Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 14, Problem 12MC
(Appendix 14.1)Pamlico Company has a $500,000, 15%, 3-year note dated January 1, 2019, payable to Forest National Bank. On December 31, 2020, the bank agreed to settle the note and unpaid interest of $75,000 for $50,000 cash and marketable securities having a current market value of $375,000. Pamlico’s acquisition cost of the securities is $385,000. Ignoring income taxes, what amount should Pamlico report as a gain from the debt restructuring on its 2020 income statement?
- a. $65,000
- b. $75,000
- c. $140,000
- d. $150,000
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
(Note Transactions at Unrealistic Interest Rates) On July 1, 2020, Taylor Inc. made two sales.1. It sold land having a fair market value of $500,000 in exchange for a 4-year, zero-interest-bearing promissory note in the face amount of $732,053.70. The land is carried on Taylor’s books at a cost of $375,000.2. It rendered services in exchange for a 4%, 8-year promissory note having a face value of $400,000 (interest payable annually).Taylor Inc. recently had to pay 7% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 10% interest.InstructionsRecord the two journal entries that should be recorded by Taylor Inc. for the sales transactions above that took place on July 1, 2020.
On December 31, 2018, ABC Corp. acquired Garlic Corp.’s P1,000,000 notes for P927,880. The market interest rate at that time was 12%. The stated interest rate was 10%, payable annually. THe notes mature in five years and classifies as financial asset at amortized cost.
At December 31, 2020, the note is considered credit-impaired. Management determined that it was probable that the issuer would pay back only P600,000 of the principal at maturity.
At December 31,2021, because of the improvement in the credit rating of Garlic Corp., Sinait Corp. reassessed the collectibility of the note and now expects to collect P900,000 from Garlic Corp, at maturity date.
The required loss allowance at December 31,2020 is
Interest income to be recognized in 2021 profit or loss
The impairment gain to be recognized in 2021 profit or loss is
During 2021 Nice Company experienced financial difficulties and is
likely to default on a P500,000, 15%, three-year note dated January 1,
20X2, payable to Forest National Bank. On December 31, 2021, the bank
agreed to settle the note and unpaid interest of P75,000 for 2021 for
P50,000 cash and marketable securities having a carrying amount of
P375,000. Nice's acquisition cost of the securities is P385,000.
What amount should Nice report as a gain from the debt restructuring
in its 2021 income statement?
Chapter 14 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 14 - Prob. 1GICh. 14 - Why does issuing debt result in an income tax...Ch. 14 - At the beginning of 2018, corporate tax rates...Ch. 14 - What is a bond? Define face value, maturity date,...Ch. 14 - What is the difference between a mortgage bond and...Ch. 14 - Prob. 6GICh. 14 - Prob. 7GICh. 14 - Prob. 8GICh. 14 - Prob. 9GICh. 14 - Prob. 10GI
Ch. 14 - Prob. 11GICh. 14 - Prob. 12GICh. 14 - Prob. 13GICh. 14 - Prob. 14GICh. 14 - What is a call provision? Why do companies often...Ch. 14 - Prob. 16GICh. 14 - When do companies recognize gains and losses from...Ch. 14 - Prob. 18GICh. 14 - Prob. 19GICh. 14 - Prob. 20GICh. 14 - Prob. 21GICh. 14 - Prob. 22GICh. 14 - Prob. 23GICh. 14 - Prob. 24GICh. 14 - Prob. 25GICh. 14 - Prob. 26GICh. 14 - Prob. 27GICh. 14 - Prob. 28GICh. 14 - On January 1, 2019, Bay Company issues bonds with...Ch. 14 - Prob. 2MCCh. 14 - Prob. 3MCCh. 14 - Prob. 4MCCh. 14 - Prob. 5MCCh. 14 - Prob. 6MCCh. 14 - Prob. 7MCCh. 14 - When the cash proceeds from a bond issued with...Ch. 14 - On December 31, 2019, Dare Corporation had...Ch. 14 - Prob. 10MCCh. 14 - On January 1, 2019, Onslow Company borrowed...Ch. 14 - (Appendix 14.1)Pamlico Company has a 500,000, 15%,...Ch. 14 - Prob. 1RECh. 14 - Refer to the information in RE14-1. Assume Canglon...Ch. 14 - Prob. 3RECh. 14 - Prob. 4RECh. 14 - Prob. 5RECh. 14 - Prob. 6RECh. 14 - Prob. 7RECh. 14 - Prob. 8RECh. 14 - Prob. 9RECh. 14 - Prob. 10RECh. 14 - On January 1, 2019, Langdon Co. issues bonds with...Ch. 14 - Nolan Corporation has outstanding convertible...Ch. 14 - On January 1, 2019, Branson Corporation issued...Ch. 14 - On January 1, 2019, Boater Company issues a 20,000...Ch. 14 - On January 2, 2019, Jennings Company purchases...Ch. 14 - Determining the Proceeds from Bond Issues Madison...Ch. 14 - Prob. 2ECh. 14 - Prob. 3ECh. 14 - On January 1, 2019, Knorr Corporation issued...Ch. 14 - On January 1, 2019, Hackman Corporation issued 1...Ch. 14 - Prob. 6ECh. 14 - Chowan Corporation issued 100,000 of 10% bonds...Ch. 14 - Prob. 8ECh. 14 - Taylor Company issued 100,000 of 13% bonds on...Ch. 14 - On January 1, 2019, Calvert Company issues 12%,...Ch. 14 - Prob. 11ECh. 14 - On October 1, 2019, Ball Company issued 9% bonds...Ch. 14 - Prob. 13ECh. 14 - Prob. 14ECh. 14 - On December 1, 2017, Cone Company issued its 10%,...Ch. 14 - Prob. 16ECh. 14 - Prob. 17ECh. 14 - On July 1, 2020, Tuttle Company had bonds payable...Ch. 14 - On January 1, 2019, Conroe Corporation sold...Ch. 14 - Prob. 20ECh. 14 - On July 2, 2018, McGraw Corporation issued 500,000...Ch. 14 - Prob. 22ECh. 14 - January 1, 2019, Johnson Corporation issued a...Ch. 14 - Spath Company borrows 75,000 by issuing a 4-year,...Ch. 14 - Webb Corporation purchased an asset from Shaw...Ch. 14 - On January 1, 2019, Sanders Corporation purchased...Ch. 14 - On January 1, 2019, Billips Corporation purchased...Ch. 14 - On January 1, 2019, Northfield Corporation becomes...Ch. 14 - Prob. 29ECh. 14 - Prob. 30ECh. 14 - Prob. 31ECh. 14 - Prob. 1PCh. 14 - Prob. 2PCh. 14 - Prob. 3PCh. 14 - Prob. 4PCh. 14 - Bats Corporation issued 800,000 of 12% face value...Ch. 14 - Prob. 6PCh. 14 - Wilbury Corporation issued 1 million of 13.5%...Ch. 14 - Prob. 8PCh. 14 - Prob. 9PCh. 14 - Prob. 10PCh. 14 - Prob. 11PCh. 14 - Hamlet Corporation purchases computer equipment at...Ch. 14 - Prob. 13PCh. 14 - Restructuring (Debtor) Oakwood Corporation is...Ch. 14 - Prob. 15PCh. 14 - Tenth National Bank has a 200,000, 12% note...Ch. 14 - Prob. 1CCh. 14 - One way for a corporation to accomplish long-term...Ch. 14 - Prob. 3CCh. 14 - Recording Convertible Debt Zakin Co. recently...Ch. 14 - Prob. 5CCh. 14 - Long-Term Notes Payable Business transactions...Ch. 14 - Prob. 7CCh. 14 - On January 1, 2019, Brewster Company issued 2,000...Ch. 14 - Prob. 9CCh. 14 - You are an accountant for Taos Company, which has...Ch. 14 - Prob. 11CCh. 14 - Prob. 12CCh. 14 - Prob. 13C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park 200,000 and had a book value of 20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is 25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Parks December 31, 2019, balance sheet? a. 28,560 b. 29,000 c. 32,500 d. 36,000arrow_forwardOn January 1, 2019, Northfield Corporation becomes delinquent on a 100,000, 14% note to First National Bank, on which 16,651 of interest has accrued. On January 2, 2019, the bank agrees to restructure the note. It forgives the accrued interest, extends the repayment date to December 31, 2021, and reduces the interest rate to 10%. Required: Prepare a schedule for Northfield to compute the annual interest expense in regard to the preceding note for each year of the restructuring agreement.arrow_forwardSpath Company borrows 75,000 by issuing a 4-year, noninterest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spaths incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate. Required: Prepare the journal entries on Spaths books for 2019 and 2020. (Round answers to 2 decimal places.)arrow_forward
- On January 1, 2020, Jonathan Company borrowed P500,000 8% note due in four years. The present value of the note on the date of issuance was P367,500. The entity elected irrevocably the fair value option in measuring the note payable. On December 31, 2020, the fair value of the note is P408,150 What is the carrying amount of the note payable on December 31, 2020? 500,000 367,500 408,150 460,000 What amount should be reported as interest expense for 2020? 40,000 29,400 32,562 20,000 What amount of gain from change in fair value of the note payable should be reported for 2020? 135,500 172,500 91,850 29,400 At what amount should the discount on note payable be presented on December 31, 2020? 132,500 103,100 91,850 0arrow_forwardOn January 1, 2020, Jonathan Company borrowed P500,000 8% note due in four years. The present value of the note on the date of issuance was P367,500. The entity elected irrevocably the fair value option in measuring the note payable. On December 31, 2020, the fair value of the note is P408,150. 1. What is the carrying amount of the note payable on December 31, 2020? a. 500,000 b. 367,500 c. 408,150 d. 460,000 2. What amount should be reported as interest expense for 2020? a. 40,000 b. 29,400 с. 32,562 d. 20,000 3. What amount of gain from change in fair value of the note payable should be reported for 2020? а. 132,500 b. 172,500 91,850 d. 29,400 с. 4. At what amount should the discount on note payable be presented on December 31, 2020? a. 132,500 b. 103,100 91,850 d. с.arrow_forwardOn January 1,2021, ABC Corporation purchased a land for P 15,000,000. In exchange of the land, ABC issued a non-interest bearing note which is due on December 31,2025. There is no readily available market value for the building, but the current market rate of interest for comparable notes is 15%How much is the balance of Discount on notes payable as of December 31,2024?arrow_forward
