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Notes Receivable - Problems

Mark Company sold equipment on December 31, 2013 and received a noninterest-bearing note requiring $600,000 annual payments for 5 years. Using the 8% present value interest rate, the carrying amount on the statement of financial position is $2,395,800. Frame Company has an 8% note receivable from June 30, 2013 requiring $500,000 principal plus interest payments annually on July 1st through 2016. The interest receivable as a current asset on the June 30, 2015 statement of financial position is $80,000. AMJ Company sold equipment on December 31, 2013 in exchange for a 10-year, noninterest-bearing $100,000 annual payment note. Using the 8

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5K views

Notes Receivable - Problems

Mark Company sold equipment on December 31, 2013 and received a noninterest-bearing note requiring $600,000 annual payments for 5 years. Using the 8% present value interest rate, the carrying amount on the statement of financial position is $2,395,800. Frame Company has an 8% note receivable from June 30, 2013 requiring $500,000 principal plus interest payments annually on July 1st through 2016. The interest receivable as a current asset on the June 30, 2015 statement of financial position is $80,000. AMJ Company sold equipment on December 31, 2013 in exchange for a 10-year, noninterest-bearing $100,000 annual payment note. Using the 8

Uploaded by

Shan Janolo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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NOTES RECEIVABLE

1. On December 31, 2013, Mark Company sold used equipment and received a noninterestbearing note requiring payment of P600,000 annually for 5 years. The first payment is
due December 31,2014 and the prevailing rate of interest for this type of note at date of
issuance is 8%. Present value factors are as follows:
Present value of 1 at 8% for 5 periods
0.681
Present value of ordinary annuity of 1 at 8% for 5 periods 3.993
In December 31,2013 statement of financial position, what is the carrying amount of the
note receivable?
A. 800,000
B. 2,395,800
C. 2,400,000
D. 1,657,800
2. Frame Company has an 8% notes receivable dated June 30,2013, in the original amount of
P1,500,000. Payments of P500,000 in principal plus accrued interest are due annually on July 1,
2014, 2015,and 2016. In June 30,2015 statement of financial position, what amount should be
reported as a current asset for interest on the notes receivable?
A.120,000
B. 40,000
C. 80,000
D.

3. On December 31,2013, AMJ Company sold an equipment to JM Company in exchange for a


noninterest bearing note requiring ten annual payments of P100,000. JM Company made the first
payment on December 31, 2013. The market interest rate for similar notes at date of issuance
was 8%. Information on present value factors is:
Period

Present value of ordinary


annuity of 1 at 8%

6.25

10

6.71

In December 31,2013 statement of financial position, what is the carrying amount of the notes
receivable?
A.
B.
C.
D.

455,000
460,000
625,000
680,000

Use the following for numbers 4-5


Sampaguita Company is a dealer in equipment. On December 31,2013, the entity sold an
equipment in exchange for a noninterest bearing note requiring five annual payments of
P500,000. The first payment was made on December 31,2014. The market interest for similar
notes was 12%. The PV of 1 at 12% for 5 periods is .57, and the PV of an ordinary annuity of 1
at 12% for 5 periods is 3.60.
4. What is the carrying amount of the note receivable on December 31,2013?
A. 1,200,000
B. 1,700,000
C. 1,350,000
D. 1,800,000
5. What interest income should be reported for 2014?
A. 216,000
B. 215,000
C. 210,000
D. 110,000

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