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Accounting Terms Dictionary |
| Principles of Accounting, U.S. GAAP Financial Reporting Guide |
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| Notes receivable and imputation of interest |
| Notes receivable and imputation of interest 1. If (A) > (B), the difference is recognized as discount on note receivable (A) face amount of note receivable (B) present value of note receivable 2. Example 1: On August 1, 2011, Entity A loaned $100,000 cash to Entity B --> and received a promissory note of $112,000 from Entity B --> note is due on July 31, 2012 Face amount = $112,000 Present value = $100,000 Discount = $112,000 - $100,000 = $12,000 3. Discount on note receivable is amortized --> and recognized as interest income 4. Interest income for 2011 (August 1 - December 31) --> $12,000 x 1/12 x 5 months = $5,000 5. Interest income for 2012 (January 1 - July 31) --> $12,000 x 1/12 x 7 months = $7,000 6. Journal entry on August 1, 2011 |
7. Journal entry on December 31, 2011 To record interest income for August 1, 2011 - December 31, 2011 |
8. Journal entry on July 31, 2012 To record interest income for January 1, 2012 - July 31, 2012 |
9. Journal entry on July 31, 2012 |
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