Solution manual intermediate accounting by robles empleo ch 3 answers

Chapter 3 – Receivables
CHAPTER 3 - RECEIVABLES
Question no. 7
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.

Accounts Receivable
Receivables from Employees (part of non-trade receivables) – current assets
Advances to Suppliers – Current assets
Accounts Receivable
Customers’ Accounts with Credit Balances – Current Liabilities
Cost of merchandise must be included in inventories
Accounts Receivable
Subscriptions Receivable – current asset if collectible within 12 months;
otherwise, non-current asset
Other Non-Trade Receivables – Current asset or non-current asset depending on
terms of payment

Advances to Suppliers – Current Assets
Suppliers’ Accounts with Debit Balances or Advances to Suppliers – Current assets
Accounts Receivable
Claims for Income Tax Refund – Current Assets
Accounts Receivable, amount of loan presented separately as part of liabilities
Accounts Receivable
Not recognized anymore (for write off)
PROBLEMS

3-1

(Ginoo Company)

Gross Method
(Correction to the Text: Delete the second transaction on Dec. 10: Collected from
First Lady in full.)
Dec.
Accounts Receivable-First Lady
68,400
9
Sales
68,400
80,000 x 90% x 95%
10

Accounts Receivable-Men’s World
Sales

50,000

19

Cash
Sales Discounts
Accounts Receivable-First Lady

67,032
1,368

Accounts Receivable-Teens’ Kingdom
Sales

40,000

26
31
Jan. 5

9

Sales Discounts
Allowance for Sales Discounts

68,400
40,000
800
800

Cash
Allowance for Sales Discounts

Accounts Receivable-Teens’ Kingdom

39,200
800

Cash
Accounts Receivable-Men’s World

50,000

10

50,000

40,000
50,000


Chapter 3 – Receivables
Net Method
Dec.
Accounts Receivable-First Lady
9
Sales
68,400 x .0.98

67,032

10

Accounts Receivable-Men’s World
Sales

49,000

19

Cash
Accounts Receivable-First Lady

67,032

26

Accounts Receivable-Teens’ Kingdom
Sales

39,200

31

Accounts Receivable-Men’s World
Sales Discount Forfeited
Accounts Receivable-Teens’ Kingdom

9

Cash
Accounts Receivable-Men’s World
Allowance Method

Dec.
Accounts Receivable-First Lady
9
Allowance for Sales Discount
Sales
10

Dec.
19

26

31
Jan. 5

9
3-2

67,032

1,368
67,032

67,032

Allowance for Sales Discount
Sales Discount Forfeited

1,000
49,000

1,368
68,400
40,000
800
39,200
1,000

Cash
Allowance for Sales Discount
Accounts Receivable-Teens’ Kingdom

39,200
800

Cash
Accounts Receivable-Men’s World

50,000

Notes Receivable
Sales

1,000
39,200

68,400

Cash

Accounts Receivable-Teens’ Kingdom
Allowance for Sales Discount
Sales

39,200

50,000

50,000

Allowance for Sales Discount
Accounts Receivable-First Lady

67,032

50,000

Accounts Receivable-Men’s World
Allowance for Sales Discount
Sales

(Colayco Company)
(1)
July Allowance for Doubtful Accounts
14
Accounts Receivable-Moret Co.
31

1,000

49,000

1,000

40,000
50,000

10,000
10,000
12,000
12,000

11


Chapter 3 – Receivables

Aug.
15

Nov.
1

Nov. 4

5
Nov. 9

Nov.
15

Cash

20,000

Notes Receivable
Sales

15,000

Cash

19,200

35,000

Credit Card Service Charge
Sales
4% x 20,000 = 800

800
20,000

Accounts Receivable-P. Noval
Notes Receivable
Interest Revenue
12,000 x .10 x 90/360 = 300

12,300

Accounts Receivable-Credit Card
Sales

9,000

Cash
Credit Card Service Charge
Accounts Receivable-Credit Card
5% x 9,000 = 450
Accounts Receivable-Moret Co.

8,550
450

Dec.
13

3-3

9,000

9,000
10,000

Allowance for Bad Debts
15

12,000
300

10,000

Cash
Accounts Receivable-Moret Co.

10,000

Cash

15,600

10,000

Notes Receivable
Interest Income
15,000 x 12% x 120/360 = 600

15,000
600

(Format Company)
a.

