ACC422 – Intermediate Accounting II

Question

Learning Team D Assignment – Week 2

This assignment is worth a total of 75 points distributed evenly among the two problems. It will be graded based upon both the accuracy of your solutions (2/3) and effort (1/3). Points for effort will be impacted by poor formatting, poor organization, clear lack of effort, lack of supporting calculations, and careless errors. Any simple arithmetic errors, unbalanced journal entries, or unbalanced schedules will result in zero effort points for that problem. Show your work and double check your math and entries!

Problem 1:

The following information pertains to UZM Company’s receivables:

Note receivable 1:

On August 1, 2011 UZM Company accepted a note receivable in the amount of $666,000 for the sale of an old factory building to another company. The note carries an annual interest rate of 6% and provides for annual payments of $111,000 plus interest beginning on August 1, 2012 and ending on August 1, 2017. All payments due as of December 31, 2013 have been paid.

Note receivable 2:

On January 1, 2013 UZM Company loaned $397,000 to The LRP Company, a valuable vendor that was experiencing some cash flow difficulties. The note carries a 10% interest rate compounded annually. The note calls for full payment, including all interest, on December 31, 2015. The note is collateralized by 35,000 shares of LRP Company common stock with a December 31, 2013 market value of $15 per share. The note provides that if the overall value of the LRP Company stock should fall below 102% of the note receivable amount including accrued interest, UZM Company may sell the LRP Company stock to satisfy the outstanding note receivable.

Note receivable 3:

On August 1, 2013 UZM Company sold the formula for a secret process to another company in exchange for a $142,000 zero-interest-bearing note due on August 1, 2017. The formula had no established exchange price and there is no ready market for the note. The current market rate of interest for such a note was 10% on the date the note was created. (The present value of $1 for 4 periods at 10% is 0.68301.)


Note receivable 4:

On September 1, 2013 UZM Company sold land for its fair market value of $540,000 under an installment sales contract that provided for a $108,000 down payment and annual payments of $167,630 beginning on July 1, 2014 and ending on July 1, 2016. The contract carries a 8% interest rate.

Collection of the payments due under each of the notes is reasonably assured.

Instructions:

A. Prepare the long-term receivables section of UZM Company’s balance sheet as of December 31, 2013.

Answer 1

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