BSA 1

Notes Receivable_Interest and Non-interest Bearing Notes

Show your answers in yellow paper.

Pink Company manufactures and sells electrical generators. On January 1, 2019, the entity sold an
electrical generator costing P700,000 for P1,000,000. The buyer paid P100,000 down and signed
P900,000 non-interest bearing note payable in three equal annual installments every December 31. The
prevailing interest rate for a note of this type is 12%. The present value of ordinary annuity of 1 for
three periods is 2.4018.

1. Prepare entries for 2019.

2. Prepare the table showing the payment, interest, principal and Net Realizable Value

On January 1, 2019, Green Company sold goods to White Company. White signed a noninterest-bearing
note requiring payment of P600,000 annually for seven years. The first payment was made on January
1, 2019. The prevailing rate of interest for this type of note at date of issuance was 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
3. What amount should be recorded as sales revenue in January 2019?
4. What is the carrying amount of the note receivable on January 1, 2019?
5. What is the interest income for 2019?
6. What is the carrying amount of the note receivable on December 31, 2019?

On December 31, 2019, Black Company sold used equipment with carrying amount of P4,800,000 in
exchange for a P6,000,000 noninterest bearing note due January 1, 2022. There were no established
exchange price for the equipment. The prevailing rate of interest for a note of this type on January 1,
2019 was 10%.
7. What amount should be reported as interest income for 2019?
8. What amount should be reported as gain or loss on sale of equipment?

At the beginning of current year, Silver Company purchased from Gold Company a P2,000,000, 8%, five
year note that required five equal annual year-end payments of P500,900. The note was discounted to
yield a 9% rate to Silver Company. At the date of purchase, Silver Company recorded the note at the
present value of P1,948,500.
9. What is the total interest revenue earned by Silver Company over the life of this note?
10. What amount should be recognized as interest revenue for the current year?