Question

P7-9 (L04) (Comprehensive Receivables Problem) Braddock Inc. had the following long-term receivable account balances at December 31, 2016.

Note receivable from sale of division \(1,500,000

Note receivable from officer 400,000

Transactions during 2017 and other information relating to Braddock’s long-term receivables were as follows.

1. The \)1,500,000 note receivable is dated May 1, 2016, bears interest at 9%, and represents the balance of the consideration received from the sale of Braddock’s electronics division to New York Company. Principal payments of \(500,000 plus appropriate interest are due on May 1, 2017, 2018, and 2019. The first principal and interest payment was made on May 1, 2017. Collection of the note installments is reasonably assured.

2. The \)400,000 note receivable is dated December 31, 2016, bears interest at 8%, and is due on December 31, 2019. The note is due from Sean May, president of Braddock Inc. and is collateralized by 10,000 shares of Braddock’s common stock. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31, 2017. The quoted market price of Braddock’s common stock was \(45 per share on December 31, 2017.

3. On April 1, 2017, Braddock sold a patent to Pennsylvania Company in exchange for a \)100,000 zero-interest-bearing note due on April 1, 2019. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2017, was 12%. The present value of \(1 for two periods at 12% is 0.797 (use this factor). The patent had a carrying value of \)40,000 at January 1, 2017, and the amortization for the year ended December 31, 2017, would have been \(8,000. The collection of the note receivable from Pennsylvania is reasonably assured.

4. On July 1, 2017, Braddock sold a parcel of land to Splinter Company for \)200,000 under an installment sale contract. Splinter made a \(60,000 cash down payment on July 1, 2017, and signed a 4-year 11% note for the \)140,000 balance. The equal annual payments of principal and interest on the note will be \(45,125 payable on July 1, 2018, through July 1, 2021. The land could have been sold at an established cash price of \)200,000. The cost of the land to Braddock was $150,000. Circumstances are such that the collection of the installments on the note is reasonably assured.

Instructions

Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Braddock’s balance sheet at December 31, 2017.

Short answer

The current portion of long-term receivables totals$529,725.

Step-by-step solution

Definition of Accrued Interest

The interest charged by the lender but is not paid by the borrower is reported as a liability in the balance sheet, known as accrued interest.

Schedule of Current Portion of Long-Term receivables

Statement of Financial Position
Current Portion of Long-Term Receivables
Particular	Amount $
Note receivable from the sale of division	$500,000
Installment receivable on contract	29,725
Current portion of long-term receivable	$529,725
Accrued interest
Note receivable from the sale of division$(\$1,000,000\times 9\%\times \frac{8}{12})$	$60,000
Installment contract $(\$140,000\times 11\%\times \frac{6}{12})$	7,700
Total accrued interest receivable	$67,700