PROBLEM 1

On January 1, 2020, Savage Company sold goods to another entity. The buyer signed a noninterest-
bearing note requiring payment of P600,000 annually for seven years. The first payment was made
on January 1, 2020.
The prevailing rate of interest for this type of note at date of issuance was 10%.
Present Present value of
Periods value of 1 ordinary annuity of
at 10% 1 at 10%
6 0.56 4.36
7 0.51 4.87
What amount should be reported as sales revenue?

PROBLEM 2
On December 31, 2020, Humility Company sold a machine to another entity in exchange for a
noninterest-bearing note requiring ten annual payments of P500,000. The buyer made the first
payment on December 31, 2020.
The market interest rate for similar notes at date of issuance was 8%.
Present Present value of
Period value of 1 ordinary annuity of
at 8% 1 at 8%
9 0.5 6.25
10 0.46 6.71
On December 31, 2020, what is the carrying amount of note receivable?

PROBLEM 3
At year-end, Jovial Company, received two P1,000,000 notes receivable from customers in exchange
for services rendered.
On both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and
payable at maturity.
The note from Zeta Company, made under customary trade terms, is due in nine months and the note
from Yola Company is due in five years.
The market interest rate for similar notes was 8%.
The present value of 1 due in nine months is .944 and the present value of 1 due in five years is .68.
1. At what amount should the note receivable from Zeta Company be reported at year-end?
2. At what amount should the note receivable from Yola Company be reported at year-end?

PROBLEM 4
Persevere Company is a dealer in equipment. On December 31, 2020, the entity sold an equipment in
exchange for a noninterest bearing note requiring five annual payments of P500,000. The first
payment was made on December 31, 2021.
The market interest rate for similar notes was 8%.
PV of 1 at 8% for 5 periods 0.68
PV of an ordinary annuity of 1 at 8% for 5 period 3.99
1. On December 31, 2020, what is the carrying amount of note receivable?
2. What amount of interest income should be reported for 2021?
3. What is the carrying amount of the note receivable on December 31, 2021?
4. What amount of interest income should be reported for 2022?

PROBLEM 5
On December 31, 2020, Precious Coinpany sold an equipment with carrying amount of P2,000,000
and received a noninterest-bearing note requiring payment of P500,000 annually for ten years. The
first payment is due December 31, 2021.
The prevailing rate of interest for this type of note at date of issuance is 12%.
Present value of 1 at 12% for 10 periods 0.322
Present value of ordinary annuity of 1 at 12% for 10 periods 5.65
1. On December 31, 2020, what is the carrying amount of the note receivable?
2. What is the gain on sale of equipment to be recognized in 2020?
3. What amount of interest income should be recognized for 2021?
4. What is the carrying amount of the note receivable on December 31, 2021?

PROBLEM 6
On December 31, 2020, Chang Company sold a machine in the ordinary course of business to Door
Company in exchange for a noninterest bearing note requiring ten annual payments of Pl,000,000.

The entity made the first payment on December 31, 2020. The market interest rate for similar notes
at date of issuance was 8%.
PV of an ordinary annuity of 1 at 8% for 9 periods 6.25
PV of an ordinary annuity of 1 at 8% for 10 periods 6.71
1. On December 31, 2020, what is the carrying amount of the note receivable?
2. What amount should be reported as interest income for 2021?
3. What is the carrying amount of the note receivable on December 31, 2021?

PROBLEM 7
On January 1, 2020, Mill Company sold a building and received as consideration P 1,000,000 cash
and a P4,000,000 noninterest bearing note due on January 1, 2023.
There was no established exchange price for the building and the note had no ready market.
The prevailing rate of interest for a note of this type on January 1, 2020 was 10%. The present value
of 1 at 10% for three periods is 0.75.
What amount of interest revenue should be reported for 2021?

PROBLEM 8
On January 1, 2020, Alan Company sold equipment with a carrying amount of P4,800,000 in
exchange for a P6,000,000 noninterest-bearing note due January 1, 2023. There was no established
exchange price for the equipment.
The prevailing rate of interest for a similar note was 10%. The present value of 1 at 10% for three
periods is 0.75.
What amount should be reported as interest income for 2020?

PROBLEM 9
On January 1, 2020, Allure Company sold an equipment with a carrying amount of P800,000,
receiving a noninterest bearing note due in three years with a face amount of P1,000,000. There is no
established market value for the equipment.
The interest rate on similar obligations is 12%. The present value of 1 at 12% for three periods is .712.
1. What amount should be reported as gain or loss on the sale of equipment in 2020?
2. What is the carrying amount of note receivable on December 31, 2020?
3. What amount should be reported as interest income for 2021?
2,616,000 PV
600,000 DP
3,216,000

NR 3,600,000
Cash 600,000
3,216,000 Sales 3,216,000
UII 984,000

3,125,000

1,000,000
782,000

1,995,000
 159,600
1,654,600
132,368

2,825,000
825,000
339,000
2,664,000

6,250,000
500,000
5,750,000

330,000 3,000,000
300,000

450,000
(88,000) 712,000
797,440 85,440
95,693 797,440