On January 1, 2016, Somerville Corporation
sold a used truck to Cornelius Company and LO 13.8 accepted a $28,000 non-interest-beating note due January 1, 2019. Somerville carried the truck on its books at a cost of $30,000 and a current book value of $23,000. Neither the fair value of the truck nor the note was available at the time of the sale; however, Cornelius's incremental borrowing rate was 12%.
1. Prepare the journal entries on Somerville's books to record:
a. Sale of the truck
b. Related adjusting entries on December 31, 2016, 2017, and 2018
c. Collection of the note on January 1, 2019
2. Prepare the notes receivable portion of Somerville's December 31, 2016, 2017, and 2018 balance sheets.
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...