The Professional CPA Review School

Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila
( (02) 8735 8901 / 0917-1332365
email add: [email protected]/[email protected]
Baguio Davao
DE GUZMAN Bldg. 18 Legarda Road, Baguio City 3/F GCAM Bldg. Monteverde St. Davao City
( 0921-7566143 ( 0917-1332365

FINANCIAL ACCOUNTING & REPORTING (Problems) PROF. MICHAEL TIU

ACCOUNTING FOR NOTES RECEIVABLES

1. On October 1, 2021, Rocky Company sold land costing P650,000 and received in exchange a five-
year note with a face amount of 1,200,000 bearing a rate of 9% which approximates the current
interest rate in the market. Rocky Company uses the calendar year for reporting purposes.
a. Gain on sale of the land 550,000
b. Interest income for 2021 27,000
c. Note receivable balance to be reported in the December 31, 2021 balance sheet 1,200,000
d. Interest income for 2022 108,000

2. On June 1, 2021, Jay-jay Company sold equipment with a carrying amount at the time of disposal of
P660,000. and received in exchange a five-year note with a face amount of 1,500,000 bearing a rate
of 8% which approximates the current interest rate in the market. The note requires equal principal
collection plus interest starting on June 1, 2022. Jay-jay Company uses the calendar year for
reporting purposes.
a. Gain on sale of the equipment 840,000
b. Interest income for 2021 70,000
c. Note receivable balance to be reported in the December 31, 2021 balance sheet 1,500,000
d. Interest income for 2022 106,000

3. On August 1, 2021, Lucky Company sold land costing P640,000 and received in exchange a four-
year note with a face amount of P1,200,000 bearing a rate of 9% which approximates the current
interest rate in the market. The note requires equal collections of P370,400 starting on August 1,
2022. Lucky Company uses the calendar year for reporting purposes.
Gain on sale of the land
a. Gain on sale of the equipment 560,000
b. Interest income for 2021 45,000
c. Note receivable balance to be included in the December 31, 2021 balance sheet 1,200,000
d. Interest income for 2022 98,160
e. Total receivable balance to be reported in the December 31, 2022 balance sheet
937,600 + 35,160 = 972,760
4. On October 1, 2021, Golden Rose Company sold land costing P450,000 and received in exchange a
five-year noninterest bearing note with a face amount of 1,000,000. There was no established
exchange price for the land and the note has no ready market. The prevailing rate of interest for a
note of this type was 6%. The collection of the note is reasonably assured. Golden Rose Company
uses the calendar year for reporting purposes
a. Gain on sale of the equipment 297,258
b. Interest income for 2021 11,209
c. Note receivable balance to be included in the December 31, 2021 balance sheet 758,467
d. Interest income for 2022 45,508
e. Total receivable balance to be reported in the December 31, 2022 balance sheet 803,975
5. On March 1, 2021, Tokyo Company sold landcosting P450,000 and received in exchange a five-year
noninterest bearing note with a face amount of P900,000. The note requires the buyer to pay the
following amounts every March 1 starting on March 1, 2022;
March 1 2022 130,000
2023 150,000
2024 175,000
2025 205,000
2026 240,000
There was no established exchange price for the land and the note has no ready market. The
prevailing rate of interest for a note of this type was 7%. The collection of the note is reasonably
assured. Tokyo Company uses the calendar year for reporting purposes.
a. Gain on sale of the equipment 272,874
b. Interest income for 2021 42,168
c. Note receivable balance to be included in the December 31, 2021 balance sheet 765,042
d. Interest income for 2022 45,970
e. Total receivable balance to be 681,011

6. On May 1, 2021, Geslie Company sold land costing P600,000 and received in exchange a five-year
noninterest bearing note with a face amount of 1,300,000. The note requires the buyer to pay five
equal annual instalment starting May 1, 2022. There was no established exchange price for the land
and the note has no ready market. The prevailing rate of interest for a note of this type was 9%. The
collection of the note is reasonably assured. Geslie Company uses the calendar year for reporting
purposes.
a. Gain on sale of the equipment 411,309
b. Interest income for 2021 60,679
c. Note receivable balance to be included in the December 31, 2021 balance sheet 1,071,988
d. Interest income for 2022 80,879
e. Total receivable balance to be 892,867

7. On September 1, 2021, Rich Company sold land costing P320,000 and received in exchange a five
year noninterest bearing note with a face september
amount 1of 1,000,000. The note requires the buyer to pay
five equal annual instalment starting January 1, 2021. There was no established exchange price for
the land and the note has no ready market. The prevailing rate of interest for a note of this type was
9%. The collection of the note is reasonably assured. Rich Company uses the calendar year for
reporting purposes.
a. Gain on sale of the equipment 527,944
b. Interest income for 2021 19,438
c. Note receivable balance to be included in the December 31, 2021 balance sheet 667,382
d. Interest income for 2022 54,065
e. Total receivable balance to be 521,447

8. On July 1, 2021, Denver Company sold land costing P400,000 and received in exchange a five-year
note with a face amount of P950,000 bearing a rate of 8%. The market value of the land is not
determinable. The prevailing rate for a similar transaction was 12%. Denver Company uses the
calendar year for reporting purposes.
a. Gain on sale of the equipment 413,019
b. Interest income for 2021 48,781
c. Note receivable balance to be included in the December 31, 2021 balance sheet 861,800
d. Interest income for 2022 98,856
e. Total receivable balance to be 884,656
9. On October 1, 2021, Moscow Company sold land costing P300,000 and received in exchange a
four-year note with a face amount of P800,000. Four equal principal collection plus interest of 9%
based on the balance shall be transferred to Moscow Company’s account every October 1 starting
on October 1, 2022. The market value of the land is not determinable. The prevailing rate for a
similar transaction was 12%. Moscow Company uses the calendar year for reporting purposes.
a. Gain on sale of the equipment 451,867
b. Interest income for 2021 22,556
c. Note receivable balance to be included in the December 31, 2021 balance sheet 774,423
d. Interest income for 2022 84,771
e. Total receivable balance to be 587,194