Problem 1

On June 1, 2018, Yola Company loaned Dale P500,000 on a 12% note, payable in five annual installments of P100,000
beginning January 1, 2019.
In connection with this loan, Dale was required to deposit P5,000 in a noninterest-bearing escrow account.
The amount held in escrow is to be returned to Dale after all principal and interest payments have been made.
Interest on the note is payable on the first day of each month beginning July 1, 2018. Dale made timely payments through
November 1, 2018.
On January 1, 2019, Yola received payment of the first principal installment plus all interest due.
On December 31,2018, what is the accrued interest receivable on the note receivable.

Problem 2

Frame Company has an 8% note receivable dated June 30, 2018, in the original amount of P1,500,000.
Payment of P500,000 in principal plus accrued interest are due annually on July 1, 2019, 2020 and 2021.

1. What is the balance of note receivable on July 1, 2019?

2. In the June 30,2020 statement of financial position, what amount should be reported as a current asset for interest on the
note receivable?

Problem 3

Nova Company reported the following receivables on December 31,2018:

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Accounts receivable, net of P520,000 allowance
for doubtful accounts
er as 3,840,000

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Interest receivable 190,000
Notes receivable 4,000,000
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 The notes receivable comprised:

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P1,000,000 note dated October 31,2018, with principal and interest payable on October 31,2019.
P3,000,000 note dated March 31,2018, with principal and 8% interest payable on March 31,2019.
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 During 2019, sales revenue totaled P21,200,000, P19,800,000 cash was collected from customers, and P410,000
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in accounts receivable were written off. All sales are made on a credit basis.
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 Doubtful accounts expense is recorded at year-end by adjusting the allowance account to an amount equal to 10%
of year-end accounts receivable.
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1. What amount should be reported as interest income for 2019?

2. What amount should be reported as doubtful accounts expense for 2019?

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Problem 4
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At year-end, Jet Company received two P1,000,000 notes receivable from customers in exchange for services rendered.
On both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and payable at maturity.
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The note from Hart Company, made under customary trade terms, is due in nine months and the note from Maxx
Company is due in five years.
The market interest rate for similar notes at year-end was 8%. The compound interest factors to convert future value into
present value at 8% follow:
Present value of 1 due in nine months .944
Present value of 1 due in five years .680

What is the total carrying amount of notes receivable at year-end?

Problem 5

On January 1,2018, Ott Company sold goods to Fox Company. Fox signed a noninterest-bearing note requiring payment
of P600,000 annually for seven years. The first payment was made on January 1, 2018.
The prevailing rate of interest for this type of note at date of issuance was 10%.

PV of an ordinary annuity of 1 at 10% for 6 periods 4.36

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 1. What amount should be recorded as sales revenue in January 2018?

2. What is the carrying amount of the note receivable on January 1, 2018?

3. What is the interest income for 2018?

4. What is the carrying amount of the note receivable on December 31,2018?

Problem6

On December 31,2018, Park Company sold used equipment with carrying amount of P2,000,000 in exchange for a
noninterest bearing note of P5,000,000 requiring ten annual payments of P500,000. The first payment was made on
December 31,2019.
The market interest for similar note was 12%. The present value of an ordinary annuity of 1 at 12% is 5.65 for ten periods
and 5.33 for nine periods.

1. What is the carrying amount of the note receivable on December 31, 2018?

2. What is the gain on sale of equipment to be recognized in 2018?

3. What amount should be recognized as interest income for 2019?

4. What is the carrying amount of the note receivable on December 31,2019?

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On December 31,2018, Chang Company sold a machine in the ordinary course of business to Door Company in exchange
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for a noninterest bearing note requiring ten annual payments of P1,000,000.

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The entity made the first payment on December 31,2018. The market interest rate for similar notes at date of issuance was
8%.
PV of an ordinary annuity of 1 at 8% for 9 periods 6.25
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PV of an ordinary annuity of 1 at 8% for 10 periods 6.71

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1. What is the amount of sales revenue?

2. On December 31,2018, what is the carrying amount of the note receivable?

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3. What is the interest income for 2019?

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4. What is the carrying amount of the note receivable on December 31,2019?

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Problem8
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On January 1, 2018, Emme Company sold equipment with a carrying amount of P4,800,000 in exchange for a P6,000,000
noninterest bearing note due January 1, 2021. There was no established exchange price for the equipment.
The prevailing rate of interest for a note of this type on January 1, 2018 was 10%. The present value of 1 at 10% for three
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periods in 0.75.

1. What amount should be reported as interest income for 2018?

2. What amount should be reported as gain or loss on sale of equipment?

Problem9

On January 1, 2018, 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, 2021.
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 was 10%. The present value of 1 at 10% for three periods is 0.75.
What amount of interest revenue should be included in the 2019 income statement?

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