I was wondering if you could help me solve for the solutions step-by-step. I am
ID: 2539641 • Letter: I
Question
I was wondering if you could help me solve for the solutions step-by-step. I am at a lost and I do not see an example in the book to follow. No one was available online for live help.
Calculating imputed interest on noninterest-bearing note (LO 8-4)
On December 31, 2017, Fenton Company sold equipment to Denver, Inc., accepting a $275,000 noninterest-bearing note receivable in full payment on December 31, 2017. Denver, Inc., normally pays 12% for its borrowed funds. The equipment is carried in Fenton’s perpetual inventory records at 65% of its cash selling price. Required: 1. Prepare Fenton’s journal entries to record the sale on December 31, 2017. 2. Prepare Fenton’s journal entry on December 31, 2018, necessitated by this transaction. (Hint: Prepare an amortization schedule for the loan.) 3. Show Fenton’s balance sheet presentation of Denver’s note at December 31, 2018.
Explanation / Answer
Solution:
Present value of $1 for n = 3, r = 12%: 0.71178.
The cash selling price of the equipment is computed by taking the present value of the noninterest-bearing note ($275,000 x 0.71178 = $195,739.50)
The carrying value of the equipment in Fenton’s inventory:$195,739.50 x .65 = $127,231
Amortization table
1. Notes Receivable -Denver Inc. ................. $195,740
Sales Revenue .............................................. $195,740
Cost of goods sold ...........................$127,231
Inventory ......................................... $127,231
2. Notes Receivable - Denver Inc.................... $23,489
Interest Revenue ...................................... $23,489
3. Notes Receivable - Denver Inc. $219,229
Date Annual payment Interest on previous balance Ending loan balance 195,740 12/31/2017 0 23,489 219,229 12/31/2018 0 26,307 245,536 12/31/2019 0 29,464 275,000Related Questions
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