On December 31, 2017, Barnes Corp. exchanged 100 acres of land for a noninterest
ID: 2590680 • Letter: O
Question
On December 31, 2017, Barnes Corp. exchanged 100 acres of land for a noninterest-bearing 5-year note and $20,000 cash. The note is to be paid at the rate of $17,000 a year, starting in a year. An appropriate rate of interest to impute for this note is 11%. Barnes purchased the land for $90,000 three years ago.
6-1. Determine the selling price of the land. SHOW YOUR LABELLED WORK.
6-2. Record the sale of the land.
6-3. Prepare an amortization table for the note. If you use excel, show me the formula you used for the 2019 carrying value of the note.
6-4. Write the entries needed in 2019.
6-5. Show the presentation of the note in the 2019 balance sheet
6-6. Write the final entries needed at maturity.
Explanation / Answer
6-1.) Selling price of land = 20000 + 17000*present value annuity factor(11%,5)
= 20000 + 17000*3.6959 = 20000 + 62830 = 82830
6-2.) Journal Entry:
Cash Dr 20000
Note receivable Dr 62830
Loss on sale of land Dr 7170
Land Cr 90000
6-3.)
Preparation of amortisation table:
Year
Opening Balance (A)
Interest (B)
Amount Received (C)
Closing Balance (A+B-C)
2017
62830
62830*11% = 6911
17000
52741
2018
52741
52741*11% = 5802
17000
41543
2019
41543
41543*11% = 4570
17000
29113
2020
29113
29113*11% = 3202
17000
15315
2021
15315
15315*11%= 1685
17000
0
6-4.)
Cash Dr 17000
Interest revenue Cr 4570
Note receivable Cr 12430
Year
Opening Balance (A)
Interest (B)
Amount Received (C)
Closing Balance (A+B-C)
2017
62830
62830*11% = 6911
17000
52741
2018
52741
52741*11% = 5802
17000
41543
2019
41543
41543*11% = 4570
17000
29113
2020
29113
29113*11% = 3202
17000
15315
2021
15315
15315*11%= 1685
17000
0
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