Question
On January 1, 2015, Second Time Around Clothing sold inventory costing $65,000 to The Party Place. In return, Second Time Around Clothing received a 4-year,
On January 1, 2015, Second Time Around Clothing sold inventory costing $65,000 to The Party Place. In return, Second Time Around Clothing received a 4-year, 9% note with a face value of $95,000. Blended payments will be made yearly on December 31, and will include principal and interest. The market rate of interest is 12%. Second Time Around Clothing has a December 31 year-end while The Party Place's year-end is September 30. Please make sure your final answer(s) are accurate to the nearest whole number. a) Calculate the annual payments Second Time Around Clothing will receive each year from The Party Place. Use the stated rate of the note in your calculation.
b) Complete the following payment and amortization schedule for the note.
Cash | Interest income 12% | principal reducation | carrying value if note | |
jan 1 2015 | X | X | X | |
dec 31 2015 | ||||
dec 31 2016 | ||||
dec 31 2017 | ||||
dec 31 2018 |
c) Record the journal entries for Second Time Around Clothing on January 1, 2015 and December 31, 2015. Enter an appropriate description when entering the transactions in the journal. Dates must be entered in the format dd/mmm (ie. January 15 would be 15/Jan).
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