Linden, Inc. had the following note and interest receivable account balances at
ID: 2368296 • Letter: L
Question
Linden, Inc. had the following note and interest receivable account balances at Dec. 31, 2012: note receivable from sale of division $1,500,000 and interest Receivable $90,000 During 2012: The $1,500,000 note receivable is dated May 1, 2012, bears interest at 9% and represents the balance of the consideration received from the sale of Linden's electronics division to Pitt Company. The note requires Pitt to make 3 payments of principal and interest, with each payment due annually on may 1, 2013,2014, and 2015. The 2012 year-end adjusting entry to accrue interest was correctly recorded and reported on the Dec. 31, 2012 Balance sheet. Collection of the note installments is reasonably assured. Ok now I have already calculated the payments and finished amortization table, I'm just stuck on doing the journal entries for may 1, 2013 and dec. 31, 2013. I know that for the may 1 entry there is one account that will be debited and three accounts that will be credited, I just can't figure them out. Any help is appreciated, thank you! ps. I will rate your answer if it helpsExplanation / Answer
1.
Long-term receivables:
9% note receivable from sale of division, due in annual
installments of $500,000 to May 1, 20x5, less current
portion
$ 500,000
(1)
8% note receivable from officer, due December 31, 20x5,
collateralized by 10,000 shares of Linden, Inc.,
common shares with a fair market value of $450,000
400,000
Non-interest-bearing note from sale of patent, net of
15% imputed interest, due April 1, 20x5
84,121
(2)
Installment contract receivable, due in annual installments of
$50,000 to July 1, 20x7, less current installment
112,400
(3)
Total long-term receivables .
$1,096,521
2.
Current portion of long-term receivables:
Note receivable from sale of division
$ 500,000
(1)
Installment contract receivable
27,600
(3)
Total current portion of long-term receivables
$527,600
Accrued interest receivable:
Note receivable from sale of division
$ 60,000
(4)
Installment contract receivable
11,200
(5)
Total accrued interest receivable
$ 71,200
3.
Interest income:
Note receivable from sale of division
$ 105,000
(6)
Note receivable from sale of patent
8,507
(2)
Note receivable from officer
32,000
(7)
Installment contract receivable from sale of land
11,200
(5)
Total interest income
$ 156,707
Gains on sale of assets:
Patent
$ 37,614
(8)
Land
50,000
(9)
Total gains on sale of assets
$ 87,614
Total interest income and gains
$ 244,319
Explanations of amounts:
(1)Long-term portion of 9% note receivable at Dec 31, 20x3: Face value
Less installment received, May 1, 20x3 Balance, December 31, 20x3
Less installment due May 31, 20x4 (current portion) Long-term portion, December 31, 20x3
(2)Non-interest bearing note, net of imputed interest at December 31, 20x3:
Discounted value of note: N = 2, I = 15, FV = 100000, solve for PV:
Add: Interest earned to December 31, 20x3 $75,615 x 15% x 9/12
Balance, December 31, 20x3
(3)Long-term portion of installment contract receivable at December 31, 20x3
Contract selling price, July 1, 20x3 Less: Down payment, July 1, 20x3 Balance December 31, 20x3
Less: Installment due, July 1, 20x4 [$50,000 - ($140,000 x 16%)]
Long-term portion, December 31, 20x3
(4)Accrued interest--note receivable, sale of division, at December 31, 20x3:
Interest accrued from May 1, 20x3 to Dec 31, 20x3: $1,000,000 x 9% x 8/12
(5)Accrued interest--installment contract at Dec 31, 20x3: Interest accrued from July 1, 20x3 to Dec 31, 20x3
$140,000 x 16% x 1/2
(6)Interest income--note receivable, sale of division, Interest earned from Jan 1, 20x3 to Apr 30, 20x3
$1,500,000 x 9% x 4/12
Interest earned from May 1, 20x3 to Dec 31, 20x3 (#4 above) Interest income
(7)Interest income--note receivable from officer:
400,000 x 8%
$1,500,000 (500,000)
$1,000,000 (500,000)
$ 500,000
$75,614
8,507
$ 84,121
$ 200,000 (60,000)
$ 140,000
(27,600)
$ 112,400
$ 60,000
$ 11,200
$ 45,000 60,000
$ 105,000
$ 32,000
(8)
Gain on sale of patent:
Selling price (part 2)
$ 75,614
Less: Cost of patent (net):
Carrying value Jan 1, 20x3
$40,000
Less: Amortization Jan 1, 20x3 to Apr 1, 20x3
$8,000 x 1/4
(2,000)
(38,000)
$ 37,614
(9)Gain on sale of land:
Selling price
$ 200,000
Less cost
(150,000)
$ 50,000
1.
Long-term receivables:
9% note receivable from sale of division, due in annual
installments of $500,000 to May 1, 20x5, less current
portion
$ 500,000
(1)
8% note receivable from officer, due December 31, 20x5,
collateralized by 10,000 shares of Linden, Inc.,
common shares with a fair market value of $450,000
400,000
Non-interest-bearing note from sale of patent, net of
15% imputed interest, due April 1, 20x5
84,121
(2)
Installment contract receivable, due in annual installments of
$50,000 to July 1, 20x7, less current installment
112,400
(3)
Total long-term receivables .
$1,096,521
2.
Current portion of long-term receivables:
Note receivable from sale of division
$ 500,000
(1)
Installment contract receivable
27,600
(3)
Total current portion of long-term receivables
$527,600
Accrued interest receivable:
Note receivable from sale of division
$ 60,000
(4)
Installment contract receivable
11,200
(5)
Total accrued interest receivable
$ 71,200
3.
Interest income:
Note receivable from sale of division
$ 105,000
(6)
Note receivable from sale of patent
8,507
(2)
Note receivable from officer
32,000
(7)
Installment contract receivable from sale of land
11,200
(5)
Total interest income
$ 156,707
Gains on sale of assets:
Patent
$ 37,614
(8)
Land
50,000
(9)
Total gains on sale of assets
$ 87,614
Total interest income and gains
$ 244,319
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