On January 1, 2016, Seaver Company sold land with a book value of $23,000 to Ben

Question

On January 1, 2016, Seaver Company sold land with a book value of $23,000 to Bench Company. Bench paid $15,000 down and signed a $15,000 non-interest-bearing note, payable in two $7,500 annual installments on December 31, 2016, and 2017. Neither the fair value of the land nor of the note is determinable. Bench’s incremental borrowing rate is 12%. Later in the year, on July 1, 2016, Seaver sold a building to Hane Company, accepting a 2-year, $100,000 non-interest-bearing note due July 1, 2018. The fair value of the building was $82,644.60 on the date of the sale. The building had been purchased at a cost of $90,000 on January 1, 2011, and had a book value of $67,500 on December 31, 2015. It was being depreciated on a straight-line basis (no residual value) over a 20-year life.

Required:

1. Prepare all the journal entries on Seaver’s books for January 1, 2016, through December 31, 2017, in regard to the Bench note. 2. Prepare all the journal entries on Seaver’s books for July 1, 2016, through July 1, 2018, in regard to the Hane note. 3. Prepare the notes receivable portion of Seaver’s balance sheet on December 31, 2016 and 2017.

Explanation / Answer

1. journal entries on Seaver’s books for January 1, 2016, through December 31, 2017, in regard to the Bench note.

2.  journal entries on Seaver’s books for July 1, 2016, through July 1, 2018, in regard to the Hane note.

3. Notes receivable portion of Seaver’s balance sheet on December 31, 2016 and 2017.

Date Entry Debit Credit 1st Jan 2016 Cash $15,000 Bench Note- receivable $15,000 Fixed assets - land $23,000 Gain on sale of Land $7,000 December 31, 2016 Cash $7,500 Bench Note- receivable $7,500 December 31, 2017 Cash $7,500 Bench Note- receivable $7,500

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