- During 2020 Hingalo Company experienced financial difficulties and is likely to default on a P500,000, 15%, three-year note dated January 1, 2019, payable to Maawain National Bank. On December 31, 2020, the bank agrees to settle the note and unpaid interest of P75,000 for 2020 for P50,000 cash and marketable securities carried at P385,000. What amount should Hingalo report as a gain from extinguishment of debt in its 2020 income statement?arrow_forwardOn January 1, 2020, CPA Co. sold land with carrying amount of P1,8o00,000 in exchange for a 1o-month, 10% note with face value of P2,000,000. On May 1, 2020, the entity discounted the note with recourse. The bank discount rate is 12%. The discounting transaction is accounted for as a secured borrowing. On November 1, 2020, the maker dishonored the note receivable. The entity paid the bank the maturity value of the note plus protest fee of P10,000. On December 1, 2020, the entity collected the dishonored note receivable in full plus 12% annual interest on the total amount due. How much cash was collected on December 1? (Round off to two decimal places.)arrow_forwardOn January 1, 2021, ABC Company sold property to the DEF Company. There was no established exchange price for the property, and DEF gave ABC a P2,000,000 non-interest bearing note payable in 5 equal annual installments of P400,000, with the first payment due December 31, 2021. The prevailing rate of interest for a note of this type is 9%.What should be the balance of the Discount on Notes Payable account on the books of ABC Company at December 31, 2022 after adjusting entries are made assuming that the effective interest method is used?arrow_forward
- On January 1, 2020, Aguilar Corporation purchased bonds with a face value of P4,000,000 for P3,649,600 in order to collect contractual cash flows that are solely payments of principal and interest. The bonds are purchased to yield 10% interest. The nominal interest rate on the bonds is 8% payable annually every December 31. On December 31, 2021, as a result of a change in the business model for managing financial assets, the entity decided to reclassify the bonds from amortized cost to fair value. On that date, the carrying amount of the bond investment is P3,744,016 after discount amortization using the effective interest method. The market value of the bonds on January 1, 2015, is 10%. Requirements: Prepare the necessary journal entries to record the Using the same information, except that the change is from fair value to amortized cost, prepare the necessary journal entries to record the What if, initially, the investment is classified at FVTPL, then subsequently changed it to…arrow_forwardOn January 1, 2019, Bestbuy Inc. purchased land that had an assessed value of P6,000,000 at the time of purchase. AP9,000,000 non-interest-bearing note due January 1, 2021 was given in exchange. There was no established exchangeprice for the land, nor a ready market value for the note. The interest rate charged on a note of this type is 12%. The present value of 1 at 12% for 3 periods is 0.7118. The present value of an annuity of 1 at 12 % for 3 periods is 2.4018. In its December 31, 2019 balance sheet, what carrying amount should Bestbuy report as Note payable?a. P7,270,800 c. P8,070,048b. P7,174,944 d. P9,000,000arrow_forward21. On January 1, 2019, Mariz Company acquired a tract of land for 21,000,000. The entity paid a 5,000,000 down payment and signed a non interest bearing note for the balance which is due on January 1, 2022. There was no established exchange price for the land and the note had no ready market. The prevailing interest rate for this type of note was 12%. The present value of 1 at 12% for 3 periods is .7118. What is the carrying amount of the notes payable on Dec. 31, 2019?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Property, Plant and Equipment (PP&E) - Introduction to PPE; Author: Gleim Accounting;https://www.youtube.com/watch?v=e_Hx-e-h9M4;License: Standard Youtube License