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# Kjksjksd

In: Novels

Submitted By finance111
Words 392
Pages 2
Example on Notes receivable
Assume that ABC Corp. sold computers to XYZ Co. for \$ 60,000 and receives in exchange a three year, \$ 60,000 note bearing interest at 8% annually.
Required: Record the entries needed in ABC Corp. For receipt of note and recognition of interest revenue each year assuming the following independent cases:
Case 1: If the market interest rate for a note of similar risk is 8%
Case 2: If the market interest rate for a note of similar risk is 10 %
Case 3: If the Note is Zero interest bearing note and the market interest rate is 11 %.

Case 1:

Notes Receivable | 60,000 | | Revenue | | 60,000 |

(60,000 x 8%) = 4,800 Cash | 4,800 | | Interest Revenue | | 4,800 |

Case 2:

N= 3I= 10%60,000 |

NR | 57,016 | | Revenue | | 57,016 |
Year 1 Cash | 4,800 | | NR | 902 | | Interest Revenue | | 5,702 |
Year 2 Cash | 4,800 | | NR | 991 | | Interest Revenue | | 5,791 |
Year 3 Cash | 4,800 | | NR | 1090 | | Interest Revenue | | 5,890 |

Face Value1: 60,000
Present value of:
Principal: 60,000 x 0.75132 = 45,079
Interest: 4,800 x 2.48685 = 11,937
PV= 57,016
Discount = 60,000 – 57,016 = 2984

| Cash Received | Interest Revenue | Discount Amortized | Total Amount of NR | PV= 57,016 | Year 1 | 4,800 | 57,016 x 10%= 5,702 | 5,702-4,800= 902 | 57,016 + 902= 57,918 | | Year 2 | 4,800 | 57,918 x 10%= 5,791 | 5,791-4,800 = 991 | 57,918+991= 58,909 | | Year 3 | 4,800 | 58,909 x 10%=5890 | 5,890- 4,800= 1090 | 58,909+1090=60,000 | |

Case 3: NR | 43,871 | | Revenue | | 43,871 |
Year 1 NR | 4,826 | | Interest Revenue | | 4,826 |
Year 2 NR | 5,357 | | Interest Revenue | | 5,357 |
Year 3 NR | 5,946 | | Interest Revenue | | 5,946 |

N= 3I= 11%60,000 |
Face Value1: 60,000
Present value of:
Principal: 60,000 x 0.73119 = 43,871

| Cash Received | Interest Revenue | Discount Amortized | Total Amount of NR | PV= 43,871 | Year 1 | 0 | 43,871x11%=4,826 | 4,826 | 43,871+ 4,826= 48,697 | | Year 2 | 0 | 48,697 x 11%=5,357 | 5,357 | 48,697+ 5,357= 54,054 | | Year 3 | 0 | 54,054 x 11%= 5,946 | 5,946 | 54,054+5,946= 60,000 | |