How would I solve this problem? Part A. Determine the dollar amount of the cash

Question

How would I solve this problem?

Part A. Determine the dollar amount of the cash payment of P&I to be remitted each April 1st.

Part B. Determine the Service Revenue ABC can recognize on April 1, 2018.

Part C. Determine the Total Interest Revenue that ABC will recognize on this note for the year ended December 31, 2019.

Part D. Prepare a partial Balance Sheet for this Note Receivable as of December 31, 2018:

Current Assets :

Interest Receivable ______

Note Receivable ______

Long-Term Investments:

Note Receivable ______

Periods 3 50 496 6% 896 996 PV of $1 89 .82 .70 .68 84 .74 .59 .56 .79 68 .50 46 77 654642 Present Value of an Ordinary Annuity 496 696 896 996 2.77 445 7.43 8.11 2.67 4.21 6.80 7.36 2.57 3.99 6.25 6.71 2.53 3.89 5.99 6.41 Part I. On April 1, 2018, ABC Company rendered services to Jones Company in exchange for a three year, $400,000, 896 note. Payments of P&I; (Principal & Interest) are due each April 1st, with the first payment due immediately. December 31st is the fiscal year end for ABC. Jones normal cost to borrow is 8%

Explanation / Answer

Solution A:

Dollar amount of the cash payment of P&I to be remitted each April 1st. = Amount of service rendered / Cumualtive PV Factor for annuity due for 4 periods at 8%

= $400,000 / 3.57 = $112,044.82

Solution B:

Service Revenue ABC can recognize on April 1, 2018 = $400,000

Solution C:

Total interest payment on 01.04.2019 = ($400,000 - $112,044.82) * 8% = $23,036.41

Total principal payment on 01.04.2019 = $112,044.82 - $23,036.41 = $89,008.41

Interest revenue for period of 01.04.2019 to 31.12.2019 = ($400,000 - $112,044.82 - $89,008.41) * 8% *9/12 = $11,936.81

Interest revenue for 01.01.2019 to 31.03.2019 = $23,036.41 * 3/12 = $5,759.10

Total interest revenue for 2019 = $5,759.10 + $11,936.81 = $17,695.91

Solution D:

Balance Sheet (Partial) - 31-Dec-2018 Assets Amount Current Assets: Interest Receivable [($400,000 - $112,044.82)*8%*9/12] $17,277.31 Note Receivables $89,008.41 Long Term Investments: Note Receivables $198,946.77

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