HBC 2208 INTERMEDIATE ACCOUNTING II
MAY- SEPTEMBER. 2015/16
ASSIGNMENT ONE:
QUESTION ONE
Cypress Oil Company's December 31, 2013, balance sheet listed KSHS. 645,000 of notes receivable and KSHS. 16,000 of interest receivable included in current assets. The following notes make up the notes receivable balance:
Note 1 Dated 8/31/13, principal of KSHS. 300,000 and interest at 10% due on 2/28/ 14.
Note 2 Dated 6/30/13, principal of KSHS. 150,000 and interest due 3/31/14.
Note 3 KSHS. 200,000 face value noninterest-bearing note dated 9/30/13, due 3/31/14.
The company records adjusting entries only at year-end. There were no other notes receivable outstanding during 2013.
Required :
1. Determine the rate used to discount the noninterest-bearing note.
2. Determine the explicit interest rate.
3. What is the amount of interest revenue that appears in the company's 2013 income statement related to these notes.
QUESTION TWO
December 1, 2014, the Macantile Investment Company borrowed KSHS.500,000 from Bank of Baroda and signed a promissory note. Interest at 12% is payable monthly. The company assigned KSHS.620,000 of its receivables as collateral for the loan. Bank of Baroda charges a finance fee equal to 1.5% of the accounts receivable assigned.
Required:
Show the relevant journal entries as pertains cash difference, liability and finance expense.
QUESTION THREE
United Cellular Systems leased a satellite transmission device from Pinnacle Leasing Services on January 1. 2012. Pinnacle paid KSHS. 625,483 for the transmission device. Its fair value is KSHS. 625483.
Terms of the Lease Agreement and Related Information:
Lease term 3 years (6 semi-annual periods)
Semi-annual rental payments $120,000 at beginning of each period
Economic life of asset 3 years
Interest rate 12%
Required:
1. Prepare the appropriate entries for both United Cellular Systems and Pinnacle Leasing Services on January 1, the inception of the lease.
2. Prepare an amortization schedule that shows the pattern of interest expense for United Cellular Systems and interest revenue for Pinnacle Leasing Services over the lease term.
3. Prepare the appropriate entries to record the second lease payment on July 1, 2012, and adjusting entries on December 31, 2012 (the end of both companies' fiscal years).
QUESTION FOUR
On December 31, 2013, the Citadel Company sold land in exchange for a nine-month, 10% note.
The note requires the payment of KSHS. 200,000 plus interest. On September 30, 2014. The company's fiscal year-end is December 31. The 10% rate properly reflects the time value of money for this type of note. On March 31, 2014, Citadel discounted the note at the KCB. The bank's discount rate is 12%. Because the note had been outstanding for three months before it's discounted at the bank, Citadel first records the interest that has accrued prior to being discounted:
Required:
Calculate the interest receivable and interest revenues respectively, and clearly outlining the contra entries of the above transaction.
QUESTION FIVE
The Everest company obtains financing from the Midwest Finance Company by factoring (or discounting) its receivables. During June 2014, the company factored by KSHS. 1, 000, 000 of accounts receivable to Midwest. The transfer was made without recourse. The factor, Midwest Finance, remits 80% of the factored receivables and retains 20%. When the receivables are collected by Midwest, the retained amount less a 3% fee (3% of the total value of the amount), 2will be remitted to Everest estimates that the fair value of the amount retained by Midwest is KSHS.180,000.
In addition, on June 30, 2011, Everest discounted a note receivable without recourse.
The note which originated on March 31, 2014, requires the payment of KSHS.150, 000 plus interest at 8% on March 31. 2015. Midwest's discount rate is 10%. The company's fiscal yearend is December 31.
Required:
Prepare journal entries for Everest for the factoring of accounts receivable and the note receivable discounted on June 30. Assume that the required criteria are met and the transfers are accounted for as sales.