Carrying value of the note on January 1, 2009
P6,000,000 x 0.65752
P3,945,120
Prevailing interest rate
15%

Interest revenue for 2009

P 591,768

b.
Carrying value, January 1, 2009
P3,945,120
Add amortization of discount during 2009
Carrying value, December 31, 2009
(or simply P3,945,120 x 1.15 = P4,536,888)
3-4

(Formatted Company)
a.
Carrying value of the note on January 1, 2009 (P2 M x 2.28323)
P4,566,460

12

591,768
P4,536,888


Chapter 3 – Receivables
Interest rate
Interest revenue for 2009

15%
P 684,969

Carrying value, December 31, 2009

4,566,460 + 684,969 – 2,000,000
Interest rate
Interest revenue for 2009

P3,251,429
15%
P 487,714

b.
Carrying value, January 1, 2009
P4,566,460
Add amortization of discount during 2009
Less first payment of principal
(2,000,000)
Carrying value, December 31, 2009
3-5

684,969
P3,251,429

(HRV Company)

Accrued interest at June 30, 2009 (3,000,000 – 1,000,000) x 12%
240,000
3-6

P

(FX Corporation)
a.

2009
Jan. 1

Notes Receivable
Accumulated Depreciation
Loss on Sale of Equipment
Equipment
Discount on Notes Receivable

100,000
420,000
8,820

100,000 x 0.7118 = 71,180
80,000 – 71,180 = 8,820 Loss on Sale
100,000 – 71,180 = 28,820 Discount

b.
2009
Dec. 31
2010
Dec. 31
2011
Dec. 31

Dec. 31
3- 7

Discount on Notes Receivable
Interest Revenue

12% x 71,180

8,542

Discount on Notes Receivable
Interest Revenue
12% x (71,180 + 8,542)

9,567

Discount on Notes Receivable
Interest Revenue
12% x (71,180 +8,542 + 9,567)
(or 28,820 – 8,542 – 9,567)
Cash
Notes Receivable

500,000
28,820

8,542

9,567
10,711
10,711

100,000
100,000

(Pinky Pop Company) (Solutions were based on PV factors rounded to five

decimal places)
The note is interest-bearing, but the rate of interest of the note is unreasonably lower
than the prevailing rate for similar obligation. Thus, the present value of the note is
determined as follows:

13


Chapter 3 – Receivables
2.5 M + (5% x 7.5 M) = 2,875,000 x
P2,566,972
2.5 M + (5% x 5.0 M) = 2,750,000
2,192,273
2.5 M + (5% x 2.5 M) = 2,625,000
1,868,422
Total
or

2.5 M x 2.40183
(5% x 7.5 M) x
(5% x 5.0 M) x
(5% x 2.5 M) x
Total

a.

Amortization Table

01/01/09
12/31/09

12/31/10
12/31/11

x

0.79719

x

0.71178
P6,627,667
P6,004,575
334,822
199,298
88,972
P6,627,667

0.89286
0.79719
0.71178

Payment of
Principal

Date

0.89286

2,500,000
2,500,000

2,500,000

Interest
Paid
375,000
250,000
125,000

Interest
Revenue
795,320
545,758
281,255*

Amortizatio
n of
Discount
420,320
295,758
156,255*

Carrying
Value
6,627,667
4,547,987
2,343,745
------------

*rounded off
b.

Journal entries

2009

Jan. 1

Notes Receivable
Discount on Notes Receivable
Gain on Sale of Land
Land

7,500,00
0

7,500,000 – 6,627,667 = 872,333 Discount
6,627,667 – 6,000,000 = 627,667 Gain

872,333
627,667
6,000,00
0

2009

Dec. 31

Cash
Discount on Notes Receivable
Interest Revenue

Notes Receivable

2,875,00
0
420,330

795,320
2,500,00
0

2010

Dec. 31

Cash
Discount on Notes Receivable
Interest Revenue
Notes Receivable

2,750,00
0
295,758

2011

Dec. 31

Cash
Discount on Notes Receivable

14

2,625,00
0
156,255

545,758
2,500,00
0


Chapter 3 – Receivables
Interest Revenue
Notes Receivable
3.9

281,255
2,500,00
0

Pinky Pip Company
The note is interest-bearing, but the rate of interest of the note is unreasonably
higher than the prevailing rate for similar obligation. Thus, the present value of the
note is determined as follows:
2.5 M + (18% x 7.5 M)
= 3,850,000 x
2.5 M + (18% x 5.0 M) = 3,400,000
x
2.5 M + (18% x 2.5 M) = 2,950,000
x

