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Aging Accounts Receivable & Imputed Interest

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On December 31, 2011, Vale Company had an unadjusted credit balance of $1,000 in its Allowance for uncollectible accounts. An analysis of Vale's trade accounts receivable at that date revealed the following:
Estimated
Age Amount Uncollectible
0 - 30 days $60,000 5%
31 - 60 days 4,999 10
Over 60 days 2,000 70
a. What amount should Vale report as Allowance for uncollectible accounts in its December 31, 2011, balance sheet?

2. On December 31, 2011, Fenton Company sold equipment to Denver, Inc., accepting a $275,000 noninterest-bearing note receivable in full payment on December 31, 2014, Denver, Inc., normally pay 12% for its borrowed funds. The equipment is carried in Fenton's perpetual inventory records at 65% of its cash selling price.
a. Prepare Fenton's journal entries to record the sale on December 31, 2011.
b. Prepare Fenton's journal entry on December 31, 2012, necessitated by this transaction.
(Prepare an amortization schedule for the loan)
c. Show Fenton's balance sheet presentation of Denver's note at December 31, 2012.

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Solution Preview

1. On December 31, 2011, Vale Company had an unadjusted credit balance of $1,000 in its Allowance for uncollectible accounts. An analysis of Vale's trade accounts receivable at that date revealed the following:
Estimated
Age Amount Uncollectible
0 - 30 days $60,000 5%
31 - 60 days 4,999 10
Over 60 days 2,000 70
a. What amount should Vale report as Allowance for uncollectible accounts in its December 31, 2011, balance sheet?
The uncollectable ...

Solution Summary

The aging accounts receivable and imputed interest are examined. An analysis of Vale's trade accounts receivables at that date revealed are discussed.

$2.19
See Also This Related BrainMass Solution

GAAP for zero-interest-bearing note

Wie Company has been operating for just 2 years, producing specialty golf equipment for women golfers. To date, the company has been able to finance its successful operations with investments from its principal owner, Michelle Wie, and cash flows from operations. However, current expansion plans will require some borrowing to expand the company's production line.

As part of the expansion plan, Wie will acquire some used equipment by signing a zero-interest-bearing note. The note has a maturity value of $50,000 and matures in 5 years. A reliable fair value measure for the equipment is not available, given the age and specialty nature of the equipment. As a result, Wie's accounting staff is unable to determine an established exchange price for recording the equipment (nor the interest rate to be used to record interest expense on the long-term note). They have asked you to conduct some account research on this topic.

(a) Identify the authoritative literature that provides guidance on the zero-interest-bearing note. Use some of the examples to explain how the standard applies in this setting.
(b) How is present value determined when an established exchange price is not determinable and a note has no ready market? What is the resulting interest rate often called?
(c) Where should a discount or premium appear in the financial statements? What about issue costs?

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