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Chapter 6

Receivables (Part 2)

Chapter 6: Multiple choice – Computational (SET B) – (For classroom instruction

purposes)
Initial measurement
1. An entity sells goods either on cash basis or on 6-month installment basis. On January 1,
20x1, goods with cash price of ₱50,000 were sold at an installment price of ₱75,000.
Which of the following statements is correct?
a. Net receivable of ₱75,000 is recognized on the date of sale.
b. Net receivable of ₱50,000 is recognized upon full payment of the total price.
c. The ₱20,000 difference between the cash price and installment price is recognized
as interest income on the date of sale.
d. Net receivable of ₱50,000 is recognized on the date of sale.

Initial measurement
2. An entity sells goods for ₱150,000 to a customer who was granted a special credit
period of 1 year. The entity normally sells the goods for ₱120,000 with a credit period
of one month or with a ₱10,000 discount for outright payment in cash. How much is the
initial measurement of the receivable?
a. 150,000 b. 120,000 c. 130,000 d. 110,000

Initial measurement
3. ABC Co. received the following note receivables on January 1, 20x1:
9-month, 10% note from Alpha Company. 15,000
6-month, noninterest bearing note from Beta, Inc. (the
effect of discounting is deemed immaterial) 20,000
14%, 3-year note from Charlie Corp. 30,000
Market rate of interest on January 1, 20x1 10%

At what total net amount will the notes be initially recognized?

a. 65,000 b. 53,673 c. 62,357 d. 50,000

Simple interest
4. On August 1, 20x1, ABC Co. received a ₱1,200,000, 10%, 3-year note receivable in
exchange for a vacant lot carried in the books at ₱850,000. Principal, in three equal
installments, plus interest are due annually starting August 1, 20x2. Current market
rates as of April 1, 20x1, December 31, 20x1, and December 31, 20x2 are 10%, 12% and
13%, respectively. How much interest receivable is recognized on December 31, 20x2?
a. 33,333 b. 40,000 c. 50,000 d. 60,000

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Compounded interest
5. On January 1, 20x1, ABC Co. extended a ₱1,200,000 loan to one of its officers as part of
ABC Co.’s car and housing assistance program. The note received is due on January 1,
20x4 and bears 10% interest compounded annually. How much interest receivable is
recognized on December 31, 20x2 statement of financial position?
a. 132,000 b. 120,000 c. 168,000 d. 252,000

Noninterest-bearing note – lump sum

Use the following information for the next two questions:
On January 1, 20x1, ABC Co. sold a transportation equipment with a historical cost of
₱1,000,000 and accumulated depreciation of ₱300,000 in exchange for cash of ₱100,000
and a noninterest-bearing note receivable of ₱800,000 due on January 1, 20x4. The
prevailing rate of interest for this type of note is 12%.

6. How much is the interest income in 20x1?

a. 68,331 b. 76,532 c. 85,714 d. 96,000

7. How much is the carrying amount of the receivable on December 31, 20x2?
a. 800,000 b. 569,424 c. 637,755 d. 714,286

Noninterest-bearing note – installments

Use the following information for the next three questions:
On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of
₱20,000,000 and accumulated depreciation of ₱7,000,000 in exchange for cash of ₱500,000
and a noninterest-bearing note receivable of ₱8,000,000 due in 4 equal annual installments
starting on December 31, 20x1 and every December 31 thereafter. The prevailing rate of
interest for this type of note is 12%.

8. How much is the interest income in 20x1?

a. 728,946 b. 678,334 c. 728,964 d. 704,236

9. How much is the current portion of the receivable on December 31, 20x1?
a. 1,271,036 b. 1,423,560 c. 3,380,102 d. 1,594,388

10. How much is the carrying amount of the receivable on December 31, 20x2?
a. 4,803,663 b. 3,380,102 c. 6,074,699 d. 6,000,000

Noninterest-bearing note – installment in advance

Use the following information for the next three questions:
On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of
₱12,000,000 and accumulated depreciation of ₱7,000,000 in exchange for cash of ₱100,000
and a noninterest-bearing note receivable of ₱4,000,000 due in 4 equal annual installments
starting on January 1, 20x1 and every January 1 thereafter. The prevailing rate of interest
for this type of note is 12%.

11. How much is the interest income in 20x1?

a. 408,230 b. 278,334 c. 328,964 d. 288,220

12. How much is the carrying amount of the receivable on December 31, 20x1?
a. 1,690,510 b. 892,857 c. 2,690,051 d. 1,594,388

13. How much is the carrying amount of the receivable on January 1, 20x3?
a. 892,857 b. 3,380,102 c. 6,074,699 d. 6,000,000

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Noninterest-bearing note – semiannual cash flows
Use the following information for the next two questions:
On January 1, 20x1, ABC Co. sold machinery with historical cost of ₱3,000,000 and
accumulated depreciation of ₱900,000 in exchange for a 3-year, ₱2,100,000 noninterest-
bearing note receivable due in equal semi-annual payments every July 1 and December 31
starting on July 1, 20x1. The prevailing rate of interest for this type of note is 10%.