Total
or

2.5 M x 2.4018
(18% x 7.5 M) x
(18% x 5.0 M) x
(18% x 2.5 M) x
Total

0.8929
0.7972
0.7118

P3,437,665
2,710,480
2,099,810
P8,247,955
P6,004,500
1,205,415
717,480
320,310
P8,247,705*

0.8929
0.7972
0.7118

*Difference in the computations is due to rounding off
b.

Amortization Table
Payment of
Principal

Date
01/01/09
12/31/09
12/31/10
12/31/11

2,500,000
2,500,000
2,500,000

Interest
Paid
1,350,000
900,000
450,000

Interest
Revenue
989,755
646,525
315,765*

Amortizatio
n of
Premium
360,245

253,475
134,235*

Carrying
Value
8,247,955
5,387,710
2,634,235
------------

*Difference is due to rounding off
b.

Journal entries

2009

Jan. 1

Notes Receivable
Premium on Notes Receivable
Gain on Sale of Land

7,500,00
0
747,955

Land
8,247,955 – 7,500,000 = 747,955 Premium
8,247,955 – 6,000,000 = 2,247,955 Gain

2009

Dec. 31

Cash
Premium on Notes Receivable
Interest Revenue
Notes Receivable

2010

Dec. 31

Cash

3,850,00
0

3,400,00

15

2,247,95
5
6,000,00
0

360,245
989,755
2,500,00

0


Chapter 3 – Receivables
0
Premium on Notes Receivable
Interest Revenue
Notes Receivable

253,475
646,525
2,500,00
0

2011

Dec. 31

Cash

2,950,00
0

Premium on Notes Receivable
Interest Revenue
Notes Receivable
3-9

134,235
315,765

2,500,00
0

(Word Company)
Bad Debts Expense
Allowance for Bad Debts

P52,000
50,000

Required balance in allowance account:
(2% x 500,000) + (10% x 200,000) + (20% x 100,000)
P50,000
Reported balance in allowance before adjustments (debit)
2,000
Required adjustment charged to bad debts expense
P52,000
3-10

(Edit Company)
Allowance for Uncollectible Accounts, beg
Recovery of accounts previously written off

3,000
48,000

3-11

P 6,000

Uncollectible accounts expense for 2009
Allowance for Uncollectible Accounts, end
Accounts written off during 2009

(12,000)
P45,000

(Toyota Products, Inc.)
a.
b.

Accounts Receivable
Sales

4,800,000

Cash
Sales Discounts
Accounts Receivable

3,920,000
80,000

4,800,000

c.

Allowance for Uncollectible Accounts
Accounts Receivable

d.

Accounts Receivable
Allowance for Uncollectible Accounts

5,000

Cash
Accounts Receivable

5,000

Notes Receivable
Accounts Receivable

25,000

e.

16

20,000

4,000,000
20,000
5,000
5,000
25,000

Chapter 3 – Receivables
h.

i.

Cash
Notes Payable-Bank

400,000

Cash
Accounts Receivable

150,000

Notes Payable-Bank
Cash

150,000

400,000
150,000
150,000

Uncollectible Accounts Expense
Allowance for Uncollectible Accounts

65,000
65,000

9,000 – 20,000 + 5,000 = 6,000 debit
59,000 + 6,000 = 65,000

j.

Interest Receivable
Interest Revenue

250
250

25,000 x 12% x 30/360

Accounts Receivable
(450,000+4,800,000–4,000,000–20,000–25,000–150,000)
P1,055,000
Less Allowance for Uncollectible Accounts
59,000

Net realizable value/Net amortized cost
996,000
3-12

P

(Rav, Inc.)

