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Notes Receivable

The document contains multiple-choice questions and problems related to accounting for notes receivable, including issues such as recognizing, valuing, and disposing of notes. It also includes specific calculations for maturity dates, interest income, and amortization tables for various scenarios involving promissory notes and non-interest-bearing notes. Solutions to the problems are provided, demonstrating the application of accounting principles in these contexts.

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14 views9 pages

Notes Receivable

The document contains multiple-choice questions and problems related to accounting for notes receivable, including issues such as recognizing, valuing, and disposing of notes. It also includes specific calculations for maturity dates, interest income, and amortization tables for various scenarios involving promissory notes and non-interest-bearing notes. Solutions to the problems are provided, demonstrating the application of accounting principles in these contexts.

Uploaded by

LOVELY
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Notes Receivable

MULTIPLE CHOICE
1. The basic issues in accounting for notes receivable include each of the
following except
a. analyzing notes receivable.
b. disposing of notes receivable.
c. recognizing notes receivable.
d. valuing notes receivable.

2. A 60-day note receivable dated June 13 has a maturity date of


a. August 13.
b. August 12.
c. August 11.
d. August 10.

3. The maturity value of a $90,000, 10%, 60-day note receivable dated July
3 is
a. $90,000.
b. $99,000.
c. $105,000.
d. $91,500.

4. A 90-day note dated June 14 has a maturity date of


a. September 14.
b. September 12.
c. September 13.
d. September 15.

5. A promissory note.
a. is not a formal credit instrument.
b. may be used to settle accounts receivable
c. has the party to whom the money is due as the maker.
d. cannot be factored to another party
6. Which of the following is not true regarding a promissory note?

a. Promissory notes may not be transferred to another party by


endorsement.

b. Promissory notes may be sold to another party.


c. Promissory notes give a stronger legal claim to the holder than accounts
receivable.

d. Promissory notes may be bearer notes and not specifically identify the
payee byname.

7. A company that receives an interest-bearing note receivable will


a. debit Notes Receivable for the maturity value of the note.
b. credit Notes Receivable for the maturity value of the note.
c. debit Notes Receivable for the face value of the note.
d. credit Notes Receivable for the face value of the note.

8. Short-term notes receivable is reported at

a. cash (net) realizable value.


b. face value.
c. gross realizable value.
d. maturity value.

9. When a note receivable is dishonored,

a. interest revenue is never recorded.


b. bad debts expense is recorded.
c. the maturity value of the note is written off.
d. Accounts Receivable is debited if eventual collection is expected.
10. Risen Company receives a $5,000, 3-month, 8% promissory note from
Dodd Company in settlement of an open accounts receivable. What entry will
Rise Company make upon receiving the note?

a. Notes Receivable 5,100


Accounts Receivable Dodd Company 5,100
b. Notes Receivable 5,100 Accounts Receivable
Dodd Company 5,000
Interest Revenue 100
c. Notes Receivable 5,000
Interest Receivable 100
Accounts Receivable Dodd Company 5,000
Interest Revenue 100
d. Notes Receivable 5,000
Accounts Receivable Dodd Company 5,000

PROBLEM I. On January 1, 20x1, Lala Bus Co. received a 4-year, non-


interest-bearing note of P1,000,000 in exchange for land with carrying
amount of P500,000. The note is due on December 31, 20x4. The effective
interest rate is 14%. Requirements:

1. Prepare the amortization table


2. Provide all the necessary journal entries.

Solution#1
INTEREST UNEARNED
DATE INC. INTEREST PRESENT VALUE

JAN. 1,20X1 407,920.00 592,080.00


DEC. 31,
20X1 82,891.00 325,029.00 674,971.00
DEC.31,
20X2 94,496.00 230,533.00 769,467.00
DEC.31,
20X3 107,725.00 122,808.00 877,192.00
1,000.00

DEC.31,20X4 122,808.00
PV of 1 @14%, n = 1.14^-4 =
0.59208

1,000,000 * 0.592080 = 592,080


1,000,000 – 592,080 = 407,920

SOLUTION #2.

