Question

Chamberlain Enterprises Inc. reported the following receivables in its December 31, 2018, year-end balance sheet:

Current assets:
Accounts receivable, net of $24,000 in allowance for uncollectible accounts	$	218,000
Interest receivable		6,800
Notes receivable		260,000

Additional Information:

1. The notes receivable account consists of two notes, a $60,000 note and a $200,000 note. The $60,000 note is dated October 31, 2018, with principal and interest payable on October 31, 2019. The $200,000 note is dated June 30, 2018, with principal and 6% interest payable on June 30, 2019.
2. During 2019, sales revenue totaled $1,340,000, $1,280,000 cash was collected from customers, and $22,000 in accounts receivable were written off. All sales are made on a credit basis. Bad debt expense is recorded at year-end by adjusting the allowance account to an amount equal to 10% of year-end accounts receivable.
3. On March 31, 2019, the $200,000 note receivable was discounted at the Bank of Commerce. The bank's discount rate is 8%. Chamberlain accounts for the discounting as a sale.

1. Not including sales revenue, what revenue and expense amounts related to receivables will appear in Chamberlain’s 2019 income statement?

Answer 1

Chamberlain’s income statement will include sales revenue of $1,340,000 plus, interest revenue of $7000, bad debt expense of $26000 and loss on sale of note receivable $1240. The calculations are as follow: Interest revenue: Interest revenue on $200,000 – June 30, 2018. On March 31, 2019 note was discounted at the Bank of Commerce. 200000X6%X3/12 = $3000 To determine interest rate on $60,000: Interest on $200000 X 6% X 6/12 = $6000 Interest receivable $6800 Interest on $60000 note= 6800-6000 = $800 (for Nov and Dec) Interest per month $800/2=$400 Annual interest 400X12 =$4800 60000 X rate % = 4800 Rate% = 4800/60000 Rate%= .08 or 8% Interest revenue on $60,000 – Oct 31,2018 60000X8%X10/12= $4000 Total interest revenue = 3000 + 4000 = $7000
				Bad debt expense
				Beginning Account receivable (218000+24000)	$             242,000
				Sales	$         1,340,000
				Less – Cash collected	$       (1,280,000)
				Less – Write off	$             (22,000)
				Ending Account receivable	$             280,000
				It is stated that bad debt expense is adjusted at 10% of ending account receivable. 10% of $280000 = $28000
				Allowance for uncollectible accounts:
				Pre-adjustment balance- Beg. allowance	24000
				Add: bad debt expense	$$$
				Less: write off	-22000
				Post adjustment balance – ending allowance	28000
				24000 + $$$ - 22000 =28000 $$$ = 28000+22000-24000 Bad debt expense = $26000
Loss on note receivable: Interest on $200000 note from 6/30/2018 – 3/31/2019 200000X6%X9/12= $9000
Cash proceeds received from discounted note
Face value of note	$             200,000
Interest of 6% of maturity: 200000 X6%	$               12,000
Total maturity value	$             212,000
Less discount: 212000 X 8% X 3/12	$               (4,240)
Total cash proceeds	$             207,760
Carrying value of note: 200000 + 9000 = $209000 Net loss on sale of note receivable: 209000 – 207760 = $1240