Accounts Receivable, December 31, 2008
Sales on account during 2009
1,500,000

Cash received from customers
(1,600,000)
Cash discounts allowed: (882,000 ÷ 98%) x 2%
(495,000 ÷ 99%) x 1%
Recovery of accounts written off
3,000
Accounts written off as worthless
Credit memoranda for sales returns
Accounts Receivable, December 31, 2009

3,000
15,000

P 337,000

P18,000
5,000

(

23,000)

( 11,000)
(
6,000)
P 200,000

Allowance for Uncollectible Accounts, December 31, 2008
Recovery of accounts written off

P 12,000

Accounts written off as worthless
Impairment loss on receivables

(

Allowance for Uncollectible Accounts, December 31, 2009

11,000)
P

19,000
The computation may also be conveniently done through T-accounts, as follows:
Accounts Receivable
Balance, beg
Sales on account
Recovery

337,000
1,500,000
3,000

17

Collections
Cash discounts
Write off
Sales returns

1,600,000
23,000
11,000
6,000


Chapter 3 – Receivables
Total
Balance, end

1,840,000
200,000

Total

1,640,000

Allowance for Uncollectible Accounts

3-13
34,000

Write off

11,000

Total

11,000

Balance, beg
Recovery
Impairment
Total
Balance, end

(Revo Company)
Allowance for Uncollectible Accounts, January 1, 2009
Accounts written off
Recovery of accounts previously written off

7,000

53,600

12,000
3,000
15,000
30,000
19,000

P
( 47,000)

Additional accounts written off
( 6,000)
Allowance for Uncollectible Accounts, December 31, 2009
before adjustments (debit balance)
(P 12,000)
Required balance in Allowance account based on aging:

(5% x 240,000) + (25% x 20,000) + (50% x 30,000) + (90% x 24,000)
Required adjustment/Doubtful Accounts Expense for 2009
P65,600

3-14

Accounts Receivable, December 31, 2009

P654,000

Less Allowance for Uncollectible Accounts
Net amortized cost

53,600
P600,400

(Adventure Company)
a.

Accounts Receivable, January 1
Sales during 2009
Cash collected from customers
Recovery of accounts previously written off
Note received in settlement of an account
Accounts written off as worthless
Accounts Receivable, December 31
Accounts Receivable, December 31
Past due accounts
Current accounts/Not yet past due

P 1,200,000
10,000,000
(8,720,000)
20,000
( 400,000)
( 100,000)
P 2,000,000
P 2,000,000
600,000
P 1,600,000

Required balance in Allowance for Uncollectible Accounts:
20% x 600,000 past due accounts
P 120,000
5% x 1,400,000 current accounts
70,000
Total
P 190,000
b.

Allowance for Uncollectible Accounts, end
Accounts written off during the year as worthless
Recovery of accounts previously written off
Allowance for Uncollectible Accounts, beg
Uncollectible Accounts Expense for year 2009

P 190,000
100,000
(
20,000)

(
60,000)
P 210,000

c.

Accounts Receivable

P 2,000,000

18


Chapter 3 – Receivables
Less Allowance for Uncollectible Accounts
Net amortized cost
3-15

190,000
P1,810,000

(ABC Realty)
Alternative 1
Carrying value (10 M + 1.2 M)
11,200,000
Present value of future cash inflows:
Principal due on 12/31/11
9M x 0.7972
P7,174,800
Interest for 2 years

9M x 8% = 720,000; 720,000 x 1.6901
1,216,872
8,391,672
Impairment loss
P2,808,328
Entry: Restructured Notes Receivable
8,391,672
Impairment Loss – Receivables
2,808,328
Notes Receivable
10,000,000
Interest Receivable
1,200,000
Alternative 2
Carrying value (10 M + 1.2 M)
Present value of future cash inflows:
2M + (8% x 10M) = 2,800,000 x 0.89292,500,120
2M + (8% x 8M) = 2,640,000 x 0.79722,104,608
2M + (8% x 6M) = 2,480,000 x 0.71181,765,264
2M + (8% x 4M) = 2,320,000 x 0.63551,474,360
2M + (8% x 2M) = 2,160,000 x 0.56741,225,584
Impairment loss
Entry: Restructured Notes Receivable
Impairment Loss – Receivables
Notes Receivable
Interest Receivable

11,200,000

9,069,936

2,130,064

9,069,936
2,130,064
10,000,000
1,200,000

Alternative 3
Carrying value
Present value of future cash inflows:
Principal due on 12/31/09
10M x 0.7972
7,972,000
Interest due on 12/31/10 and 12/31/11
10M x 9% = 900,000; 720,000 x 1.6901
1,521,090
Impairment loss
Entry: Restructured Notes Receivable
Impairment Loss – Receivables
Notes Receivable
Alternative 4
Carrying value
Present value of future cash inflows:
Principal due on 12/31/11
11.2M x 0.797193876
Interest due on 12/31/10 and 12/31/11
11.2M x 12% = 1,344,000;
1,344,000 x 1.6900510
Impairment loss