14. How much is the interest income in 20x1?

a. 88,825 b. 177,649 c. 128,964 d. 164,591

15. How much is the carrying amount of the receivable on December 31, 20x1?
a. 1,241,083 b. 982,378 c. 1,690,051 d. 1,594,388

Noninterest-bearing note – non-uniform cash flows

16. On January 1, 20x1, ABC Co. sold machinery costing ₱3,000,000 with accumulated
depreciation of ₱1,100,000 in exchange for a 3-year, ₱900,000 noninterest-bearing note
receivable due as follows:
Date Amount of installment
December 31, 20x1 400,000
December 31, 20x2 300,000
December 31, 20x3 200,000
Total 900,000

The prevailing rate of interest for this type of note is 10%. How much is the carrying
amount of the receivable on December 31, 20x1?
a. 467,354 b. 438,016 c. 376,345 d. 428,346

Receivable with cash price equivalent

Use the following information for the next two questions:
On January 1, 20x1, ABC Co. sold inventory costing ₱1,800,000 with a list price of
₱2,200,000 and a cash price of ₱2,000,000 in exchange for a ₱2,400,000 noninterest-
bearing note due on December 31, 20x3.

17. How much is the initial measurement of the receivable?

a. 1,800,000 b. 2,200,000 c. 2,000,000 d. 2,400,000

18. How much is the carrying amount of the receivable on December 31, 20x1?
a. 2,125,390 b. 2,135,341 c. 2,098,343 d. 2,000,000

Note with below-market interest (simple interest) - Principal due at maturity,

interests due periodically
19. On January 1, 20x1, ABC Co. sold machinery with historical cost of ₱5,000,000 and
accumulated depreciation of ₱1,900,000 in exchange for a 3-year, 3%, ₱3,000,000 note
receivable. Principal is due on January 1, 20x4 but interest is due annually every
December 31. The prevailing interest rate for this type of note is 12%. How much is the
carrying amount of the receivable on December 31, 20x1?
a. 2,159,324 b. 2,249,324 c. 2,543,685 d. 3,000,000

Note with below-market interest (simple interest) - Principal due at maturity,

interests due in semi-annual installments
20. On July 1, 20x1, ABC Co. sold machinery costing ₱12,000,000 with accumulated
depreciation of ₱9,000,000 in exchange for a 3-year, 3%, ₱4,000,000 note receivable.
Principal is due on July 1, 20x4 but interests are due semiannually every July 1 and
January 1. The prevailing interest rate for this type of note is 12%. How much is the
interest income in 20x1?
a. 186,893 b. 381,399 c. 94,147 d. 120,000

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Note with below market interest (simple interest) - Principal and interests
collectible in installments
21. On January 1, 20x1, ABC Co. sold machinery costing ₱2,000,000 with accumulated
depreciation of ₱950,000 in exchange for a 3-year, 3%, ₱900,000 note receivable.
Principal is due in three equal annual installments. Interests on the outstanding
principal balance are also due annually and are to be collected together with the
periodic collections on the principal. The prevailing interest rate for this type of note is
12%. How much is the carrying amount of the receivable on December 31, 20x1?
a. 530,261 b. 1,000,562 c. 673,531 d. 789,361

Note with below market interest (compound interest) - Principal and interests due at
maturity
22. On January 1, 20x1, ABC Co. sold machinery costing ₱2,000,000 with accumulated
depreciation of ₱950,000 in exchange for a 3-year, ₱1,200,000 note receivable.
Principal and interest at 3% are due on January 1, 20x4. The prevailing interest rate for
this type of note is 12%. How much is the carrying amount of the receivable on initial
recognition date?
a. 1,311,272 b. 2,000,000 c. 933,337 d. 854,136

Total interest income over the life of a note

23. ABC Co. received a ₱1,000,000, 8%, 5-year note that requires five equal annual year-
end payments. The effective interest rate on the note is 9%. How much is total interest
revenue to be earned on the note?
a. 250,438 b. 278,074 c. 25,882 d. 225,882

Non-interest bearing note with deferred uniform payments

24. On January 1, 20x1, ABC Co. sold a used equipment in exchange for a ₱1,200,000
noninterest-bearing note receivable due in three equal annual installments starting
January 1, 20x4. The current market rate of interest on January 1, 20x1 is 12%. How
much is the carrying amount of the receivable on initial recognition date?
a. 890,365 b. 728,860 c. 765,890 d. 821,060

Non-interest bearing note with deferred non-uniform payments

25. On January 1, 20x1, ABC Co. sold a used equipment in exchange for a ₱4,500,000 non-
interest bearing note due in three annual installments as follows:
Jan. 1, 20x4 2,000,000
Jan. 1, 20x5 1,500,000
Jan. 1, 20x6 1,000,000
Total 4,500,000

The current market rate of interest on January 1, 20x1 is 12%. How much is the carrying
amount of the receivable on initial recognition date?
a. 1,980,685 b. 2,728,860 c. 2,944,264 d. 2,818,706

Pre-acquisition accrued interest

26. On March 1, 20x1, ABC Co. received a ₱1,000,000, 12%, one-year note dated January 1,
20x1 from XYZ, Inc. in exchange for a ₱1,000,000 past due account. How much interest
income is recognized in 20x1?
a. 120,000 b. 100,000 c. 90,000 d. 0

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