On January 1, 1998, Umbrella Corporation sold inventory costing $30,000 to Burns Industries. In return, Umbrella Corporation
Question:
On January 1, 1998, Umbrella Corporation sold inventory costing $30,000 to Burns Industries. In return, Umbrella Corporation received a 4-year, 9% note with a face value of $100,000. Blended payments will be made yearly on December 31, and will include principal and interest. The market rate of interest is 5%. Umbrella Corporation has a December 31 year-end while Burns Industries year-end is August 31.
Instructions:
a) Calculate the annual payments Umbrella Corporation will receive each year from Burns Industries. Use the stated rate of the note in your calculation.
Annual Payment | =$ |
b) Complete the following payment and amortization schedule for the note, except for where there is "keep blank" written. (Also please make sure to include 2 decimal places for all the answers for b).
Cash Received | Interest Revenue (5%) | Principal Reduction | Carrying Value of Note | |
Jan. 1, 1998 | Keep blank | Keep blank | Keep blank | |
Dec. 31, 1998 | ||||
Dec. 31, 1999 | ||||
Dec. 31, 2000 | ||||
Dec. 31, 2001 |
c) Record the journal entries for Umbrella Corporation on January 1, 1998 and December 31, 1998.
Financial Accounting an introduction to concepts, methods and uses
ISBN: 978-0324789003
13th Edition
Authors: Clyde P. Stickney, Roman L. Weil, Katherine Schipper, Jennifer Francis