[sunchip]

Hey guys,

I must be really burned out because Noninterest bearing notes problems are breaking my brain. If anyone has the time can they show me the JE’s for the note below from origination to settlement? I tried to start but gah can’t figure it out. Thanks in advance!

On January 2, Year 3, Emme Co. sold equipment with a carrying amount of $480,000 in exchange for a $600,000 noninterest-bearing note due January 2, Year 6. There was no established exchange price for the equipment, and the market value of the note cannot be reasonably approximated. The prevailing rate of interest for a note of this type at January 2, Year 3, was 10%. The present value of 1 at 10% for three periods is 0.75.

In Emme’s Year 3 income statement, what amount should be reported as interest income?

A= 45,000

Dr Note Receivable 450,000

Dr Loss on Sale 30,000

Cr Equipment 480,000

AUD (89)
FAR (81)
REG (April 2)
BEC (May 22)

gleim boy through and through

[Lidis]

600,000*.75= 450,000*10%=45,000

Note receivable 45,000

Interest Income 45,000

the key on non-interest bearing note is to record the note at its discount present value

[sunchip]

Thank you for replying. How would the note be settled? Also, shouldn't the Revenue from the sale be Recognized when the Note originates?

My Origination:

Dr Note Receivable 450,000

Dr Loss on Sale 30,000

Cr Equipment 480,000

My Settlement:

Dr Cash 600,000

Cr Gain on….

Cr Note Receivable 585,000

AUD (89)
FAR (81)
REG (April 2)
BEC (May 22)

gleim boy through and through

[Anonymous]

I think the set up should be:

Dr N/R 600

Dr Loss on Sale 30

Cr Discount on N/R 150

Cr Equipment 480

[Anonymous]

Exactly it czechchamp, I see you have been doing some practice on the interest sections LOL.

The discount is going to be credited, and the gain or loss is determined by the PV-CV.

[sunchip]

Jesus I'm gonna fail FAR… How do you settle the obligation?

Dr Cash 600,000

Cr ?

Cr N/R 465,000

AUD (89)
FAR (81)
REG (April 2)
BEC (May 22)

gleim boy through and through

[Author]

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