Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
Flounder Corp. had the following long-term receivable account balances at December 31, 2019. Notes receivable $ 1,650,000 Notes receivable - Employees 400,000 Transactions during 2020
Flounder Corp. had the following long-term receivable account balances at December 31, 2019.
Notes receivable | $ 1,650,000 | |
Notes receivable - Employees | 400,000 |
Transactions during 2020 and other information relating to Flounder' long-term receivables were as follows:
1. | The $ 1,650,000 note receivable is dated May 1, 2019, bears interest at 9%, and represents the balance of the consideration received from the sale of Flounder's electronics division to Pharoah Company. Principal payments of $ 550,000 plus appropriate interest are due on May 1, 2020, 2021, and 2022. The first principal and interest payment was made on May 1, 2020. Collection of the note instalments is reasonably assured. | |
2. | The $ 400,000 note receivable is dated December 31, 2019, bears interest at 8%, and is due on December 31, 2022. The note is due from Marcia Cumby, president of Flounder Corp., and is secured by 10,000 Flounder common shares. Interest is payable annually on December 31, and the interest payment was made on December 31, 2020. The quoted market price of Flounder's common shares was $ 50 per share on December 31, 2020. | |
3. | On April 1, 2020, Flounder sold a patent to Cullumber Company in exchange for a $ 200,000 noninterest-bearing note due on April 1, 2022. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2020, was 12%. The present value of $ 1 for two periods at 12% is 0.79719 (use this factor). The patent had a carrying amount of $ 37,000 at January 1, 2020, and the amortization for the year ended December 31, 2020 would have been $ 8,000. The collection of the note receivable from Cullumber is reasonably assured. | |
4. | On July 1, 2020, Flounder sold a parcel of land to Shamrock Inc. for $ 240,000 under an instalment sale contract. Shamrock made a $ 63,000 cash down payment on July 1, 2020, and signed a four-year, 11% note for the $ 177,000 balance. The equal annual payments of principal and interest on the note will be $ 57,052, payable on July 1, 2021, through July 1, 2024. The land could have been sold at an established cash price of $ 240,000. Flounder had paid $ 150,000 for the land when it purchased it. Collection of the instalments on the note is reasonably assured. | |
5. | On August 1, 2020, Flounder agreed to allow its customer, Saini Inc., to substitute a six-month note for accounts receivable of $ 240,000 it owed. The note bears interest at 6% and principal and interest are due on the notes maturity date. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started