Recognition and Measurement of Long-Term Notes Receivable

question 53

Essay

Recognition and measurement of long-term notes receivable
Kohl Company lent $49,587 to Hemingway Inc., accepting Hemingway's 2-year, $60,000, zero-interest-bearing note. The implied interest rate is 10%. Prepare Kohl's journal entries for the initial transaction, recognition of interest each year, and the collection of $60,000 at maturity. Kohl Company follows IFRS.

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Definitions:

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including materials, labor, and overhead.

Job Order Costing

An accounting methodology used to track costs and revenues for individual jobs or orders, making it possible to report profitability per job.

Cost Accounting System

A method of accounting that tracks, records, and analyzes costs associated with the production of goods and services.

Raw Materials

Raw materials are the basic, unprocessed inputs used in the manufacturing of products or goods, essential to production processes.