Note Discount Amortization

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INSTRUCTIONS TO CANDIDATES

  1. Read each question carefully and answer what is asked. ALL questions must be answered
  2. You should be answer handwritten for all questions, and written the answers clearly and understandable.
  3. Candidates are advised to show all workings in all Questions clearly labeling them.
  4. Write your name, ID and your group in your answers booklet. Please.
  5.  Deadline to submit the course work exam on Monday, December 5, 2022 at 08:00PM.
  6. This examination is worth 10% of the final assessment. (Hint: Students must pass the final exam to pass the course).

Problem No.1 (18 marks; 20 – 25 minutes)

The cash account of Aguilar Co. showed a ledger balance of $3,969.85 on June 30, 2012. The bank statement as of that date showed a balance of $4,150. Upon comparing the statement with the cash records, the following facts were determined.

  1. There were bank service charges for June of $25.
  2. A bank memo stated that Bao Dai’s note for $1,200 and interest of $36 had been collected on June 29, and the bank had made a charge of $5.50 on the collection. (No entry had been made on Aguilar’s books when Bao Dai’s note was sent to the bank for collection.)
  3. Receipts for June 30 for $3,390 were not deposited until July 2.
  4. Checks outstanding on June 30 totaled $2,136.05.
  5. The bank had charged the Aguilar Co.’s account for a customer’s uncollectible check amounting to $253.20 on June 29.
  6. A customer’s check for $90 had been entered as $60 in the cash receipts journal by Aguilar on June 15.
  7. Check no. 742 in the amount of $491 had been entered in the cash journal as $419, and check no. 747 in the amount of $58.20 had been entered as $582. Both checks had been issued to pay for purchases of equipment.

Instructions

  1. Prepare a bank reconciliation dated June 30, 2012, proceeding to a correct cash balance. (9 marks; 20 minutes)
  2. Prepare any entries necessary to make the books correct and complete. (9 marks; 5 minutes)

Answer to Problem No. 1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Problem No.2 (16 marks; 20 minutes)

On December 31, 2012, Green Company finished consultation services and accepted in exchange a promissory note with a face value of $600,000, a due date of December 31, 2015, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%.

The following interest factors are provided:

  Interest Rate
Table Factors For Three Periods5%10%
Future Value of 11.157631.33100
Present Value of 1.86384.75132
Future Value of Ordinary Annuity of 13.152503.31000
Present Value of Ordinary Annuity of 12.723252.48685

Instructions

  1. Prepare a Schedule of Note Discount Amortization for Green Company under the effective interest method.  (Round to whole dollars.) (8 marks; 14 minutes)
  2. Prepare the journal entry to record the receipt of the note on Dec 31, 2012. (4 marks; 3 minutes)
  3. Prepare the journal entry to record interest revenue at the end of the first year. (4 marks; 3 minutes)

Answer to Problem No. 2