Notes Receivable - Problems

1 On December 31, 2022, Park Company sold used equipment and received a noninterest bearing note requiring payment of
P500,000 annually for 10 years. The first payment is due December 31, 2023 and the prevailing rate of interest for this type
of note at date of issuance is 12%.

Present value factors are as follows:

Present value of 1 at 12% for 10 periods 0.322

Present value of ordinary annuity of 1 at 12% for 10 periods 5.650

In the December 31, 2022 statement of financial position, what is the carrying amount of the note receivable?

a P1,610,000
b P2,175,000
correct c P2,825,000
d P5,000,000

SOLUTION:
Annual installment 500,000.00
Present value of ordinary annuity 5.650
Carrying amount 2,825,000.00

2 Using the information above, how much is the unearned interest revenue?

a P500,000
b P1,610,000
correct c P2,175,000
d P2,825,000

SOLUTION:
Face value (500,000 x 10) 5,000,000.00
Present value 2,825,000.00
Unearned interest revenue 2,175,000.00

3 Pangasinan Company is a dealer in equipment. On December 31, 2022, the entity sold an entity in exchange for a noninterest
bearing note requiring five annual payments of P500,000. The first payment was made on December 31, 2023. The market
interest for similar notes was 8%. The PV of 1 at 8% for 5 periods is 0.68 and the PV of an ordinary annuity of 1 at 8% for 5
periods is 3.99

On December 31, 2022, what is the carrying amount of the note receivable?

a P2,500,000
correct b P1,995,000
c P1,700,000
d P1,495,000

4 Using the information above, what interest income should be reported for 2023?
a P505,000
b P101,000
correct c P159,600
d P119,600

5 Using the information above, what is the carrying amount of the note receivable on December 31, 2023?
correct a P1,654,600
b P2,000,000
c P2,154,600
d P1,495,000

This study source was downloaded by 100000896552077 from CourseHero.com on 02-17-2025 08:43:56 GMT -06:00

https://www.coursehero.com/file/194827613/NOTES-RECEIVABLEpdf/
 SOLUTION:
Yr Installment Interest Principal CA
2022 1,995,000.00
2023 500,000.00 159,600.00 340,400.00 1,654,600.00

6
On January 1, 2022, Emmet Company sold equipment with a carrying amount of P4,800,000 in exchange for a P6,000,000
noninterest bearing note due January 1, 2025. There was no established exchange price for the equipment. The prevailing
rate of interest for a note of this type on January 1, 2022 was 10%. The present value of 1 at 10% for 3 periods is 0.75.

In the 2022 income statement, what amount should be reported as interest income?
a P90,000
correct b P450,000
c P500,000
d P600,000

7 In the 2022 income statement, what amount should be reported as gain or loss on sale of equipment?
correct a P300,000 loss
b P300,000 gain
c P1,200,000 gain
d P2,700,000 gain

SOLUTION:
Face value of note 6,000,000.00
Present value factor 0.75
Present value 4,500,000.00
Interest rate 10%
Interest income 450,000.00

Present value 4,500,000.00

Less: Carrying amount of equipment 4,800,000.00
Loss on sale of equipment (300,000.00)

8 On January 1, 2022, Mill Company sold a building and received as consideration P1,000,000 cash and a P4,000,000
noninterest bearing note due on January 1, 2025. There was no established exchange price for the building and the note
had no ready market. The prevailing rate of interest for a note of this type on January 1, 2022 was 10%. The present
value of 1 at 10% for 3 periods is 0.75. What amount of interest revenue should be included in the 2022 income
statement?

a P370,000
b P400,000
correct c P300,000
d P330,000

9 Using the information above, what amount of interest revenue should be included in the 2023 income statement?

a P370,000
b P400,000
c P300,000
correct d P330,000

10 Using the information above, what amount of interest revenue should be included in the 2024 income statement?

correct a P370,000
b P400,000
c P300,000
d P330,000

SOLUTION:

This study source was downloaded by 100000896552077 from CourseHero.com on 02-17-2025 08:43:56 GMT -06:00

https://www.coursehero.com/file/194827613/NOTES-RECEIVABLEpdf/
 Note receivable 4,000,000.00
Less: PV (4,000,000 x 0.75) 3,000,000.00
Unearned interest income 1,000,000.00

Yr Interest Unearned CA
1,000,000.00 3,000,000.00
2022 300,000.00 700,000.00 3,300,000.00
2023 330,000.00 370,000.00 3,630,000.00
2024 370,000.00 - 4,000,000.00 Total amount of note
1,000,000.00

The P370,000 is simply the remainder of unearned interest.

11
On December 31, 2022, Anne Company sold for P3,000,000 an old equipment having an original cost of P5,400,000 and
carrying amount of P2,400,000. The terms of the sale were P600,000 down payment and P1,200,000 payable each year
on December 31 of the next two years. The sale agreement made no mention of interest. However, 9% would be a fair
rate for this type of transaction. The present value of an ordinary annuity of 1 at 9% for 2 years is 1.76.

What is the interest income for 2023?

a P216,000
correct b P190,080
c P108,000
d P106,000

12 Using theinformation above, what is the carrying amount for the note receivable on December 31, 2023?
a P1,200,000
correct b P1,102,080
c P2,302,080
d P1,009,920

SOLUTION:
Note receivable 2,400,000.00
Less: PV (1,200,000 x 1.76) 2,112,000.00
Unearned interest income 288,000.00

Yr Installment Interest Principal CA

2022 2,112,000.00
2023 1,200,000.00 190,080.00 1,009,920.00 1,102,080.00
2024 1,200,000.00 97,920.00 1,102,080.00 -
288,000.00

This study source was downloaded by 100000896552077 from CourseHero.com on 02-17-2025 08:43:56 GMT -06:00

https://www.coursehero.com/file/194827613/NOTES-RECEIVABLEpdf/
Powered by TCPDF (www.tcpdf.org)