*Problem 7-9 Crane Inc. had the following long-term receivable account balances

ID: 2589044 • Letter: #

Question

*Problem 7-9 Crane Inc. had the following long-term receivable account balances at December 31, 2016 Note receivable from sale of division Note receivable from officer $1,500,000 431,000 Transactions during 2017 and other information relating to Crane's long-term receivables were as follows. 1. The $1,500,000 note receivable is dated May 1, 2016, bears interest at 10%, and represents the balance of the consideration received from the sale of Crane's electronics division to New York Company. Principal payments of $500,000 plus appropriate interest are due on May 1, 2017, 2018, and 2019. The first principal and interest payment was made on May 1, 2017, Collection of the note installments is reasonably assured. 2. The $431,000 note receivable is dated December 31, 2016, bears interest at 9%, and is due on December 31, 2019. The note is due from Sean May, president of Crane Inc. and is collateralized by 10,77S shares of Crane's common stock. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31, 2017. The quoted market price of Crane's common stock was $45 per share on December 31, 2017 3. On April 1, 2017, Crane sold a patent to Pennsylvania Company in exchange for a $103,000 zero-interest-bearing note due on April 1, 2019. 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, 2017, was 12%. The present value of $1 for two periods at 12% is 0.797 (use this factor). The patent had a carrying value of $41,200 at Janary 1, 2017, and the amortization for the year ended December 31, 2017, would have been $8,240. The collection of the notereceivable from Pennsylvania is reasonably assured. 4. On July 1, 2017, Crane sold a parcel of land to Splinter Company for $212,400 under an installment sale contract. Splinter made a $63,720 cash down payment on July 1, 2017, and signed a 4- year 11% note for the $148,680 balance. The equal annual payments of principal and interest on the note will be $41,207 payable on July 1, 2018, through July 1, 2021, The land could have been sold at an established cash price of212,400. The cost of the land to Crane was $162,400. Circumstances are such that the collection of the installments on the note is reasonably assured. Prepare the long-term receivables section of Crane's balance sheet at December 31, 2017. (Round answers to 0 decimal places, e.g. 5,125.) CRANE INC. Long-Term Receivables Section of Balance Sheet Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Crane's balance sheet at December 31, 2017. (Round answers to o decimal places, e.g. 5,129.) 9

Explanation / Answer

(a)CRANE INC. Long-Term Receivables Section of Balance Sheet December 31, 2016

9% note receivable from sale of division,

due in annual installments of $500,000

to May 1, 2016, less current installment.............................................$500,000 (1)

8% note receivable from officer, due Dec. 31,

2016, collateralized by 10,775 shares

of Braddock, Inc., common stock

with a fair value of $484,875.............................................................431,000

Zero-interest-bearing note from sale of patent,

net of 12% imputed interest, due

April 1,2016......................................................................................89,479 (2)

Installment contract receivable, due in annual

installments of $41,207 to July 1, 2016,

less current installment....................................................................123,828 (3)

Total long-term receivables..........................................................$1,144,307

Explanation of Amounts

(1)Longterm Portion of 9% Note Receivable at 12/31/16

Face amount, 5/1/16................................................$1,500,000

Less: Installment received 5/1/16.......................... 500,000

Balance, 12/31/16.....................................................1,000,000

Less: Installment due 5/1/17.................................. 500,000

Long-term portion, 12/31/16....................................$ 500,000

(2)Zero-interest-bearing Note, Net of Imputed Interest at 12/31/16

Face amount 4/1/16..........................................................................$ 103,000

Less: Imputed interest [$103,000 – ($103,000 X 0.797)]................... 20,909

Balance, 4/1/16........................................................................................82,091

Add: Interest earned to 12/31/16($82,091 X 12% X 9/12).......................7,388

Balance, 12/31/16................................................................................$ 89,479

(3) Long-term Portion of Installment Contract Receivable at 12/31/16

Contract selling price, 7/1/16..........................................................................$ 212,400

Less: Down payment, 7/1/16......................................................................... 63,720

Balance, 12/31/16.................................................................................................148,680

Less: Installment due, 7/1/17[$41,207 – ($148,680 X 11%)]....................... 24,852

Long-term portion, 12/31/16.............................................................................$ 123,828

CRANE INC.

Selected Balance Sheet Balances December 31, 2016

Current portion of long-term receivables:

Note receivable from sale of division.............................$500,000(1)

Installment contract receivable....................................... 23,852(3)

Total current portion of long-term receivables................. $523,852

Accrued interest receivable:

Note receivable from sale of division.............................60,000(4)

Installment contract receivable.................................... 8,177(5)

Total accrued interest receivable...................................$ 68,177

(4)Accrued Interest—Note Receivable, Sale of Division at 12/31/16

Interest accrued from 5/1 to 12/31/16 ($1,000,000 X 9% X 8/12)......................................$ 60,000

(5)Accrued Interest—Installment Contract at 12/31/12

Interest accrued from 7/1 to 12/31/12 ($148,680 X 11% X 1/2).........................................$ 8,177

CRANE INC.

Interest Revenue from Long-Term Receivables

For the Year Ended December 31, 2016

Interest income:

Note receivable from sale of division.............................$105,000 (6)

Note receivable from sale of patent................................7,388(2)

Note receivable from officer............................................34,480(7)

Installment contract receivable from sale of land......... 8,177(5)

Total interest income for year ended 12/31/16..................$155,045

(6)

Interest Revenue—Note Receivable, Sale of

Division, for 2016

Interest earned from 1/1 to 5/1/16

($1,500,000 X 9% X 4/12).............................................................

$ 45,000

Interest earned from 5/1 to 12/31/16

($1,000,000 X 9% X 8/12).............................................................

60,000

Interest income..................................................................................

$ 105,000

(7)

Interest Revenue—Note Receivable, Officer, for 2016

Interest earned 1/1 to 12/31/12

($431,000 X 8%)............................................................................

$ 34,480

(6)