Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I need helping solving all parts of this question, please!! Carla Inc. had the following long-term receivable account balances at December 31, 2016. Note receivable

I need helping solving all parts of this question, please!!

Carla Inc. had the following long-term receivable account balances at December 31, 2016.

Note receivable from sale of division $1,200,000
Note receivable from officer 419,000

Transactions during 2017 and other information relating to Carlas long-term receivables were as follows.

1. The $1,200,000 note receivable is dated May 1, 2016, bears interest at 9%, and represents the balance of the consideration received from the sale of Carlas electronics division to New York Company. Principal payments of $400,000 plus appropriate interest are due on May 1, 2017, 2018, and 2019. The first principal and interest payment was made on May 1, 2017. Collection of the note installments is reasonably assured.
2. The $419,000 note receivable is dated December 31, 2016, bears interest at 8%, and is due on December 31, 2019. The note is due from Sean May, president of Carla Inc. and is collateralized by 10,475 shares of Carlas common stock. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31, 2017. The quoted market price of Carlas common stock was $46 per share on December 31, 2017.
3. On April 1, 2017, Carla sold a patent to Pennsylvania Company in exchange for a $136,000 zero-interest-bearing note due on April 1, 2019. 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, 2017, was 12%. The present value of $1 for two periods at 12% is 0.79719 (use this factor). The patent had a carrying value of $54,400 at January 1, 2017, and the amortization for the year ended December 31, 2017, would have been $10,880. The collection of the note receivable from Pennsylvania is reasonably assured.

4.

5.

On July 1, 2017, Carla sold a parcel of land to Splinter Company for $215,800 under an installment sale contract. Splinter made a $64,740 cash down payment on July 1, 2017, and signed a 4-year 11% note for the $151,060 balance. The equal annual payments of principal and interest on the note will be $46,894 payable on July 1, 2018, through July 1, 2021. The land could have been sold at an established cash price of $215,800. Collection of the instalments on the note is reasonably assured.

On August 1, 2017, Carla agreed to allow its customer Saini Inc., to subsitute a six-month note for accounts receivable of $200,00 it owed. The note bears interest at 7% and principal and interest are due on the maturity date of the note.

A) Describe the relvant cash flows in terms of amount and timing

2017 2018 2019 2020
9% Note Receivable 1,200,000
Principal
Interest
8% Note Receivable
Principal

Interest

Non-Interest bearing note receivable
Payment
Instalment contract receivable
Down payment
Payment
7% Note receivable 200,000
Principal
Interest

Total

B) Determine the amount of interest income that should be reported in 2017

C) Prepare the long-term receivable section of Carla's statement of financial position at December 31,2017

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

IRS Audit Protection And Survival Guide Bed And Breakfasts

Authors: Gerald F. Bernard, Daniel J. Baran

1st Edition

0471166340, 978-0471166344

More Books

Students also viewed these Accounting questions