PROBLEM #3 -4

On January 1, 20x1, Spidah Co. received P1,000,000, noninterest bearing


note in exchange for land with carrying amount of P1,000,000. The note is
due in four equal annual installments every December 31. The effective
interest rate is 12%.

Requirements:

3. Prepare the amortization table.


4. Determine the current and non-current portions of the note on
December 31, 20x1.

SOLUTION# 3
SOLUTION #4

PROBLEM # 5 -7. On January 1, 20x1, Sistah Co. sold a piece of land with
carrying amount of P800,000 in exchange for P100,000 cash and P900,000,
noninterest bearing note, due in three equal annual installments of P300,000
beginning Jan. 1, 20x1, every Jan. 1 thereafter. The effective interest rate is
9%. Requirements:

5. Prepare the amortization table.


6. How much is the interest income recognized in 20x1?
7. Provide all the necessary journal entries.

SOLUTION# 5.
SOLUTION # 6. As of 20x1, the interest income is 0 as shown in the
table above.

SOLUTION # 7.

PROBLEM # 8

The current and noncurrent portions of Baa-baa Co.’s note receivable at the
end of the 1st year are P213,534 and P507,015, respectively. The note is
collectible in four equal annual payments of P300,000 every Dec 31. Baa-baa
Co. reported an interest income of P86,466 in the 2nd year. The note was
initially recognized at P911,205 on Jan. 1 of Year 1. Requirements:

8. Prepare a complete amortization table for the note above.

Solution #8
AMORTIZAT PRESENT
DATE COLLECTION INTEREST INCOME ION VALUE

1/1x1 911,205.00

12/31/x1 300,000.00 109,344.00 190,656.00 720,549.00

12/31/x2 300,000.00 86,466.00 213,534.00 507,015.00

12/31/x3 300,000.00 60,842.00 239,158.00 267,857.00


12/31x4
300,000.00 32,141.00 267,857.00 -

PROBLEM #9 -10

Rockwell Company reported the following receivables on December 31,


2018:

Accounts Receivable, net of P520,000 allowance for doubtful accounts


3,840,000

Interest Receivable
190,000

Notes Receivable
4,000,000

*The notes receivable comprised:

▪ P1,000,000 note dated October 31, 2018, with principal and interest
payable on October 31, 2019.

▪ P3,000,000 noted dated March 31, 2018, with principal and 8% interest
payable on March 31, 2019.

*During 2019, sales revenue totaled P21,200,000, P19,800,000 cash was


collected from

customers, and P410,000 in accounts receivable were written off. All sales
are made on a

credit basis.

*Doubtful accounts expense is recorded at year-end by adjusting the


allowance account

to an amount equal to 10% of year-end accounts receivable.

9. What amount should be reported as interest income for 2019?

10. What amount should be reported as doubtful accounts expense for


2019?

SOLUTION #9

P3M x 8% x 3/12 (January 1 to March 31, 2019) 60,000

P1M x 6% x 10/12 (January 1 to October 31, 2019) 50,000

Total Interest Revenue 110,000


SOLUTION #10

Accounts Receivable Dec. 31, 2018 (3,840,000 + 520,000) 4,360,000


Credit sales
21,200,000
Cash collections
(19,800,000)
Write-off
(410,000)
Accounts receivable- Dec. 31, 2019
5,350,000

Allowance- Dec. 31, 2018,


520,000

Doubtful account expense (SQUEEZE)


425,000

Total
945,000

Write-off
(410,000)

Allowance- Dec. 31, 2019 (10% x 5,350,000)


535,000

PROBLEM # 11-14

On January 1, 2018, Gomez de Liano Company sold goods to Dela Cruz


company. Dela

Cruz 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%.

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

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


13. What is the interest income for 2018?

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

SOLUTION #14

First payment on January 1, 2018, 600,000

Present value of remaining six payments (600,000 x 4.36) 2,616,000

Correct sales revenue


3,216,000

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