Active TopicsActive Topics  Display List of Forum MembersMemberlist  Search The ForumSearch  HelpHelp
  RegisterRegister  LoginLogin
FAR STUDY GROUP
 CPAnet Forum : FAR STUDY GROUP
Subject Topic: Urgent: Interest on N/R (Topic Closed Topic Closed) Post ReplyPost New Topic
  
Author
Message << Prev Topic | Next Topic >>
cpaforme22
Newbie
Newbie


Joined: 20 Apr 2012
Online Status: Offline
Posts: 7
Posted: 29 Apr 2012 at 15:20 | IP Logged  

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!!!!

Back to Top View cpaforme22's Profile Search for other posts by cpaforme22
 
astone
Contributor
Contributor
Avatar

Joined: 23 Mar 2011
Location: United States
Online Status: Offline
Posts: 91
Posted: 29 Apr 2012 at 21:30 | IP Logged  

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.

Back to Top View astone's Profile Search for other posts by astone
 
wool1
Newbie
Newbie


Joined: 26 May 2011
Online Status: Offline
Posts: 44
Posted: 22 Jun 2012 at 11:10 | IP Logged  

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. 
Back to Top View wool1's Profile Search for other posts by wool1
 
astone
Contributor
Contributor
Avatar

Joined: 23 Mar 2011
Location: United States
Online Status: Offline
Posts: 91
Posted: 22 Jun 2012 at 22:15 | IP Logged  

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.

Back to Top View astone's Profile Search for other posts by astone
 
wool1
Newbie
Newbie


Joined: 26 May 2011
Online Status: Offline
Posts: 44
Posted: 23 Jun 2012 at 11:30 | IP Logged  

Thanks
Back to Top View wool1's Profile Search for other posts by wool1
 




Page of 2 Next >>
  Post ReplyPost New Topic
Printable version Printable version

Forum Jump
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot delete your posts in this forum
You cannot edit your posts in this forum
You cannot create polls in this forum
You cannot vote in polls in this forum

Powered by Web Wiz Forums version 7.9
Copyright ©2001-2010 Web Wiz Guide

This page was generated in 0.1094 seconds.

Copyright 1996-2016 CPAnet/MizWeb Communities All Rights Reserved
Twitter
|Facebook |CPA Exam Club | About | Contact | Newsletter | Advertise & Promote