Mildred Corp. owes D. Taylor Corp. a 10-year, 10% note in the amount of $110,000 plus $11,000 of accrued interest

P14-15 (Debtor/Creditor Entries for Continuation of Troubled Debt with New Effective Interest) Mildred Corp. owes D. Taylor Corp. a 10-year, 10% note in the amount of $110,000 plus $11,000 of accrued interest. The note is due today, December 31, 2007. Because Mildred Corp. is in financial trouble, D. Taylor Corp. agrees to forgive the accrued interest, $10,000 of the principal, and to extend the maturity date to December 31, 2010. Interest at 10% of revised principal will continue to be due on 12/31 each year.

Assume the following present value factors for 3 periods.
21/4% 23/8% 21/2% 25/8% 23/4% 3%
Single sum .93543 .93201 .92859 .92521 .92184 .91514
Ordinary annuity of 1 2.86989 2.86295 2.85602 2.84913 2.84226 2.82861

Instructions
(a) Compute the new effective interest rate for Mildred Corp. following restructure. (Hint: Find the interest rate that establishes approximately $121,000 as the present value of the total future cash flows.)
(b) Prepare a schedule of debt reduction and interest expense for the years 2007 through 2010.
(c) Compute the gain or loss for D. Taylor Corp. and prepare a schedule of receivable reduction and interest revenue for the years 2007 through 2010.
(d) Prepare all the necessary journal entries on the books of Mildred Corp. for the years 2007, 2008, and 2009.
(e) Prepare all the necessary journal entries on the books of D. Taylor Corp. for the years 2007, 2008, and 2009.


Click here for the solution: Mildred Corp. owes D. Taylor Corp. a 10-year, 10% note in the amount of $110,000 plus $11,000 of accrued interest

On December 31, 2009 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note

On December 31, 2009 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note having a maturity value of $900,000 (interest payable annually on December 31). Berry Corporation pays 6% for its borrowed funds. Flynn Company, however, pays 8% for its borrowed funds. The product sold is carried on the books of Berry at a manufactured cost of $570,000. Assume Berry uses a perpetual inventory system.

Instructions
(a) Prepare the journal entries to record the transaction on the books of Berry Corporation at December 31, 2009. (Assume that the simple interest method is used.)
(b) Make all appropriate entries for 2010 on the books of Berry Corporation.
(c) Make all appropriate entries for 2011 on the books of Berry Corporation.


Click here for the solution: On December 31, 2009 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note

On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note

E11-2 On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note.

Instructions
(a) Prepare the entry on June 1.
(b) Prepare the adjusting entry on June 30.
(c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been made through November 30.
(d) What was the total financing cost (interest expense)?


Click here for the solution: On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note

On January 1, 2010, Northern Manufacturing Company bought a piece of equipment by signing a non-interest-bearing $80,000, one-year note

P13-16 (Non-interest-bearing Note Payable: Present Value) On January 1, 2010, Northern Manufacturing Company bought a piece of equipment by signing a non-interest-bearing $80,000, one-year note. The face value of the note includes the price of the equipment and the interest. The effective interest rate is an annual rate of 16%, and the note is to be paid in four in four $20,000 quarterly installments. The price of the equipment is the present value of the four payments discounted at the effective interest rate.
1. Prepare all journal entries to record the preceding information. Present value techniques should be used.
2. If Northern’s financial statements were issued on June 30, 2010, what amount would the company report as notes payable?


Click here for the solution: On January 1, 2010, Northern Manufacturing Company bought a piece of equipment by signing a non-interest-bearing $80,000, one-year note

Fordyce Electronics issues a $400,000, 8%, 10-year mortgage note on December 31, 2010

P10-5A Fordyce Electronics issues a $400,000, 8%, 10-year mortgage note on December 31, 2010. The proceeds from the note are to be used in financing a new research laboratory. The terms of the note provide for semiannual installment payments, exclusive of real estate taxes and insurance, of $29,433. Payments are due June 30 and December 31.

Instructions:
a. Complete the installment payments schedule for the first 2 years.
b. Prepare the entries for (1) the loan and (2) the first two installment payments.
c. Show how the total mortgage liability should be reported on the balance sheet at December 31, 2011.current liabilities. Long term liabilities.

Click here for the solution: Fordyce Electronics issues a $400,000, 8%, 10-year mortgage note on December 31, 2010