Accounting- COB Intermediate Accounting Questions. P7-9 and P7-10. 15th

| January 30, 2017

P7-9 (Notes Receivable Journal Entries)On December 31, 2014, Oakbrook Inc. rendered services to Beghun

Corporation at an agreed price of $102,049, accepting $40,000 down and agreeing to accept the balance in four

equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed.


Prepare the entries that would be recorded by Oakbrook Inc. for the sale and for the receipts and interest

on the following dates. (Assume that the effective-interest method is used for amortization purposes.)

(a)December 31, 2014.(c)December 31, 2016.(e)December 31, 2018.

(b)December 31, 2015.(d)December 31, 2017.

P7-10 (Comprehensive Receivables Problem)Braddock Inc. had the following long-term receivable

account balances at December 31, 2013.

Note receivable from sale of division $1,500,000

Note receivable from officer 400,000

Transactions during 2014 and other information relating to Braddock’s long-term receivables were as


1.The $1,500,000 note receivable is dated May 1, 2013, bears interest at 9%, and represents the balance

of the consideration received from the sale of Braddock’s electronics division to New York Company.

Principal payments of $500,000 plus appropriate interest are due on May 1, 2014, 2015, and

2016. The first principal and interest payment was made on May 1, 2014. Collection of the note

installments is reasonably assured.

2.The $400,000 note receivable is dated December 31, 2013, bears interest at 8%, and is due on December

31, 2016. The note is due from Sean May, president of Braddock Inc. and is collateralized by

10,000 shares of Braddock’s common stock. Interest is payable annually on December 31, and all

interest payments were paid on their due dates through December 31, 2014. The quoted market

price of Braddock’s common stock was $45 per share on December 31, 2014.

3.On April 1, 2014, Braddock sold a patent to Pennsylvania Company in exchange for a $100,000 zerointerest-

bearing note due on April 1, 2016. There was no established exchange price for the patent, and

the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2014, was

12%. The present value of $1 for two periods at 12% is 0.797 (use this factor). The patent had a carrying

value of $40,000 at January 1, 2014, and the amortization for the year ended December 31, 2014, would

have been $8,000. The collection of the note receivable from Pennsylvania is reasonably assured.

4.On July 1, 2014, Braddock sold a parcel of land to Splinter Company for $200,000 under an installment

sale contract. Splinter made a $60,000 cash down payment on July 1, 2014, and signed a 4-year

11% note for the $140,000 balance. The equal annual payments of principal and interest on the note

will be $45,125 payable on July 1, 2015, through July 1, 2018. The land could have been sold at an

established cash price of $200,000. The cost of the land to Braddock was $150,000. Circumstances are

such that the collection of the installments on the note is reasonably assured.


(a)Prepare the long-term receivables section of Braddock’s balance sheet at December 31, 2014.

(b)Prepare a schedule showing the current portion of the long-term receivables and accrued interest

receivable that would appear in Braddock’s balance sheet at December 31, 2014.

(c)Prepare a schedule showing interest revenue from the long-term receivables that would appear on

Braddock’s income statement for the year ended December 31, 2014.

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