Question

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.

Answer 1

Solution:

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

*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