P14-8 (continued)
3. (continued)
After conversion: Market value method
4. Cash 1,620,000
Bonds Payable 1,560,000a
P14-9
1. 2010
Jan. 1 Cash ($500,000 x 1.02) 510,000.00
2. 2010
14-62
P14-10
2. 2010
June 30 Interest Expense ($11,348.54 x 0.12) 1,361.82
3. 2011
June 30 Interest Expense [($11,348.54 +
4. 2012
June 30 Interest Expense [($11,348.54 +
5. 2013
June 30 Interest Expense [($11,348.54 +
P14-10 (continued)
6. 2014
June 30 Interest Expense [($11,348.54 +
$1,361.82 + $1,525.24 +
P14-11
1. $20,000 x 2.401831* (n=3, i=0.12) = $48,036.62
*Factor from Table 4 of the TVM Module
2010 2011 2012
Note payable (beg. of year) $60,000.00 $40,000.00 $20,000.00
2. 2010
Jan. 1 Computer Equipment
($48,036.62 + $40,000) 88,036.62
P14-11 (continued)
2. (continued)
2011
Dec. 31 Notes Payable 20,000.00
P14-12
1. a. 2010
Jan. 1 Note Receivable 28,000.00
b. 2010
Dec. 31 Discount on Note Receivable 2,391.58
Interest Revenue
($19,929.84 x 0.12) 2,391.58
14-65
P14-12 (continued)
1. (continued)
c. 2012
2. SOMERVILLE CORPORATION
Balance Sheet (partial)
December 31, 2010, 2011, and 2012
12/31/2010 12/31/2011 12/31/2012
P14-13
1. 2010
Jan. 1 Notes Receivable 180,000.00
Machinery 160,000.00
Dec. 31 Discount on Notes Receivable 14,921.11
Interest Revenue 14,921.11*
2011
Dec. 31 Discount on Notes Receivable 10,413.22
14-66
P14-13 (continued)
1. (continued)
Dec. 31 Cash 60,000.00
Notes Receivable 60,000.00
2. LISA COMPANY
Balance Sheet (partial)
December 31, 2010 and 2011
12/31/2010 12/31/2011
Notes receivable $120,000.00a $60,000.00c
P14-14
1. (Factors are from Tables 3 and 4 of the TVM Module)
14-67
P14-14 (continued)
1. (continued)
2010
Jan. 1 Cash 15,000.00
Notes Receivable 15,000.00
Discount on Notes Receivable
2. 2010
July 1 Depreciation Expense [($90,000 ÷ 20)
X 6/12] 2,250
14-68
P14-14 (continued)
2. (continued)
Dec. 31 Discount on Notes Receivable 4,132.23
Interest Revenue 4,132.23*
2011
Dec. 31 Discount on Notes Receivable 8,677.68
Interest Revenue 8,677.68*
2012
July 1 Discount on Notes Receivable 4,545.49
Interest Revenue 4,545.49*
3. SEAVER COMPANY
Balance Sheet (partial)
December 31, 2010 and 2011
12/31/2010 12/31/2011
Notes receivable $107,500.00a $100,000.00c
14-69
P14-15 (AICPA adapted solution)
1. LINDEN, INC.
Long-Term Receivables Section of Balance Sheet
December 31, 2010
9% note receivable from sale of division, due
2. LINDEN, INC.
Selected Balance Sheet Balances
December 31, 2010
Current portion of long-term receivables:
14-70
P14-15 (continued)
