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cpaforme22
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| Posted: 29 Apr 2012 at 15:20 | IP Logged
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Hello,
Can someone please help explain this question?
Frame Co. has an 8% note receivable dated June 30, Year 1, in the original amount of $150,000.Payments of $50,000 in principal plus accrued interest are due annually on July 1, Year 2, Year 3, and Year 4. In its June 30, Year 3, balance sheet, what amount should Frame report as a current asset for interest on the note receivable?
The answer is $8,000 calculated as: ($150,000-$50,000) x 8%. I thought only principal amount should reduce Note Receivable, and the $50,000 included both principal & interest, why are they using principal & interest to reduce Note Receivable? I came up with interest receivable of 8,960 as follows:
1. CV of N/R at 7/1/02: 150,000 - reduction of principal [total payment of 50,000 - interest revenue of 12,000 (calculated as 150,000 x 8%) ] = 112,000 CV
2. 6/30/03 interest receivable: 112,000 CV x 8% = 8,960
Many thanks!!!!
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astone
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| Posted: 29 Apr 2012 at 21:30 | IP Logged
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| Date |
Principal |
Interest |
Balance |
| 06.30.01 |
- |
- |
150,000 |
| 07.01.02 |
50,000 |
12,000 |
100,000 |
| 07.01.03 |
50,000 |
8,000 |
50,000 |
| 07.01.04 |
50,000 |
4,000 |
- |
| The problem states they pay 50,000 PLUS accrued interest. |
| The interest is accrued on the balance. |
| The interest is not included in the 50,000 payment. |
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wool1
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| Posted: 22 Jun 2012 at 11:10 | IP Logged
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Isn't JUne 30, Year 3 two years after June 30, Year 1? WIth two years having passed, the interest receivable thats current is for the third year.
It should be 4000.
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astone
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| Posted: 22 Jun 2012 at 22:15 | IP Logged
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The Balance sheet date is 06.30.03. On 07.01.03 a payment of 50,000 in principal and 8,000 in interest will be received. Therefore, on 06.30.03 an entry will be made to accrue the 8,000 in revenue earned for year three. The 4,000 will not be recorded until year four. Interest is accrued when it is earned.
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wool1
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| Posted: 23 Jun 2012 at 11:30 | IP Logged
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Thanks
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Topic: Urgent: Interest on N/R
Topic Closed)
