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    "question_id": "4273376",
    "url": "\/study-help\/questions\/e1417-imputation-of-interest-presented-below-are-two-independent-situations-4273376",
    "question_creation_date_js": "2024-06-28T08:22:50-04:00",
    "question_creation_date": "Jun 28, 2024 08:22 AM",
    "meta_title": "[Solved] E14-17. (Imputation of Interest) Presente | SolutionInn",
    "meta_description": "Answer of - E14-17. (Imputation of Interest) Presented below are two independent situations. (a) On January 1, 2014, Robin Wright | SolutionInn",
    "meta_keywords": "e14-17,imputation,interest,presented,below,two,independent,situations,january,1,2014,robin",
    "question_title_h1": "E14-17. (Imputation of Interest) Presented below are two independent situations. (a) On January 1, 2014, Robin Wright Inc. purchased land that had an assessed value",
    "question_title": "E14-17. (Imputation of Interest) Presented below are two independent situations. (a) On",
    "question_title_for_js_snippet": "E14 17  (Imputation of Interest) Presented below are two independent situations  (a) On January 1, 2014, Robin Wright Inc  purchased land that had an assessed value of $350,000 at the time of purchase  A $550,000, zero interest bearing note due January 1, 2017, was given in exchange  There was no established exchange price for the land, nor a ready fair value for the note  The interest rate charged on a note of this type is 12   Determine at what amount the land should be recorded at January 1, 2014, and the interest expense to be reported in 2014 related to this transaction  (b) On January 1, 2014, Field Furniture Co  borrowed $5,000,000 (face value) from Gary Sinise Co , a major customer, through a zero interest bearing note due in 4 years  Because the note was zero interest bearing, Field Furniture agreed to sell furniture to this customer at lower than market price  A 10  rate of interest is normally charged on this type of loan  Prepare the journal entry to record this transaction and determine the amount of interest expense to report for 2014  Answers  a) Zero Interest bearing note 600,000 PV factor 3 years at 12   71178 Amount of land to be recorded at Jan  1, 2014 $427,068 Carrying Value of note 427,068 X 12  interest rate  12 Interest Expense to be recorded in 2014 $51,248 b) Cash 4,000,000 Discount on notes payable 1,267,960 Notes payable 4,000,000 Unearned Revenue 1,267,960  4,000,000 (4,000,000x  68301)  1 267,960  PV  68301 4 years 10   Carrying value of the note 2,732,040 X 10  interest rate  10 Interest expense to be recorded for 2014 $273,204  4,000,000 1,267,960  2,732,040 Thequestion is  This one you have to use the present value in the  A  part for 3 years at 12   How did you come up with this factor  What part of the  A  scenario caused you to pick this factor ",
    "question_description": "<table><tbody><tr> <td>E14-17.<\/td> <td> (Imputation of Interest) <table><tbody><tr><td><\/td><\/tr><\/tbody><\/table>Presented below are two independent situations. <table><tbody><tr> <td><\/td> <td> <table><tbody> <tr><td><\/td><\/tr> <tr> <td> (a) <\/td> <td>On January 1, 2014, Robin Wright Inc. purchased land that had an assessed value of $350,000 at the time of purchase. A $550,000, zero-interest-bearing note due January 1, 2017, was given in exchange. There was no established exchange price for the land, nor a ready fair value for the note. The interest rate charged on a note of this type is 12%. Determine at what amount the land should be recorded at January 1, 2014, and the interest expense to be reported in 2014 related to this transaction.<\/td> <\/tr> <tr><td><\/td><\/tr> <tr> <td> (b) <\/td> <td>On January 1, 2014, Field Furniture Co. borrowed $5,000,000 (face value) from Gary Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zero-interest-bearing, Field Furniture agreed to sell furniture to this customer at lower than market price. A 10% rate of interest is normally charged on this type of loan. Prepare the journal entry to record this transaction and determine the amount of interest expense to report for 2014.<\/td> <\/tr> <\/tbody><\/table> <\/td> <\/tr><\/tbody><\/table> <\/td> <\/tr><\/tbody><\/table> <p> <\/p> <p>Answers:<\/p> <p> <\/p> <p><strong>a) Zero-Interest-bearing note  600,000<\/strong><\/p> <p><strong>PV factor-3 years at 12% .71178<\/strong><\/p> <p><strong>Amount of land to be recorded at Jan. 1, 2014 $427,068<\/strong><\/p> <p><strong><\/strong><\/p> <p><strong>Carrying Value of note  427,068<\/strong><\/p> <p><strong>X 12% interest rate .12<\/strong><\/p> <p><strong>Interest Expense to be recorded in 2014 $51,248<\/strong><\/p> <p><strong><\/strong><\/p> <p><strong><\/strong><\/p> <p><strong>b) Cash 4,000,000<\/strong><\/p> <p><strong> Discount on notes payable 1,267,960<\/strong><\/p> <p><strong> Notes payable 4,000,000<\/strong><\/p> <p><strong> Unearned Revenue 1,267,960<\/strong><\/p> <p><strong><\/strong><\/p> <p><strong>*4,000,000-(4,000,000x .68301)= 1.267,960 [PV .68301-4 years\/10%]<\/strong><\/p> <p><strong><\/strong><\/p> <p><strong>Carrying value of the note  2,732,040<\/strong><\/p> <p><strong>X 10% interest rate   .10<\/strong><\/p> <p><strong>Interest expense to be recorded for 2014  $273,204<\/strong><\/p> <p><strong><\/strong><\/p> <p><strong>*4,000,000-1,267,960= 2,732,040<\/strong><\/p> <p><strong> <\/strong><\/p> <p><strong><u>Thequestion is;<\/u><\/strong><\/p> <p><strong><u>This one you have to use the present value in the \"A\" part for 3 years at 12%. How did you come up with this factor. What part of the \"A\" scenario caused you to pick this factor?<\/u><\/strong><\/p> <p><\/p> <p> <\/p> <p><\/p>",
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