(Reporting of Notes Receivable, Interest, and Sale of Receivables) On July 1, 2014, Moresan Company

(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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