Question

Braddock Inc. had the following long-term receivable account balances at December 31, 2016.

Note receivable from sale of division $1,500,00

Note receivable from officer $400,000

Transactions during 2017 and other information relating to Braddocks long-term recievables were as follows.

1. The $400,00 note receivable is dated December 31, 2016, bears interest at 8%, and is due on December 31, 2019. The note is due from Sean May, president of Braddock Inc. and is collateralized by 10,000 shares of Braddock's common stock. Interest is payable annyally on December 31, and all interest payments were paid on their due dates through December 31, 2017. The quoted market price of Braddock's common stock was $45 per share on December 31, 2017.

a) Prepare all necessary journal entries related to this note for 2016 and 2017.

b) How much interest revenue would Braddock report related to this note in 2016?

c) How much interest revenue would Braddock report related to this note in 2017?

Answer 1

Solution a:

Journal Entries
Date	Particulars	Debit	Credit
31-Dec-16	8% Notes Receivable A/c Dr	$400,000.00
	To Accounts receivable A/c		$400,000.00
	(Being note receivable from officer against collaterial security of 10000 shares of Braddock INC. )
31-Dec-17	Cash A/c Dr	$32,000.00
	To Interest Revenue		$32,000.00
	(Being interest received from 8% note of $400,000)

Solution b: As note is received on 31.12.2016, therefore interesr revenue will not be recongnized in 2016.

Solution c: Interest revenue to be recognized in 2017 = $400,000 * 8% = $32,000