Notes Receivables

NOTES RECEIVABLE * Re exhibits claims for which formal instruments of credit atomic number 18 issued as evidence of debt, such as promissory blood. The credit instrument comm totally requires the debtor to pay affair and extends for clip periods of 30 days or longer. Notes dues argon considered current asset if they are to be paid within 1 course of study and non- current if they are expected to be paid after angiotensin-converting enzyme family. conveyable PROMISSORY NOTES * Unconditional promise in writing made by one person to another, signed by the maker, good-natured to pay in demand or at the fixed determinable forthcoming time a sum indisputable in money to order or to bearer.An entity owned a tract of toss off costing P 800,000 and sold the impose for P1,000,000. On January 1, 2011 the entity received a 1- year situation for 1,000,000 plus kindle of 12% compounded annually. diary Entry foremost year Note receivable1,000,000 Land800,000 progress to on sale of land200,000 DISHONORED NOTES * Promissory measure matures and is not paid. * When the maker of a note fails to pay on the due date, the note receivable is considered to be dishonored. A dishonored note is no longer negotiable. Journal Entry 2012 Jan. 1 Accounts receivable1,120,000 Notes receivable 1,000,000sake income 120,000 initial MEASUREMENT * Conceptually, notes receivable shall be mensurable initially at state VALUE. * However, forgetful terminal NOTES are measured at FACE VALUE. * The initial measurements of immense depot NOTES will depend on whether the notes are beguile- mien or NONINTEREST- strength. INTEREST- BEARING LONG TERM NOTES are measured at FACE VALUE which is actually the present rank upon issuance. NONINTEREST- BEARING LONG TERM NOTES are measured at PRESENT VALUE which is the discounted time value of the future interchange flow using the effective interest rate. SUBSEQUENT MEASUREMENTAmortized Cost * the count at which the note receivable is measured initially damaging principal repayment, plus or minus the cumulative amortization of some(prenominal) difference between the initial carrying amount and the principal maturity amount minus reduction for impairment or uncollectibility. For long-run noninterest-bearing notes Amortized Cost = present value + amortization of the discount Or Amortized Cost = memorial tablet value unamortized unearned interest income Accordingly, only long-term notes receivable will be discussed in conjunction with the present value concept under the following situations . interest-bearing note b. noninterest bearing note task 7-2 FATHOM COMPANY (INTEREST- BEARING NOTE) 2011 Jan. 1 gold1,000,000 Notes Receivable6,000,000 Land5,000,000 Gain on sale of land2,000,000 Dec. 31 accumulated have-to doe with Receivable720,000 recreate Income720,000 (6,000,000 x 12%) 2012 Dec 31 Accrued liaison Receivable806,400 Interest Income806,400 6,000,000 + 720,000 = 6,720,000 * 12% 806,400 2013 Jan. 1Cash7,526,400 Notes Receivable6,000,000 Accrued Interest Receivable? 1,526,400 Accrued interest receivable? 2011 720,000 2012 806,400 1,526,400 Problem 7-3 BUG COMPANY (NONINTEREST- BEARING NOTE 1) 2010 Jan. 1Note receivable600,000 Sales540,000 unearned interest income 60,000 visualise NOTES RECEIVABLE BALANCE FRACTION INTEREST INCOME Dec. 31, 2010 600,000 1/2 30,000 Dec. 31, 2011 400,000 1/3 20,000 Dec. 31, 2012 200,000 1/6 10,000 1,200,00 Dec. 31Cash200,000 Notes receivable200,000 honorary interest income30,000 Interest income30,000 2011 Dec. 31Cash200,000Notes receivable200,000 honorary interest income20,000 Interest income20,000 2012 Dec. 31Cash200,000 Note receivable200,000 honorary interest income10,000 Interest income10,000 PROBLEM 7-4 IMPRESS COMPANY (NONINTEREST- BEARING NOTE 2) 2010 Jan. 1Cash100,000 Note receivable900,000 Sale? 820,540 Unearned interest income? 179,460 Face value900,000 Present value (300,000*2. 4018)720540 Unearned interest i ncome? 179,460 Present value720,540 Cash received100,000 Sales price? 820,540DATE ANNUAL prayer INTEREST INCOME PRINCIPAL CARRYING AMOUNT Jan. 1, 2010 720,540 Dec. 31,2010 300,000 86,465 213,535 507,005 Dec. 31,2011 300,000 60,841 239,159 267,846 Dec. 31,2012 300,000 32,154 267,846 ? Dec. 31Cash300,000 Unearned interest income 86,465 Note receivable300,000 Interest income 86,465 2011 Dec. 31Cash300,000 Unearned interest income 60,841 Note receivable300,000 Interest income 60,841 2012 Dec. 31Cash300,000 Unearned interest income 32,154 Note receivable300,000 Interest income 32,154