5,125.) PHAROAH INC. Interest Revenue from Long-Term Receivables $ $

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
Part a
9% note receivable from sale of division, due
in annual installments of $700,000 to
May 1, 2021, less current installment	Working-1	$       700,000
8% note receivable from officer, due Dec. 31,
2022, collateralized by 11,620 shares
of Braddock, Inc., common stock
with a fair value of $45		$       464,800
Zero-interest-bearing note from sale of patent,
net of 12% imputed interest, due April 1, 2022	Working-2	$         96,246
Installment contract receivable, due in annual
installments of $45,125 to July 1, 2023,
less current installment	Working-3	$       111,675
Total long-term receivables		$   1,372,721
Part b
Current portion of long-term receivables:
Note receivable from sale of division	Working-1	$       700,000
Installment contract receivable	Working-3	$         28,325
Total current portion of long-term receivables		$       728,325
Accrued interest receivable:
Note receivable from sale of division	Working-4	$         84,000
Installment contract receivable	Working-5	$            8,400
Total accrued interest receivable		$         92,400
Part c
Interest income:
Note receivable from sale of division	Working-6	$       147,000
Note receivable from sale of patent	Working-2	$            8,550
Note receivable from officer	Working-7	$         41,832
Installment contract receivable from sale of land	Working-5	$            8,400
Total interest income for year ended 12/31/20		$       205,782
Working-1
Long-term Portion of 9% Note Receivable at 12/31/20
Face amount, 5/1/19		$   2,100,000
Less: Installment received 5/1/20		$       700,000
Balance, 12/31/20		$   1,400,000
Less: Installment due 5/1/201		$       700,000
Long-term portion, 12/31/21		$       700,000
Working-2
Zero-interest-bearing Note, Net of Imputed Interest
at 12/31/20
Face amount 4/1/20		$       112,000
Less: Imputed interest
[$112,000 – ($112,000 X 0.783)]		$         24,304
Balance, 4/1/19		$         87,696
Add: Interest earned to 12/31/20
($87,696 X 13% X 9/12)		$            8,550
Balance, 12/31/20		$         96,246
Working-3
Long-term Portion of Installment Contract
Receivable at 12/31/20
Contract selling price, 7/1/120		$       200,000
Less: Down payment, 7/1/20		$         60,000
Balance, 12/31/20		$       140,000
Less: Installment due, 7/1/21
[$45,125 – ($140,000 X 12%)]		$         28,325
Long-term portion, 12/31/20		$       111,675
Working-4
Accrued Interest—Note Receivable
Interest accrued from 5/1 to 12/31/20
($1,400,000 X 9% X 8/12)		$         84,000
Working-5
Accrued Interest—Installment Contract at 12/31/20
Interest accrued from 7/1 to 12/31/20
($140,000 X 12% X 1/2)		$            8,400
Working-6
Interest Revenue—Note Receivable for 2020
Interest earned from 1/1 to 5/1/2019
($2,100,000 X 9% X 4/12)		$         63,000
Interest earned from 5/1 to 12/31/19
($1,400,000 X 9% X 8/12)		$         84,000
Interest income		$       147,000
Working-7
Interest Revenue—Note Receivable, Officer, for 2020
Interest earned 1/1/ to 12/31/19
($464,800 X 9%)		$         41,832