Question

Mikeska Companies purchased equipment for $108,000 from Power-line Manufacturing on January 1, 2012. Mikeska paid $18,000 in cash and signed a five-year, 5% installment note for the remaining $90,000 of the purchase price. The note calls for annual payments of $18,000 plus interest on December 31 of each year. Mikeska made the first installment payment as scheduled, but was not able to make the installment due on December 31, 2013. On January 1, 2014, Power-line agreed to restructure the note receivable.

Required:
Provide journal entries in the books of both Mikeska Companies and Power-line Manufacturing for the period 2014–2016 under the following independent scenarios:
1. Power-line accepted $30,000 in cash and old equipment (fully depreciated on Mikeska’s books) with a market value of $12,000 in exchange for the outstanding note.
2. Power-line Manufacturing agreed to receive a total of $86,400 ($72,000 plus $14,400, representing four years’ interest at 5%) on December 31, 2016, in exchange for the outstanding note. (Interpolate for Mikeska’s new effective interest rate.)
3. Power-line Manufacturing decides to waive all interest and defers all principle payments until December 31, 2016.




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  • CreatedSeptember 10, 2014
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