Question
Kern, Inc., which is not a public company (an issuer under federal securities laws), has several note receivable accounts. Use the information provided in the
Kern, Inc., which is not a public company (an issuer under federal securities laws), has several note receivable accounts.
Use the information provided in the exhibits to calculate the noncurrent and current note receivable balances that should be reported on Kern's December 31, Year 5, balance sheet.
Enter the appropriate amounts in the designated cells below. Ignore the time value of money. Enter all amounts as positive values. Round all amounts to the nearest whole number. If the correct answer is zero (0), enter a zero (0).
Task 1: Kern, Inc., entered into an installment sales agreement with Barr Co. in Year 5 when Kern sold Barr a parcel of land. Determine the amounts as requested for the note receivable.
Installment sales agreement | Amount |
1. Contract selling price | |
2. Minus cash down payment | |
3. Contract note balance, 12/31/Year 5 | |
4. Principal portion of payment due 7/1/Year 6 |
Task 2: Determine the noncurrent and current balances for each note receivable at 12/31/Year 5.
Note receivable | Noncurrent balance | Current balance |
5. Note receivable from sale of warehouse | ||
6. Note receivable from an officer | ||
7. Note receivable from sale of land | ||
8. Note receivable from sale of patent |
EXHIBIT #1 Installment Sales Agreement, Marion County, FL
Real Estate
Installment Sales Agreement
Marion County, Florida
THIS IS A LEGALLY BINDING CONTRACT BETWEEN BUYER AND SELLER
Seller: | Kern, Inc. |
Buyer: | Able Co. |
Date: | May 1, Year 4 |
Principal Amount: $750,000 USD
Installment Term: 3 years
Property: Warehouse
PARTIES. Kern, Inc., the Seller, does hereby sell, assign, and transfer to Able Co., the Buyer, upon the terms and conditions set forth, the property legally described as:
Warehouse, 8,000 SF, Marion County, Florida.
PURCHASE PRICE. Buyer will pay to the Seller the sum of $750,000 U.S. Dollars.
PAYMENT.
- Three equal and annual installments of $250,000 principal plus interest will be due starting on May 1, Year 5, and continue through May 1, Year 7.
- Buyer shall pay 9 percent (9%) annual interest.
Robert Thompson | Mary Parker |
Robert Thompson, CFO | Mary Parker, CFO |
Kern, Inc. | Able Co. |
Seller | Buyer |
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Accounting Notes:
- Able made its first principal and interest payment on May 1, Year 5.
- Collection of the remaining note installments is reasonably assured.
EXHIBIT #2 Patent License Agreement
PATENT LICENSE AGREEMENT
This patent license agreement, hereinafter referred to as the Agreement, is made and entered into on this day, April 1, Year 5, by and between:
Kern, Inc., a corporation existing and registered in the State of Florida, having its principal place of business located at 475 East 9th Street, Gainesville, FL, 32606, hereinafter referred to as Licensor, and acting for and on behalf of itself,
and Frey Corp., a corporation existing and registered in the State of Wisconsin, having its principal place of business located at 1782 Walnut Street, Madison, WI, 53780, hereinafter referred to as Licensee, and acting for and on behalf of itself.
RECITALS
- WHEREAS, Licensor are the sole and exclusive owners of patent rights to US123456789, hereinafter referred to as Licensed Patents.
- WHEREAS, Licensor desires to grant to Licensee a license under the Licensed Patents pursuant to the terms and conditions hereinafter set forth.
GRANT OF LICENSE
NOW, THEREFORE, in consideration of the mutual promises and covenants hereafter set forth, Licensor and Licensee, each intending to be legally bound, hereby agree as follows:
Type of License: | Licensor grants to Licensee a non-exclusive license, with the rights to make, use, and sell the product of the Licensed Patent, US123456789. | |
Licensor retains and reserves the right to license to others. | ||
License Duration: | Three Years, commencing April 1, Year 5 | |
Patents & Trade Secrets: | Remain the exclusive property of the Licensor | |
Contract Amount: | $100,000 non-interest bearing note | |
Due April 1, Year 6 |
Paul Jackson | Gwen Vega |
Paul Jackson | Gwen Vega |
Kern, Inc. | Frey, Corp. |
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Accounting Notes:
- The patent had no established exchange price, and the note had no ready market.
- The prevailing interest rate for this type of note was 10% at April 1, Year 5.
- Kern is reasonably assured of collecting the note receivable from Frey.
EXHIBIT #3 Non-current Receivable Account Balances
Kern, Inc.
Non-current receivable account balances
As of December 31, Year 4
Note receivable from sale of warehouse | $750,000 |
Note receivable from an officer | 200,000 |
EXHIBIT #4 Installment Sales Agreement, Alachua County, FL
Real Estate
Installment Sales Agreement
Alachua County, Florida
THIS IS A LEGALLY BINDING CONTRACT BETWEEN BUYER AND SELLER
Seller: | Kern, Inc. |
Buyer: | Barr Co. |
Date: | July 1, Year 5 |
Principal Amount: $400,000 USD
Installment Term: 4 years
Property: Parcel 589281761532, Land
- PARTIES. Kern, Inc., the Seller, does hereby sell, assign, and transfer to Barr Co., the Buyer, upon the terms and conditions set forth, the property legally described as:
4 acres undeveloped land, at the corner of 1st and Morgan,
Alachua County, Florida, Parcel 589281761532
- PURCHASE PRICE. Buyer will pay to the Seller the sum of $400,000 U.S. Dollars .
- PAYMENT.
- Payment of 30% of the agreed upon purchase price will be made by the Buyer upon the execution of this Agreement.
- Four equal and annual installments of $88,332 including principal and interest will be due starting on July 1, Year 6, and continue through July 1, Year 9.
- Buyer shall pay 10 percent (10%) annual interest.
Robert Thompson | Greg Causey |
Robert Thompson, CFO | Greg Causey, CFO |
Kern, Inc. | Barr, Inc. |
Seller | Buyer |
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Accounting Notes:
- Fair value of the Land at date of sale was $400,000.
- Book value of the Land at date of sale was $300,000.
- Collection of the remaining note installments is reasonably assured.
EXHIBIT #5 Promissory Note, Corporate Officer
KERN, Inc.
475 East 9th Street
Gainesville, FL 32606
Promissory Note
Corporate Officer
This Promissory Note (the Agreement), is effective December 31, Year 2.
Principal Amount: | $200,000 | Term: | 5 years |
For value received: | Frank Black (the Borrower) | ||
8251 Williams Avenue, Williston, FL 32696 | |||
Promises to pay: | Kern, Inc. (the Lender) | ||
475 East 9th Street, Gainesville, FL 32606 |
Borrower and Lender agree as follows:
Loan Repayment: The loan amount must be repaid in full by December 31, Year 7. At any time while not in default under this Note, the Borrower may pay the outstanding balance then owing under this Note to the Lender without further bonus or penalty.
Interest: Borrower shall pay 8 percent (8%) annual interest on the loan with the first interest payment due on December 31, Year 3.
Collateral: 5,000 shares Kern, Inc., common stock.
This Promissory Note will be construed in accordance with and governed by the laws of the State of Florida.
Lender: | Borrower: |
Richard Jorgensen | Frank Black |
Richard Jorgensen, Chairman | Frank Black, President |
Kern, Inc. | Kern, Inc. |
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Accounting Notes:
- All interest payments have been made through December 31, Year 5.
- The quoted market price of Kerns common stock was $45 per share on December 31, Year 5.
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