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Intermediate Accounting 2 (Notes Payable) - Problem 1

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DM Montefalco
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21 views1 page

Intermediate Accounting 2 (Notes Payable) - Problem 1

Uploaded by

DM Montefalco
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PROBLEM 1: TRUE OR FALSE

1. Interest payable is computed by multiplying the carrying amount of a note with the effective interest
rate.

2. On Jan.1, 20x1, Crybaby Co. issued a noninterest-bearing note with a face amount of P2M and
appropriately recognized it as P1,241,843. The note matures in a lump sum on Dec.31,20x5. The
effective interest is 10%. The unamortized discount on Dec.31,20x2 is P497,370.

3. Raining Co. issues a 3-year, noninterest-bearing note of P1,000,000. Raining Co. determines that the
effective interest rate on the transaction is 10%. The initial carrying amount of the note payable is
computed as P1,000,000 x PV of 1 @10%, n=3.

4. Wet Co. issues a noninterest-bearing note of P3,000,000. The note is payable in three equal annual
installments of P1,000,000, due at the end of each year. Wet Co. determines that the effective interest
rate on the transaction is 10%. The initial carrying amount of the note payable is computed as
P1,000,000 x PV of 1 @10%, n=3.

5. Fold Co. issues a 2-year, a noninterest-bearing note of P1,200,000 in exchange for the purchase of a
commodity. If Fold Co. had paid outright in cash, the purchase price would have been P800,000. At
initial recognition, Fold Co. records a discount on notes payable of P400,000.

6. Bind Co. issues a 2-year, noninterest-bearing note of P500,000 for the purchase of equipment with a
cash price of P400,000. The note requires lump sum payment at the maturity date. Bind Co. determines
that the effective interest rate on the transaction is 10%. The interest expense in Year 1 is P50,000.

7. Cut Co. issues a long-term, noninterest-bearing note of P100,000. The note requires a lump sum
payment at the maturity date. Cut Co. determines that the effective interest rate on the transaction is
10% and the appropriate present value factor is 0.90. The interest expense in Year 1 is P9,000.

8. Use the information in the preceding problem (i.e., Cut Co.). The interest expense in Year 2 is P9,900.

9. Bond Co. issues a P1,000,000, noninterest-bearing note that is payable in installments. On initial
recognition, the carrying amount of the note was P900,000. If the amortization of the note during the
period is P50,000, the carrying amount of the note at the end of the period must be P950,000.

10. Pawn Co. issues a P1,200,000, noninterest-bearing note that is payable in installments. On initial
recognition, the carrying amount of the note was P900,000. At the end of Year 1, the carrying amount of
the note was P800,000. The amortization of the note in Year 1 must be P100,000.

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