Notes Receivables

gradeS RECEIVABLE * Represents claims for which formal instruments of creed ar issued as evidence of debt, such as promissory origin. The credit instrument normally requires the debtor to pay touch and extends for time periods of 30 age or longer. comments receivables are considered current asset if they are to be give within 1 social class and non- current if they are expected to be paid after one year. NEGOTIABLE PROMISSORY NOTES * arrogant promise in writing made by one person to another, signed by the maker, pursue to pay in demand or at the fixed determinable future time a sum certain in money to pitch or to bearer.An entity owned a tract of knowledge domain costing P 800,000 and sold the land for P1,000,000. On January 1, 2011 the entity received a 1- year note for 1,000,000 positive(p) provoke of 12% compounded annually. daybook penetration First year Note receivable1,000,000 Land800,000 Gain on sale of land200,000 DISHONORED NOTES * Promissory note 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 1,000,000 involvement income 120,000 INITIAL touchstone * Conceptually, notes receivable shall be metrical ab initio at PRESENT nurse. * However, SHORT confines NOTES are measured at FACE VALUE. * The initial measurements of LONG name NOTES leave alone depend on whether the notes are INTEREST- billing or NONINTEREST- BEARING. INTEREST- BEARING LONG TERM NOTES are measured at FACE VALUE which is very the present esteem upon issuance. NONINTEREST- BEARING LONG TERM NOTES are measured at PRESENT VALUE which is the tax deductioned value of the future cash flow use the effective interest rate. SUBSEQUENT MEASUREMENTAmortized Cost * the measuring at which the note receivable is measured initially damaging principal repayment, plus or min us the cumulative amortization of any difference betwixt the initial carrying count and the principal maturity amount minus reduction for impairment or uncollectibility. For long-term noninterest-bearing notes Amortized Cost = present value + amortization of the discount Or Amortized Cost = face value unamortized honorary 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 Problem 7-2 FATHOM company (INTEREST- BEARING NOTE) 2011 Jan. 1Cash1,000,000 Notes Receivable6,000,000 Land5,000,000 Gain on sale of land2,000,000 Dec. 31 accrue chase Receivable720,000 engagement Income720,000 (6,000,000 x 12%) 2012 Dec 31 Accrued Interest 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 int erest receivable? 2011 720,000 2012 806,400 1,526,400 Problem 7-3 BUG follow (NONINTEREST- BEARING NOTE 1) 2010 Jan. 1Note receivable600,000 Sales540,000 Unearned interest income 60,000 picture 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 Unearned interest income30,000 Interest income30,000 2011 Dec. 31Cash200,000Notes receivable200,000 Unearned interest income20,000 Interest income20,000 2012 Dec. 31Cash200,000 Note receivable200,000 Unearned 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 show value900,000 yield value (300,000*2. 4018)720540 Unearned interest income? 179,460 Present value720,540 Cash received100,000 Sales price? 820,540DATE ANNUAL disposition 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