{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Homeworksolution-ch.7

Homeworksolution-ch.7 - EXERCISE 7-8(5-10 minutes(a...

This preview shows pages 1–7. Sign up to view the full content.

EXERCISE 7-8 (5-10 minutes) (a) Allowance for Doubtful Accounts ........ 6,000 Accounts Receivable ................... 6,000 (b) Before After Write-off Write-off Accounts Receivable (Book Value) \$ 800,000 \$ 794,000 Allowance for Doubtful Accounts 47,000 41,000 Net Realizable Value \$ 753,000 \$ 753,000

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
EXERCISE 7-14 (20-25 minutes) (a) Interest bearing note – Option 1: September 30, 2007 Note Receivable ......................................... 35,000 Accounts Receivable ....................... 35,000 December 31, 2007 Interest Receivable ................................... 700 Interest Revenue ............................... 700 (\$35,000 X 8% X 3/12) September 30, 2008 Cash ........................................................... 37,800 Interest Receivable ........................... 700 Interest Revenue ............................... 2,100 Note Receivable ................................ 35,000 (\$35,000 X 8% X 9/12) (b) Noninterest bearing note – Option 2: September 30, 2007 Note Receivable ......................................... 37,800 Discount on Notes Receivable ....... 2,800 Accounts Receivable ....................... 35,000 December 31, 2007 Discount on Notes Receivable ................. 700 Interest Revenue ............................... 700 (\$35,000 X 8% X 3/12) September 30, 2008 Discount on Notes Receivable ................. 2,100 Interest Revenue ............................... 2,100 (\$35,000 X 8% X 9/12) Cash ........................................................... 37,800 Note Receivable ................................ 37,800
EXERCISE 7-14 (Continued) (a) There is no difference in the amounts because both options bear interest at 8%. The “noninterest bearing” note has the interest included in the face amount of the note and is journalized to account for this. The actual interest received is the same under both options. (b) The liquidity of Amirkal Corp. at December 31, 2007 will remain unchanged whichever option is selected. Under option 1, the note balance remains at \$35,000 but interest receivable of \$700 result in a total of \$35,700 under current assets. Under Option 2, the balance of the note, after the recording of the amortization on the discount is also \$35,700. The cash flows will also be the same under both options as the amount collected at the maturity of the note is \$37,800.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
EXERCISE 7-15 (30-35 minutes) 1. Notes Receivable ................................ 1,101,460 Discount on Notes Receivable. 401,460 Land ............................................ 590,000 Gain on Sale of Land ................. 110,000 (\$700,000 – \$590,000) \$1,101,460 Face value of note .63552 Present value of 1 for 4 periods at 12% 700,000 Present value of note 1,101,460 Face value of note \$ 401,460 Discount on note receivable Using a financial calculator: PV ? yields \$(699,998) I 12% N 4 PMT - FV \$ 1,101,460 Type 0 Excel formula: =PV(rate,nper,pmt,fv,type)
EXERCISE 7-15 (Continued) 2. Notes Receivable ................................ 400,000 Discount on Notes Receivable. 178,836 Service Revenue ........................ 221,164 Calculation of the present value of the note: Maturity value 400,000 Present value of \$400,000 due in 8 years at 12%—\$400,000 X .40388 \$161,552 Present value of \$12,000 payable annually for 8 years at 12% annually—\$12,000 X 4.96764 59,612 Present value of the note and and interest 221,164 Discount \$178,836 Using a financial calculator: PV ? Yields \$ (221,165) I 12% N 8 PMT \$ 12,000 FV \$ 400,000 Type 0 Excel formula: =PV(rate,nper,pmt,fv,type)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
EXERCISE 7-15 (Continued) 3.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern