A	B	C	D	E	F	G	H	I	J	K
1	Accounting for a Note Receivable using the amortized cost measurement model.
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3			Face value (sometimes called 'maturity value') of the note.								INSTRUCTIONS 1) Delete the default data in the yellow-shaded cells and enter your own data. 2) Then click RECALCULATE on the toolbar at the top of the screen to update all values and explanations on this screen. 3) The answers to REQUIRED are presented in the rows below.
4			Number of years from issuance to the note's maturity date.						1 2 3 4 5 6 7 8 9 10
5			Stated rate (sometimes called 'coupon rate' or 'nominal rate').
6			Market rate (sometimes called 'yield', 'required rate of return', 'discount rate', 'effective rate', or 'valuation rate').
7			Amortization method.						Effective interest rate Straight-line
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9			At the beginning of year-1 Tianjin Limited received a $10,000 note in exchange for professional services it provided a client. The note bears a 6.00% annual rate of interest and will be repaid at the end of year-5. The interest is paid annually on 31 December. Tianjin Limited assessed the note receivable's term and risk as well as prevailing interest rates before deciding to use 4.00% when valuing the note. Tianjin uses the effective interest rate amortization method. REQUIRED (1) Prepare Tianjin Limited's journal entry to record the receipt of this note receivable. (2) Prepare Tianjin Limited's amortization table for this note receivable. (3) Prepare Tianjin Limited's journal entries at the end of years 1, 2, and 5.
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11			Part (1): First, calculate the present value of the note receivable.
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18			PV of the expected cash inflows from the note
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22			Part (1): Second, prepare the journal entry to record the receipt of the note receivable.
23								Debit	Credit
24			Notes Receivable
25					Sales Revenue (professional services)
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28			Part (2)
29	A	B	C	D	E = $10,000 x 6.00%			H = D - G
30		Year	Amortized cost [unamortized carrying amount] of the note at the BOY**	Unamortized premium on the note receivable at the BOY	Debit: Cash account	Credit: Interest Income account	Credit: Note Receivable account [this equals the annual amortization of the $890.36 premium on the note receivable]	Unamortized premium on the note receivable at the EOY**	Amortized cost [unamortized carrying amount] of the note at the EOY
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41		TOTALS
42			** BOY = beginning of the year; EOY = end of the year.
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44			Part (3)			Debit	Credit
45			31/12/Year-1
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70		Copyright © Brian Conheady [for educational use]
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