19

10,000,000

9,493,090
506,910

9,493,090
506,910
10,000,000
11,200,000
8,928,572
2,271,428

11,200,000
---------


Chapter 3 – Receivables

3-16

(Edsamail Company)
(a)

Maturity value = 500,000 + (500,000 x .08) = 540,000
Proceeds = 540,000 – (540,000 x .10 x 5/12) = 517,500

(b)

Interest Receivable
Interest Revenue
500,000 x 8% x 7/12
Cash
Loss on Sale of Notes Receivable
Notes Receivable
Interest Receivable

3-17

3-18

a.

23,333
23,333
517,500
5,833

500,000
23,333

Proceeds 90,000 – (90,000 x 0.15 x 20/365)

= P89,260

b.

Maturity value 75,000 + (75,000 x 0.15 x 90/365)
Proceeds 77,774 – (77,774 x 0.15 x 50/365)

= P77,774
= P76,176

c.

Maturity value 60,000 + (60,000 x 0.16 x 120/365)
Proceeds 63,156 – (63,156 x 0.15 x 45/365)

= P63,156
= P61,988

(Crosswind Corporation)
2009

Feb. 1

Notes Receivable
Accounts Receivable

April 1

Interest Receivable
Interest Revenue
60,000 x 16% x 2/12

1

Nov.
30

3-19

60,000
1,600

Cash
Interest Expense
Liability on Discounted Notes
Interest Receivable
60,000 + (60,000 x .16 x 9/12) = 67,200
67,200 – (67,200 x .15 x 7/12) = 61,320
CV of Discounted Notes
61,600
Proceeds
61,320
Interest Expense
280

61,320
280

Liability on Discounted Notes

60,000

Accounts Receivable
Notes Receivable
Cash
67,200 + 1,500 = 68,700

68,700

60,000
1,600

60,000
1,600

60,000
68,700

(Lexus Company)
Amount of the loan

P625,000

20


Chapter 3 – Receivables
Less service charge (2% x 750,000)
Net proceeds from the assignment of accounts receivable
P610,000
Sept. 1

Sept 130

15,000

Accounts Receivable Assigned
Accounts Receivable

800,000

Cash
Finance Charges
Notes Payable – Pacific Bank

610,000
15,000

Cash

300,000

800,000

Accounts Receivable Assigned
Sept. 30

Oct. 131

300,000

Notes Payable – Pacific Bank
Interest Expense (625,000 x 12% x 1/12)
Cash

300,000

6,250
306,250

Allowance for Uncollectible Accounts

10,000

Accounts Receivable Assigned
Cash

Oct.
31

10,000
400,000

Accounts Receivable Assigned

Notes Payable – Pacific Bank

3-20

400,000

325,000

Interest Expense (325,000 x 12% x 1/12)
Cash
31

625,000

3,250

Accounts Receivable
Accounts Receivable Assigned

328,250

90,000

90,000

(Explorer Company)
Accounts receivable factored
P2,000,000
Purchase price
85%__
Purchase price of accounts receivable factored
1,700,000
Less amount withheld as protection against returns and allowances
5% x 1,700,000
85,000_
Net cash received from the factored accounts
P1615,000
Cash
Receivable from Factor
Loss on Factoring
Accounts Receivable

P

1,615,000
85,000
300,000
2,000,000

21


Chapter 3 – Receivables

3-21

(Highlander Company)
a.
Sept. 1 Cash
Receivable from Factor
Loss from Factoring
Accounts Receivable
800,000 x 10% =80,000 Loss;
720,000 x 5% = 36,000 withheld
Nov. 1

b.
Dec. 31

3.22

Cash

Finance Charges
Notes Payable-Bank
3% x 600,000 = 18,000
Uncollectible Accounts Expense
Allowance for Uncollectible Accounts
(190,000 + 1,000,000) x 2% = 23,800 –
13,400

