Question

Quiz

Please show workings for each question.

1. Hermes Inc. received on January 1, 2017, a $22,800 4-year zero-interest bearing note for lending $16,400 to Phoenix Co. Hermes financial year ends December 31. Round to the nearest whole number. The discount rate on the note is:

2. Rudder Inc. accepts on April 1, 20x8 a 120-day 12% note for $8,000 worth of accounts receivable past due. Calculate the amount of cash Rudder should collect on the note at maturity. Round to the nearest whole number. Answer:

3. On September 3, 2018, Axe Co. received a 10% $60,000 120-day note for consultancy services rendered. The maturity date of the note is:                   (Date format is ddmmyyyy.)

4. On October 1, 2017, Xerox Equipment Inc. sold specialized office equipment to Bellamy Co. and received a 2-year, $120,000 8% note in lieu of cash. Interest is received annually on the note on October 1 and Xerox financial year ends December 31. Round to nearest whole number. Fill in the necessary information identified by the numbering to complete the journal entries at the given dates.

a.     October 1, 2017

I	III
II		III

           

I

II

III  

December 31^st 2017

I	III
II		III

I -

II -

III -

October 1^st 2018

I	III
II		IV
Interest revenue		V

I -

II -

III -

IV -

V –

5. On April 1, 2018, Med Inc. receives a 6-year $60,000 note in exchange for a parcel of land. The cost of the land was $35,000. Neither the market rate nor the fair value of the land can be determined. Notes of similar risk carry a 12% imputed rate of interest. Round to the nearest whole number. The financial year ends December 31.

a.    The present value of the note is - $

b.     There was a (gain or loss) - $                         on the sale of the land of - $

On January 1, 20x6, Cell Co. lends some money in exchange for a 10% $100,000 10-year note. The market rate for similar notes is 8%. Interest is received semiannually each July 1 and January 1. The financial year ends December 31. Round to the nearest whole number. (Hint: Prepare a partial amortization schedule to July 1, 20x8)

a.    The note is issued at -                                  (par / premium / discount)

b.    The present value of the note is - $

c.     The cash received at July 1, 20x6 is -$

d.     The interest revenue to Cell Co. at December 31, 20x7 is -$

e.     The carrying amount of the note at July 1, 20x8 is -$

Answer 1

Since, multiple questions have been posted, I have answered the first two.

_____

Question 1:

The discount rate on the note is calculated as below:

Discount Rate = (Value of Note/Amount of Loan)^(1/Years) - 1

Substituting values in the above formula, we get,

Discount Rate on Note = (22,800/16,400)^(1/4) - 1 = 9%

_____

Question 2:

The total value that should be collected at maturity is determined as below:

Total Maturity Value = Value of Note + Value of Note*Interest Rate*Period of Note/365

Substituting values in the above formula, we get,

Total Maturity Value = 8,000 + 8,000*12%*120/365 = $8,316 (the answer will be $8,320 if 360 days are taken in an year)