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Equipment Sale Note Receivable Analysis

ABC sold equipment to XYZ for a $84,253 non-interest bearing note receivable with a maturity date of December 31, 2014. The present value of the note was calculated as $50,000 using a discount rate of 11%. ABC recorded the note at its present value of $50,000, with the difference recorded as a discount. Each year, the discount was amortized and increased the note's carrying value until maturity when the full $84,253 was paid to ABC.

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Kayla Shelton
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7 views1 page

Equipment Sale Note Receivable Analysis

ABC sold equipment to XYZ for a $84,253 non-interest bearing note receivable with a maturity date of December 31, 2014. The present value of the note was calculated as $50,000 using a discount rate of 11%. ABC recorded the note at its present value of $50,000, with the difference recorded as a discount. Each year, the discount was amortized and increased the note's carrying value until maturity when the full $84,253 was paid to ABC.

Uploaded by

Kayla Shelton
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

1/1/2010: ABC sold equipment to XYZ & for a non-interest bearing N/R of $84,253.

Maturity Date December 31, 2014.


The relevant interest rate for similar notes 11%.
The PV Factor of the Note (N = 5, I = 11%) 0.59345
PV of the Note = 59.345% of $84,253 $50,000

On January 1, 2010, the journal entries recorded are:

ABC Company (Got Note):

Note Receivable $84,253
Sales $50,000
Discount $34,253

XYZ Company (Gave Note):

Equipment $50,000
Discount $34,253
Note Payable $84,253
Amortization Schedule:

Date:
11% Discount Amortized
= Interest Revenue
Unamortized
Discount:
Carrying
Value of Note:
January 1
st
2010 - $34,253 $50,000
December 31
st
2010 $5,500 $28,753 $55,500
December 31
st
2011 $6,105 $22,648 $61,605
December 31
st
2012 $6,776.55 $15,781.45 $68,381.55
December 31
st
2013 $7,521.97 $8,349.48 $75,903.52
December 31
st
2014 $8,349.48 - $84,253


December 31, 2010:

Discount on Note $5,500
Interest Revenue $5,500

Interest Expense $5,500
Discount on Note $5,500
December 31, 2011:

Discount on Note $6,105
Interest Revenue $6,105

Interest Expense $6,105
Discount on Note $6,105

December 31, 2012:

Discount on Note $6,776.55
Interest Revenue $6,776.55

Interest Expense $6,776.55
Discount on Note $6,776.55


December 31, 2013:

Discount on Note $7,521.97
Interest Revenue $7,521.97

Interest Expense $7,521.97
Discount on Note $7,521.97

December 31, 2014:

Discount on Note $8,349.48
Interest Revenue $8,349.48

Interest Expense $8,349.48
Discount on Note $8,349.48


Cash $84,253
Note Receivable $84,253

Note Receivable $84,253
Cash $84,253

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