Question

# Problem Set B You are the accountant for Madie Corporation, a manufacturer of jets. On January...

 Problem Set B You are the accountant for Madie Corporation, a manufacturer of jets. On January 1, 2013 Madie Corporation sold a new Lear Jet to a customer, Animal, Inc. Animal, Inc. did not have the cash upfront and therefore opted to issue a note to Madie Corporation as payment for the jet. The note contained terms for Animal, Inc. (the customer) to pay interest semiannually on June 30 and December 31. Portions of the amortization schedule appear below: Payment Cash Interest Payment Effective Interest Discount or Premium Amortization Carrying Value Madie Animal Products Note Receivable 6,627,273 Formula Inputs 1 320,000 331,364 11,364 6,638,637 Note receivable issued \$              8,000,000 \$     8,000,000 2 320,000 331,932 11,932 6,650,569 Note issue date 1/1/2013 3 320,000 332,528 12,528 6,663,097 Note issue - term (years) 20 40 4 320,000 333,155 13,155 6,676,252 Interest received Semi-annual 5 320,000 333,813 13,813 6,690,065 Note issue - interest rate (stated rate) 8% 4.00% 6 320,000 334,503 14,503 6,704,568 Note annual rate of return (market rate) 10% 5.00% - - - - - Semi-annual Interest Received \$        320,000 - - - - - Note issued at (cash/goods services OUT) (\$6,627,273) - - - - - Discount 1,372,727 38 320,000 389,107 69,107 7,851,247 39 320,000 392,562 72,562 7,923,809 40 320,000 396,191 76,191 8,000,000 REQUIRED: 10. If the customer repaid the note at 95 on January 1, 2016 (after the recording and payment of interest on December 31, 2015), would Madie record a gain or loss? Please show calculations in coming up with the Gain or Loss.

Solution:

(1): Journal entry In the books of Madie Corporation as at 30thSeptember

*Interest Receivable

(2) : If the Customer Repaid the Note on 1st January ,2016 at 95:

Cash Received on settlement is = 80,00,000*95%

=76,00,000.

Following is the journal entry on Settlement of Loan:

Therefore Madie Corporation Came up with the Gain of \$8,95,432

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