Intermediate Accounting Time Value of Money

Accounting
Tutor: None Selected Time limit: 1 Day

On December 31st, 2014 Abbey Co performed serices for Hardwick Co. Hardwick was short of cash and Abbey Co agreed to accept a $200,000 zero interest bearing note, due December 31, 2016, as payment in full. Hardwick is somewhat of a credit risk and borrows funds at a rate of 10%. Abbey is more credit worth and have various credit lines at 6%

1-prepare journal entry for transaction on December 31,2014 for Abbey Co

2- Assuming the fiscal year ends on 12/31, prepare journal entry for 12/31/15

Apr 28th, 2015

This must be discounted to show the present value of the note. It's discounted at 10% because that's the required rate, and there are 2 periods.

Debit note receivable 165,289

Credit revenue 165,289

At the end of the next year 1 year of interest revenue is earned. 

Debit note rec 16,529

Credit int rev 16,529

Apr 28th, 2015

Part C. Assuming Abbey Company's fiscal year end is December 31, prepare the journal entry for December 31, 2016

Apr 28th, 2015

This is done the same way; multiply your carrying value (181,818) by 10%. This will make your total note receivable value become 200,000. Same entry as above, dr note rec cr int rev for 18,181

Apr 28th, 2015

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Apr 28th, 2015
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Apr 28th, 2015
Dec 3rd, 2016
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