Part 1
The GAAP requirements for notes receivable are very similar to those for notes payable. The primary difference is that receivables are from the lender’s perspective, while payables are from the borrower’s. Nonetheless, there are differences in the accounting for these two categories of notes. Do these differences make sense to you?
With these thoughts in mind:
Write at least 200 words answering the following questions:
Do the disclosure requirements for long-term receivables appear adequate? Do they answer the types of questions you think existing and potential investors may want to know?
Are there fundamental differences between long-term notes payable and receivable? If not, do you think the accounting for them should be the same? If so, what changes would you recommend? Explain.
Do the companies you selected in Week 1 have any notes receivable on their books? In your opinion, is the disclosure related to the receivable adequate and in accordance with GAAP? Justify your position.
If the companies do not have any notes receivable, would they benefit by the creation of one or more notes receivable on their balance sheet? Why or why not?
Part 2
On July 10, 2010, Harris Co. sold a machine to Jackson. On July 15, 2010, Harris accepted a $35,000 non-interest-bearing note from Jackson that was due July 10, 2013. Harris carried the machine on its books at a cost of $30,000 with a book value of $22,000. The fair value of the machine and the note was not known at the time of the sale; however, Harris’ incremental borrowing rate was 10%.
Prepare the following journal entries on Harris’s books and submit your response in the form of a Word document or Excel spreadsheet document:
Record the sale of the truck.
Provide the adjusting entries related to the note at December 31, 2010, December 31, 2011, and December 31, 2012.
Provide the collection of the note on July 13, 2013.
Prepare the notes portion of Harris’s balance sheet as of December 31, 2010, 2011, and 2012.
Sample Solution