Question

On January 1, 1993, Sega Inc. made a loan to Nintendo Corp. In exchange, Sega Inc....

On January 1, 1993, Sega Inc. made a loan to Nintendo Corp. In exchange, Sega Inc. received a $200,000, 4-year note, bearing interest at 10% payable annually on December 31. The market rate of interest is 5%. Sega Inc. has a December 31 year-end while Nintendo Corp.'s year-end is September 30.

Instructions:

1. Calculate the present value of the note

2. Calculate the amount of discount or premium on the note.

3. Complete the following schedule of note amortization.

Date Cash Received Interest Income Discount/Premium Amortized Carrying Amount of Note
January 1, 1993 0 0 0
December 31, 1993
December 31, 1994
December 31, 1995
December 31, 1996
December 31, 1996 (final payment) 0 0

4. Record the journal entries for Sega Inc. on January 1, 2004 and December 31, 2004.

Hint: There are 2 required journal entries. Some journal entries may or may not require 3 accounts or more.

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Homework Answers

Answer #1

1. The present value of the note is $235,460.

2. The amount of premium on Note is $35,460.

3.

Date Cash Received Interest Income Discount/Premium Amortized Carrying Amount of Note
January 1, 1993 0 0 0 235460
December 31, 1993 20,000 11,773  

8,8

65

 227233
December 31, 1994 20,000 11,362   8,865 218595
December 31, 1995 20,000   10,930   8,865 209525
December 31, 1996 20,000 10,475 8,865 200,000
December 31, 1996 (final payment) 200000 0 0

4. Since the note was redeemed on 31st December, 1996. There were no transactions to record in the year 2004.

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