Question
Suppose Hammer Consulting Co. provided consulting services to Duder Inc. on December 31, 2015, but has decided to allow Duder to pay the balance due
Suppose Hammer Consulting Co. provided consulting services to Duder Inc. on December 31, 2015, but has decided to allow Duder to pay the balance due over time. Hammer Consulting is considering several different note options below. The market rate of interest for a company of Duders risk level is 10%.
Option 1: Hammer Consulting Co. will require Duder to make a down payment of $30,000 on 12/31/2015 and the remainder in the form of a $90,000, 6% note due in 6 years. Interest payments will be due semi annually
For requirements BD below, assume that Hammer Consulting Co. opts for Option # 1 above.
B. Prepare an amortization table.
Use the following headings: Date Cash Interest Rev. Disc. Amortized CV
C. Using the effective interest method, determine the unamortized portion of the discount as of December 31, 2019.
D. What is the total amount of interest revenue Hammer will earn over the life of the note? For requirement E below, assume that Hammer Consulting Co. opts for Option # 2 above.
E. Assume that Hammer Consulting Co. recorded the note correctly at the end of 2015 (the date of its issuance), but forgot to make the necessary adjusting entries in both 2016 and 2017. Indicate the effect of this error on 2017 Net Income, Assets, Liabilities, and
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