684,000
36,000
80,000

800,000

582,000
18,000
600,000
10,400
10,400

(Accord Company)
July 1

Accounts Receivable Assigned
Accounts Receivable

4,000,000

Cash
Finance Charges

Notes Payable – Bank
5% x 3,200,000 = 160,000

3,040,000
160,000

21

Sales Returns and Allowances
Accounts Receivable Assigned

150,000

31

Cash
Sales Discounts
Accounts Receivable Assigned
2% x 2,500,000 = 50,000

2,450,000
50,000

Notes Payable – Bank
Interest Expense
Cash
3,200,000 x 0.18 x 1/12 = 48,000

2,500,000
48,000

1

Aug 1

15

Allowance for Uncollectible Accounts
Accounts Receivable Assigned

3,200,000

2,548,000
50,000

Cash
Accounts Receivable Assigned

Sept 1

Notes Payable – Bank
Interest Expense
Cash
700,000 x 0.18 x 1/12 = 10,500

700,000
10,500

Accounts Receivable
Accounts Receivable Assigned

300,000

22

150,000

2,500,000

Aug 31

1

4,000,000

1,000,000

50,000
1,000,000

710,500

300,000


Chapter 3 – Receivables
4,000,000– 150,000 – 2,500,000 - 50,000 – 1,000,000 =
300,000

3 – 23 (Fortune Company)

Oct. 1
1

31

Nov.
30

Accounts Receivable Assigned
Accounts Receivable

2,000,000

Cash
Finance Charges
Notes Payable

1,440,000
90,000

2,000,000

1,500,000

Interest Expense
Notes Payable
Accounts Receivable Assigned

985,000
15,000

Notes Payable

515,000

Interest Expense
Cash
Accounts Receivable Assigned

5,150
279,850

1,000,000

800,000

MULTIPLE CHOICE QUESTIONS
Theory
MC1
MC2
MC3
MC4
MC5

A
A
A
A
C

MC6
MC7
MC8
MC9
MC10

a
c
c
d
a

MC11
MC12
MC13
MC14
MC15

c
a
d
a
c

Problems
MC16

b

MC17

d

MC18

c

MC19
MC20

b
a

MC21
MC22
MC23
MC24

d
d
c
d

MC25
MC26

b
b

450,000 x 1.4 = 630,000

630,000 – 585,000 = 45,000
105,000 x .90 = 94,500 (Invoice price/Gross)
94,500 x .98 = 92,610 (net price)
200,000 x .90 x .95 = 171,000 (Invoice price/Gross)
171,000 x .97 = 165,870 (Net)
1,300,000 + 5,400,000 + 25,000 – 4,750,000 – 125,000 = 1,850,000
360,000 ÷ 80% = 450,000
450,000 + 80,000 – 430,000 = 100,000
75,000 + 45,000 = 120,000
3% x 1,000,000 = 30,000
30,000 + 8,000 = 38,000
270,000 – 250,000 = 20,000
20,000 + 23,000 – 28,000 – 5,000 = 10,000
17,500 – 30,500 + 8,050 + 200,000 = 15,050
480,000 + 2,400,000 – 2,560,000 – 17,600 – 36,800* + 4,800 = 270,400
*1,411,200 ÷ .98 = 1,440,000 x 2% = 28,800
792,000 ÷ .99 = 800,000 x 1% = 8,000
28,800 + 8,000 = 36,800

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Chapter 3 – Receivables
MC27

a

MC28
MC29
MC30

a
b
d

MC31

c

MC32
MC33

c
c

MC34

b

MC35

c

19,200 + 4,800 – 17,600 = 6,400
5% x 270,400 = 13,520
13,520 – 6,400 = 7,120
(5% x 600,000) + (10% x 40,000) + 14,000 = 48,000
20,000 + 7,500 – 12,500 – 3,700 = 11,300
50,000 + (50,000 x 10%) = 55,000
55,000 – (55,000 x .12 x 6/12) = 51,700

400,000 x .75 = 300,000
300,000 x 10% = 30,000
300,000 + 30,000 = 330,000
500,000 x 8% x 4/12 = 13,333; 500,000 + 13,333 = 513,333
500,000 + (500,000 x .08) = 540,000; 540,000 – (540,000 x .10 x 8/12) =
504,000
513,333 – 504,000 = 9,333 Interest Expense
1,250,000 - (2% x 1,250,000)} = 1,225,000
1,225,000 + 695,000 = 1,920,000
550,000 – [(500,000 x 0.8265) + (40,000 x 1.7355)] = 67,380

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