# (Solved Homework): E14-17B (L03) (Imputation of Interest) Presented below are two independent situations:…

E14-17B (L03) (Imputation of Interest) Presented below are two independent situations:

(a) On January 1, 2017, Excess Inc. purchased undeveloped land that had an assessed value of \$261,000 at the time of purchase. A \$500,000, zero-interest-bearing note due January 1, 2022, was given in exchange. There was no established exchange price for the land, nor a ready market value for the note. The interest rate charged on a note of this type is 15%. Determine at what amount the land should be recorded at January 1, 2017, and the interest expense to be reported in 2017 related to this transaction.

Don't use plagiarized sources. Get Your Custom Essay on
(Solved Homework): E14-17B (L03) (Imputation of Interest) Presented below are two independent situations:…
Get an essay WRITTEN FOR YOU, Plagiarism free, and by an EXPERT!

(b) On January 1, 2017, DonnAll Diamond borrowed \$1,000,000 (face value) from Allstar Co., a major customer, through a zero-interest-bearing note due in 3 years. Because the note was zero-interest-bearing, DonnAll agreed to sell dia- monds to this customer at lower than market price. A 12% rate of interest is normally charged on this type of loan. Prepare the journal entry to record this transaction and determine the amount of interest expense to report for 2017.

 a) Duration of note is 5 years later. The transaction price of the land equates PV of note today. To calculate the PV, we will use 15% (interest rate on the note) as a discounting rate. Zero Interest bearing Note \$500,000 Present Value factor @15% for 5 years =1/(1.15)^5 0.4972 Present Value of Note = \$5000,000*0.4972 \$248,588 Interest Expense to be recorded = \$248,588.37*15%= \$37,288 So, the land value to be recorded is \$248,588 and the interest expense to be recorded is \$37,288 in January 2017. b) Date Accounts Debit\$ Credit\$ 1) Cash \$1,000,000 Discount on notes payable(\$1,000,000*1/(1.12)^3 ) =\$1,000,000*0.71178 \$711,780.25 To Notes payable @12% \$1,000,000 To Unearned Revenues \$711,780.25 (Journal entry to record this transaction) 2) Carrying Value of the note on January 1, 2017, \$288,219.75 (\$1,000,000-\$711,780.25) Interest Rate 12% Interest Expenses to be reported for 2017 \$34,586.37

Pages (550 words)
Approximate price: -

Why Work with Us

Top Quality and Well-Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.

Free Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.

Prompt Delivery and 100% Money-Back-Guarantee

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

## Calculate the price of your order

Total price:
\$0.00

How it works?

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Our Services

No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.

## Essay Writing Service

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.