(Comprehensive Receivables Problem) Connecticut Inc. had the following long-term receivable
account balances at December 31, 2006.
Note receivable from sale of division $1,800,000
Note receivable from officer 400,000
Transactions during 2007 and other information relating to Connecticut’s long-term receivables were
1. The $1,800,000 note receivable is dated May 1, 2006, bears interest at 9%, and represents the balance
of the consideration received from the sale of Connecticut’s electronics division to New York
Company. Principal payments of $600,000 plus appropriate interest are due on May 1, 2007, 2008,
and 2009. The first principal and interest payment was made on May 1, 2007. Collection of the note
installments is reasonably assured.
2. The $400,000 note receivable is dated December 31, 2006, bears interest at 8%, and is due on December
31, 2009. The note is due from Sean May, president of Connecticut Inc. and is collateralized by 10,000
shares of Connecticut’s common stock. Interest is payable annually on December 31, and all interest
payments were paid on their due dates through December 31, 2007. The quoted market
price of Connecticut’s common stock was $45 per share on December 31, 2007.
3. On April 1, 2007, Connecticut sold a patent to Pennsylvania Company in exchange for a $200,000
zero-interest-bearing note due on April 1, 2009. 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