QUESTION 1 Delaware Corp. issued a 10%, two-year, $500,000 note paying annual interest each December 31 on 1/1/19 to Colorado Corp. in exchange for $500,000 of merchandise. Question: What account will Delaware DEBIT upon this issue of a note payable? 1. cost of goods sold 2. inventory 3. supplies expense 4. notes receivable QUESTION 2 Delaware is unable to make the December 31, 2019 interest payment. Delaware is o calendar year company and accrued the 2019 interest SETTLEMENT On 1/1/20 Delaware ogrees to transfer land and a building to Colorado in full settlement of the note Land Building FMV 1/1/20 $100,000 $250,000 Original cost to Deloware 75.000 300,000 Accumulated Depreciation thru 1/1/20 100,000 Book Value 1/1/20 75,000 200,000 Question: What is the incremental impact on earnings for Delaware from the settlement? 275000 QUESTION 3 Question: Regarding the information in question no. 2 above, what is the incremental impact on Colorado's net income from the settlement? NOTE: Use a LOSS account instead of an allowance for d/a 275000 QUESTION 4 Suppose insteod thot on January 1, 2020 Delaware issues 2,500 shares of its $10 par common stock in full settlement of the note. Market price of stock is $60/share on 1/1/20 and the increase in outstanding shores is not expected to offect the stock price appreciably. Question: What is the impact on Net Income for Delaware upon this settlement? QUESTION 5 Question: Regarding the information presented above in question 4, what is the impact on Colorado from the stock issue settlement? QUESTION 6 THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 6-10 Suppose instead of the settlement that instead Colorado makes these concessions: Face value of note reduces to $400,000 Accured interest for 2019 is forgiven; $50,000 as shown above Maturity is extended to 1/1/22 (a one-year extension) Interest rate reduced to 596; interest payments due 12/31/20 & 12/31/21 Question: What amount of gain does Delaware claim at the time of the Modification of Terms? QUESTION 7 Question: Regarding the information from question 6 above, what is the impact on net income for Delware when making the second $20,000 interest expense payment? QUESTION 8 Question: Regarding information from #6 above, what is the impact on earnings when the note of $400,000 is paid in full? QUESTION 9 Question: Regarding again the information from question no. 6, but this time from the CREDITOR'S point of view, what is the impact (if any) on earnings on the date of the modification of terms? QUESTION 10 Question: How much is the Note Receivable worth to Colorado at the end of the first year following the modification of terms? Again reference question no. 6 for information. QUESTION 11 Now, keeping in my the note that has been discussed above assume all is the same except that THE CONCESSIONS CHANGE TO THIS: - Accrued interest of $50,000 is forgiven. - The maturity date is extended to 1/1/22 (given one additional year) but there is no reduction in the maturity value. - Also the bond will continue to charge 10% interest per year remaining. Question: What is the impact on earnings for Delaware on the day of the modification of terms? QUESTION 12 Regarding information from question 11, assume that the new effective interest rate calculated by Delaware is 4.6487% (use the entire interest rate (all decimals) in your calculations). Question: What is the debt worth to Delaware at 12/31/2021? QUESTION 13 Question: Using the information from question 11, but this time from the CREDITOR'S perspective, what is the impact (if any) on Colorado's net income on the day of the modification of terms? QUESTION 14 Question: Continuing with question no. 11, what is the N/R worth to Colorado at 12/31/2020
