Question
Pronghorn Inc. had the following long-term receivable account balances at December 31, 2019. Note receivable from sale of division $1,200,000 Note receivable from officer 400,000
Pronghorn Inc. had the following long-term receivable account balances at December 31, 2019.
Note receivable from sale of division | $1,200,000 | |
Note receivable from officer | 400,000 |
Transactions during 2020 and other information relating to Pronghorns long-term receivables were as follows.
1. | The $1,200,000 note receivable is dated May 1, 2019, bears interest at 8%, and represents the balance of the consideration received from the sale of Pronghorns electronics division to New York Company. Principal payments of $400,000 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 installments is reasonably assured. | |
2. | The $400,000 note receivable is dated December 31, 2019, bears interest at 7%, and is due on December 31, 2022. The note is due from Sean May, president of Pronghorn Inc. and is collateralized by 10,000 shares of Pronghorns common stock. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31, 2020. The quoted market price of Pronghorns common stock was $44 per share on December 31, 2020. | |
3. | On April 1, 2020, Pronghorn sold a patent to Pennsylvania Company in exchange for a $100,000 zero-interest-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 10%. The present value of $1 for two periods at 10% is 0.826 (use this factor). The patent had a carrying value of $40,000 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 Pennsylvania is reasonably assured. | |
4. | On July 1, 2020, Pronghorn sold a parcel of land to Splinter Company for $200,000 under an installment sale contract. Splinter made a $60,000 cash down payment on July 1, 2020, and signed a 4-year 9% note for the $140,000 balance. The equal annual payments of principal and interest on the note will be $45,125 payable on July 1, 2021, through July 1, 2024. The land could have been sold at an established cash price of $200,000. The cost of the land to Pronghorn was $150,000. Circumstances are such that the collection of the installments on the note is reasonably assured.
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