[Anonymous]

I wanted to see if someone could provide me the journal entry for this problem? Thanks in advance!

Question CPA-00356

House Publishers offered a contest in which the winner would receive $1,000,000, payable over 20 years. On December 31, Year 1, House announced the winner of the contest and signed a note payable to the winner for $1,000,000, payable in $50,000 installments every January 2. Also on December 31, Year 1, House purchased an annuity for $418,250 to provide the $950,000 prize monies remaining after the first $50,000 installment, which was paid on January 2, Year 2.

In its December 31, Year 1, balance sheet, what amount should House report as note payable-contest winner, net of current portion?

a. $368,250 b. $418,250 c. $900,000 d. $950,000

Explanation

Choice “b” is correct. $418,250 note payable at Dec 31, Year 1, net of current portion (of $50,000 paid on Jan 2, Year 2).

$418,250 (the amount of the annuity purchased) is the present value of the 19 payments of $50,000, after the first payment. The first payment of $50,000 has a present value of $50,000 and is classified as current.

[Anonymous]

Deleted. Lol

[Anonymous]

NVM, just had an aha moment, I'm such a jacktard…it's:

..Dr. Contest Expense 468,250

..Dr. Discount on N/P 531,750

……………………..Cr. Note Payable – Current 50,000

……………………..Cr. Note Payable – L/T 950,000

Discount on N/P is a contra N/P account so NET, it's reported on the balance sheet at (418,250 l/t portion; 50,000 crnt portion). And you would amortize the discount over the life of the payments with periodic Dr. to Contest Expense, Dr. to N/P, Cr. to Cash, and Cr. to Discount on N/P

Pretty sure that's what the J/E would be. Anyone else feel free to jump in.

[Author]

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