Question

On April 1, 2018, Hope Co. accepted a $5,000 face value note as evidence of a...

On April 1, 2018, Hope Co. accepted a $5,000 face value note as evidence of a loan it made to Cannon Company. The note had a 12 percent interest rate and a one-year term.

  1. The cash flow from operating activities shown, on Hope’s 2019 statement of cash flows, would be
  2. Hope Company’s December 31, 2018 balance sheet would show total receivables in the amount of
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Answer #1

Date of acceptance of note receivable = April 1, 2018

Face value of note = $5,000

Interest rate = 12%

Maturity period of note = 1 year

Interest received at the maturity of note = Face value of note x Interest rate

= 5,000 x 12%

= $600

The cash flow from operating activities shown, on Hope’s 2019 statement of cash flows, would be = $600

Interest receivable at December 31, 2018 = Face value of note x Interest rate x 9/12

= 5,000 x 12% x 9/12

= $450

Hope Company’s December 31, 2018 balance sheet would show total receivables in the amount of = Note receivable + Interest receivable

= 5,000 + 450

= $5,450

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