Chapter 7 CASH AND RECEIVABLES Continued Sommers – ACCT 3311Notes ReceivableNotes Receivable..Note Receivable Journal EntriesNote Receivable Journal EntriesNote Receivable Journal EntriesInterest-bearing NoteInterest-bearing NoteInterest-bearing NoteInterest-bearing NoteDiscussion QuestionDiscussion QuestionNon-Interest Bearing NoteNon-Interest Bearing NoteNon-Interest Bearing NoteNon-Interest Bearing NoteNon-Interest Bearing NoteNon-Interest Bearing NoteNotes Received for Property, Goods or ServicesNotes Receivable ExampleDiscussion QuestionValuation of Notes ReceivableDisposition of ReceivablesDisposition of ReceivablesSecured borrowing vs. SaleSale of ReceivablesSale of ReceivablesPresentation of ReceivablesDiscussion QuestionA/R Turnover RatioIFRSIFRSIFRSReceivables Journal EntriesReceivables Journal EntriesReceivables Journal EntriesReceivables Journal EntriesReceivables Journal EntriesCHAPTER 7CASH AND RECEIVABLES CONTINUEDSommers – ACCT 3311Supported by a formal promissory note.A negotiable instrument.Maker signs in favor of a Payee.Interest-bearing (has a stated rate of interest) ORZero-interest-bearing (interest included in face amount).Notes ReceivableGenerally originate from:Customers who need to extend payment period of an outstanding receivable. High-risk or new customers.Loans to employees and subsidiaries.Sales of property, plant, and equipment.Lending transactions (the majority of notes).Notes Receivable..Note Receivable Journal EntriesOn June 30, 2011, the Esquire Company sold some merchandise to a customer for $30,000. In payment, Esquire agreed to accept a 6% note requiring the payment of interest and principal on March 31, 2012. The 6% rate is appropriate in this situation. Prepare the journal entry to record the sale of merchandise (omit any entry that might be required for the cost of the goods sold).June 30, 2011Note Receivable Journal EntriesOn June 30, 2011, the Esquire Company sold some merchandise to a customer for $30,000. In payment, Esquire agreed to accept a 6% note requiring the payment of interest and principal on March 31, 2012. The 6% rate is appropriate in this situation. Prepare the journal entry at December 31, 2011.December 31, 2011Note Receivable Journal EntriesOn June 30, 2011, the Esquire Company sold some merchandise to a customer for $30,000. In payment, Esquire agreed to accept a 6% note requiring the payment of interest and principal on March 31, 2012. The 6% rate is appropriate in this situation. Prepare the journal entry at March 31, 2012.March 31, 2012Illustration: Morgan Corp. makes a loan to Marie Co. and receives in exchange a three-year, $10,000 note bearing interest at 10 percent annually. The market rate of interest for a note of similar risk is 12 percent. How does Morgan record the receipt of the note? 0 1 2 31,000 1,000 Interest$1,000$10,000 Principal4i = 12%n = 3Interest-bearing NoteFV=10,000, pmt=1,000, n=3, i=12% => PV=9,520Illustration: How does Morgan record the receipt of the note? Interest-bearing NoteIllustration 7-15Interest-bearing NoteJournal Entries for Interest-Bearing NoteCash 1,000Discount on notes receivable 142Interest revenue 1,142Interest-bearing NoteQ7-15 What is “imputed interest”?In what situations is it necessary to impute an interest rate for notes receivable?Discussion QuestionDiscussion QuestionQ7-15 Continued – What are the considerations in imputing an appropriate rate?Non-Interest Bearing NoteOn April 30, 2011, the Rangers Company sold some merchandise to a customer for $40,000. Rangers agreed to accept a payment of $40,000 on April 30, 2016. A 6% interest rate is appropriate in this situation. Prepare the journal entry to record the sale of merchandise (omit any entry that might be required for the cost of the goods sold).Non-Interest Bearing NoteOn April 30, 2011, the Rangers Company sold some merchandise to a customer for $40,000. Rangers agreed to accept a payment of $40,000 on April 30, 2016. A 6% interest rate is appropriate in this situation. Prepare the amortization schedule.Cash Interest Amort Balance4/30/2011 29,890 4/30/2012 4/30/2013 4/30/2014 4/30/2015 4/30/2016Non-Interest Bearing NoteOn April 30, 2011, the Rangers Company sold some merchandise to a customer for $40,000. Rangers agreed to accept a payment of $40,000 on April 30, 2016. A 6% interest rate is appropriate in this situation. Prepare the journal entry at December 31, 2011.Cash Interest Amort Balance4/30/2011 29,890 4/30/2012 - 1,793 1,793 31,683 4/30/2013 - 1,901 1,901 33,584 4/30/2014 - 2,015 2,015 35,599 4/30/2015 - 2,136 2,136 37,735 4/30/2016 - 2,265 2,265 40,000Non-Interest Bearing NoteOn April 30, 2011, the Rangers Company sold some merchandise to a customer for $40,000. Rangers agreed to accept a payment of $40,000 on April 30, 2016. A 6% interest rate is appropriate in this situation. Prepare the journal entry at December 31, 2012.Cash Interest Amort Balance4/30/2011 29,890 4/30/2012 - 1,793 1,793 31,683 4/30/2013 - 1,901 1,901 33,584 4/30/2014 - 2,015 2,015 35,599 4/30/2015 - 2,136 2,136 37,735 4/30/2016 - 2,265 2,265 40,000Non-Interest Bearing NoteOn April 30, 2011, the Rangers Company sold some merchandise to a customer for $40,000. Rangers agreed to accept a payment of $40,000 on April 30, 2016. A 6% interest rate is appropriate in this situation. What is the balance of the note at December 31, 2012?Cash Interest Amort Balance4/30/2011 29,890 4/30/2012 - 1,793 1,793 31,683 4/30/2013 - 1,901 1,901 33,584 4/30/2014 - 2,015 2,015 35,599 4/30/2015 - 2,136 2,136 37,735 4/30/2016 - 2,265 2,265 40,000Non-Interest Bearing NoteOn April 30, 2011, the Rangers Company sold some merchandise to a customer for $40,000. Rangers agreed to accept a payment of $40,000 on April 30, 2016. A 6% interest rate is appropriate in this situation. Prepare the journal entry at April 30, 2016.April 30, 2016Cash Interest Amort