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7382 - Notes Receivable

The document outlines various scenarios involving notes receivable and their accounting implications, including sales of equipment and goods with noninterest-bearing notes. It presents calculations for gains on sales, interest income, and carrying amounts of notes receivable, along with multiple-choice questions regarding the truth of various statements. Each scenario is analyzed based on prevailing market interest rates and present value calculations.

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jayson grey
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224 views1 page

7382 - Notes Receivable

The document outlines various scenarios involving notes receivable and their accounting implications, including sales of equipment and goods with noninterest-bearing notes. It presents calculations for gains on sales, interest income, and carrying amounts of notes receivable, along with multiple-choice questions regarding the truth of various statements. Each scenario is analyzed based on prevailing market interest rates and present value calculations.

Uploaded by

jayson grey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS


MAY 2025 LECPA BATCH 97

NOTES RECEIVABLE
1. On December 31, 2025, an entity 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, 2026. 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.
I. The gain on sale of equipment should be reported at P825,000.
II. The interest income for 2026 should be reported at P339,000.
III. The entity should report the carrying amount of the note receivable at P4,500,000
IV. All notes have an interest element. In a noninterest-bearing note, the interest element is not explicitly
stated but rather is included in the face of the note
A. All statement are true
B. Only statements I, II and IV are true.
C. Only statements I, II and III are true
D. Two statements are not true.

2. On January 1, 2025, an entity sold goods to a customer. The customer signed a noninterest-bearing note
requiring payment of P600,000 annually for seven years. The first payment was made on January 1,
2025. The prevailing market rate of interest for this type of note at date of issuance is 10%.
PV of an ordinary annuity of 1 at 10% for 6 periods 4.36
PV of an ordinary annuity of 1 at 10% for 7 periods 4.87
I. The sales revenue for January 2025 should be recorded at P2,616,000.
II. The interest income for 2025 should be reported at P261,600.
III. The entity should report the carrying amount of the note receivable on December 31, 2025 at
P2,877,600.
A. All statements are true.
B. Only statements I and II are true
C. All statements are not true
D. Only statements II and III are true.

3. On January 1, 2025, an entity sold equipment with a carrying amount of P4,800,000 in exchange for a
P6,000,000 noninterest bearing note due December 31, 2027. There was no established exchange price
for the equipment. The prevailing rate of interest for a note of this type on January 1, 2025 was 10%.
The present value of 1 at 10% for three periods is 0.75.
I. The gain on the sale of equipment should be recorded at P1,200,000.
II. The interest income should be reported at P495,000 for 2026.
A. Statements I and II are true
B. Statements I and II are not true
C. Only statement I is true
D. Only statement II is true

End

7382

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