3. LINDEN, INC.
Interest Income from Long-Term Receivables
and Gains Recognized on Sale of Assets
For the Year Ended December 31, 2010
Interest income:
Explanations of Amounts
[1] Long-term Portion of 9% Note Receivable at 12/31/10
[2] Non-interest-bearing Note, Net of Imputed Interest at 12/31/10
[3] Long-term Portion of Installment Contract Receivable at 12/31/10
14-71
P14-15 (continued)
[4] Accrued Interest–Note Receivable, Sale of Division, at 12/31/10
Interest accrued from 5/1 to 12/31/10
($1,000,000 x 9% x 8/12) $ 60,000
[7] Interest Income–Note Receivable, Officer, for 2010
Interest earned 1/1 to 12/31/10 ($400,000 x 8%) $ 32,000
[8] Gain Recognized on Sale of Patent
P14-16
1. 2011
Jan. 1 Cash 820,302
14-72
P14-16 (continued)
1. (continued)
Mar. 31 Interest Expense 30,000
June 30 12.5% bonds:
Interest Expense 81,250
Cash ($1,300,000 x 0.125 x 6/12) 81,250
30 Convertible Bonds Payable 100,000
Discount on Convertible Bonds
Payable ($12,500 x 1/5) 2,500
Common Stock (100 bonds x 30 x $10) 30,000
Additional Paid-in Capital on
Common Stock 67,500
14-73
P14-16 (continued)
1. (continued)
Nov. 1 Bonds Payable 200,000.00
Interest Payable 7,333.33
Dec. 31 12.5% bonds:
Interest Expense 81,250
Cash ($1,300,000 x 0.125 x 6/12) 81,250
31 10% non-interest-bearing note payable:
Interest Expense [($80,000 – $19,895) x
0.10] 6,010.50
Discount on Notes Payable 6,010.50
14-74
P14-16 (continued)
1. (continued)
2. DURHAM CORPORATION
Long-Term Debt
December 31, 2011
12.5% bonds dated January 1, 2007, paying interest
semiannually on June 30 and December 31,
11% bonds dated January 1, 2011, paying interest
semiannually on June 30 and December 31, and
14-75
P14-17
1. Reduction of interest rate to 8%:
Carrying value of note on January 1, 2010:
No gain is recognized by the debtor since the amount to be repaid exceeds the
current carrying value of the note and interest.
Determination of effective interest rate on restructuring agreement:
*Factors from Tables 3 and 4 of the TVM Module
Computation of Interest Expense and Principal Reduction
Date
Cash
Credita
Interest
Expense
Debitb
Notes
Payable
Debitc
Carrying Value
of Noted
01/02/10
12/31/10
$ 176,000
$121,701.59
$ 54,298.41
$2,434,031.82
2,379,733.41
14-76
P14-17 (continued)
1. (continued)
2010
Jan. 2 Interest Payable 34,031.82
Notes Payable 34,031.82
2. Reduction of interest rate to 1%:
Carrying value of note $2,434,031.82
Total amount to be repaid:
Principal $2,200,000.00
14-77
P14-17 (continued)
2. (continued)
2011
Dec. 31 Notes Payable 22,000
3. Transfer of stock:
Carrying value of note $2,434,031.82
Fair value of stock (160,000 x $14.50) (2,320,000.00)
4. Transfer of land:
Carrying value of note $2,434,031.82
P14-17 (continued)
4. (continued)
2010
P14-18
1. Reduction of interest rate to 8%:
Present value of principal = $2,200,000 x Present value of a single
sum for 4 years at 10%
Computation of Interest Revenue and Principal Adjustment
Date
Cash
Credita
Interest
Revenue
Creditb
Notes
Receivable
Debitc
Carrying Value
of Noted
01/02/10
12/31/10
$ 176,000
$206,052.48
$ 30,052.48
$2,060,524.84
2,090,577.32
P14-18 (continued)
1. (continued)
2010
Jan. 2 Loss on Restructured Loan
Dec. 31 Cash 176,000.00
Notes Receivable 30,052.48
Interest Revenue 206,052.48
2. Reduction of interest rate to 1%:
Present value of principal = $2,200,000 x Present value of a single
sum for 4 years at 10%
P14-18 (continued)
2. (continued)
Computation of Interest Revenue and Principal Adjustment
Date
Cash
Credita
Interest
Revenue
Creditb
Notes
Receivable
Debitc
Carrying Value
of Noted
aFrom terms of restructuring agreement
bPrevious carrying value x 0.10
2010
Jan. 2 Loss on Restructured Loan
2011
Dec. 31 Cash 22,000.00
Notes Receivable 148,760.22
Interest Revenue 185,636.24