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1
Notes
Receivable
Definition of Notes Receivable
Notes receivable are claims supported by
formal promises to pay usually in the form of
notes.
Requirement Number 2:
2014 (40,000*6/12)= 20,000
2015 [(40,000*6/12)+(30,000*6/12)]= 35,000
Requirement Number 3:
No Gain/Loss on Sale of Vehicles is recognized because TOYOTAs ordinary
course of business is to sell cars!
The note was issued July 1, 2014. Therefore, Interests should accrue for 6
months only for the 2014 and for 2015 the remaining 6 months interest from
previous year should be recognized first plus the interest earned during 2015
which is the year 2 Interest time 6/12. Gets? That is how it works
If Cash Sales Price is given, it is considered also as the Present Value,
extensively discussed in PPE.
Case #2
*Assuming Toyota sold a Delivery truck not classified as inventory with a Carrying
amount of 1,200,000.
Requirement #1:
Face Value of the note 1,100,000
Present Value/Cash sale Price 871,713
Unearned Interest Income 228,287
Interest earned as of Dec 31, 2014 43,585.65
Unearned Interest Income as of Dec, 31, 2014 184,701.35
Requirement #2:
2014 (87171.3*6/12)= 43,585.65
2015 [(87171.3*6/12)+(68388.43*6/12)]= 77,779.87
Requirement #3:
Selling Price (871,713+200,000) 1,071,713
Carrying (1,200,000)
Loss on sale of equipment 128,287
Case #3
Instead of 4 equal installment, the note is received upon maturity.
Requirement #1:
Face Value of the note 1,100,000
Present Value/Cash sale Price 751,314.80
Unearned Interest Income 384,685.20
Interest earned as of Dec 31, 2014 37,565.74
Unearned Interest Income as of Dec, 31, 2014 347,119.46
Requirement #2:
2014 (75,131.48*6/12)= 37,565.74
2015 [(75,131.48*6/12)+(82644.63*6/12)]= 78,888.06
Requirement #3:
No gain or loss again! Because it is the inventory of TOYOTA!
NOTES:
Sale of inventory thru a Note doesnt recognize
Gain on Sale, because it is a sale relating to the
ordinary course of business.
Sale of other asset not classified as Inventory thru
a Note should recognize a Gain on Sale of asset.
The difference of the Sales price (PV of N/R + any
cash received) and the Carrying amount of the
asset (Cost Accumulated depreciation if any).
When a Cash Selling Price is given, this is also
represents the Present Value of the notes.
Try to practice more problems in your own books
GOD BLESS
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