24 - Practice Problem On 1/1/6, Brown Co. sold land that cost $100,000. In exchange,...
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24 - Practice Problem On 1/1/6, Brown Co. sold land that cost $100,000. In exchange, Brown received a 5-year $120,000 note with a stated interest rate of 6%, payable annually on 12/31. The principal balance will be paid on 12/31/00. The market rate of interest on equivalent (risk and term) notes is 15%. a. What is the gain/loss on the land sale? Assume realizability is not an issue. b. How much interest revenue should be reported by Brown Co. for the year ended 12/31/6? For the year ended 12/31/7? c. Suppose Brown Co. recognized a $20,000 gain on the sale in 2k6 and reflected interest revenue of $7,200 each year for 2k6 and 2k7. If the error is corrected in 2k8 and comparative financial statements are prepared for the years 2k7 and 2k8, give the amount of any PPA reflected in those statements, assuming the tax rate for all years is 40%. [Check figure: part c - $18,499 (dr) on Statement of Retained Earnings.]
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