(Reporting of Notes Receivable, Interest, and Sale of Receivables) On July 1, 2014, Moresan Company sold special-order merchandise on credit and received in return an interest-bearing note receiv- able from the customer. Moresan will receive interest at the prevailing rate for a note of this type. Both the principal and interest are due in one lump sum on June 30, 2015. On September 1, 2014, Moresan sold special-order merchandise on credit and received in return a zero-interest-bearing note receivable from the customer. The prevailing rate of interest for a note of this type is determinable. The note receivable is due in one lump sum on August 31, 2016. Moresan also has significant amounts of trade accounts receivable as a result of credit sales to its cus- tomers. On October 1, 2014, some trade accounts receivable were assigned to Indigo Finance Company on a non-notification (Moresan handles collections) basis for an advance of 75% of their amount at an interest charge of 8% on the balance outstanding. On November 1, 2014, other trade accounts receivable were sold on a without recourse basis. The fac- tor withheld 5% of the trade accounts receivable factored as protection against sales returns and allowances and charged a finance charge of 3%. Instructions (a) How should Mo r esan determine the inte r est r evenue for 2014 on the: (1) Inte r est-bearing note r eceivable? Why? (2) Ze r o-inte r est-bearing note r eceivable? Why? (b) How should Mo r esan r eport the inte r est-bearing note r eceivable and the ze r o-inte r est-bearing note r eceivable on its balance sheet at December 31, 2014? (c) How should Mo r esan account for subsequent collections on the trade accounts r eceivable assigned on October 1, 2014, and the payments to Indigo Finance? Why? (d) How should Mo r esan account for the trade accounts r eceivable facto r ed on November 1, 2014? Why?
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