College of Business Administration Checker:

Accounting 121D
2nd Sem. 2020-2021

Quiz – Chapter 6 & 7 (Problems) Mrs. Lucia A. Suello, CPA, MBA

Name:_________________________________Course/Yr:_________Sched:______________Date:________

II. PROBLEMS.

A. On January 1, 2006, Easy Company owns a parcel of land costing P5,500,000 and sells the land for P8,600,000 to Breezy
Corporation. Easy received a 3-year note for P8,600,000 plus interest of 8% compounded annually.

Required:
1. How much is the gain (loss) on sale of land? _________________
2. How much is the interest income on December 31, 2007? _________________
3. How much is the cash received by Easy on maturity date? _________________

B. Heart Company manufactures and sells machinery. On January 1, 2006, Heart Co. sold a machinery to Love Co., issued a
non-interest bearing note for the machinery with a face value of P600,000 which will be payable in the following terms, on
December 31, 2006, P300,000; on December 31, 2007, P150,000; and on December 31, 2008, P150,000. Cash sales price of
the machinery is 450,000.

Required:
4. How much is the total cash received on December 31, 2006?
5. How much Notes Receivable will be presented as current asset on the December 31, 2006 Statement of Financial
position?_________________________
6. How much is the interest income for the year 2007? _________________________

C. Nash received a note from Nexie on January 1, 2007 amounting to P1,080,000 for sale of goods. The note is collectible
in 3 equal annual installments every December 31, and bears a 14% interest rate.

Required:

7. Total cash received on Dec. 31, 2007 ____________________

8. Interest income during 2008 ____________________
9. Total cash received on Dec. 31, 2009 ____________________

D. Rose sold to Irene furniture with a carrying amount of P450,000 for P720,000 on January 1, 2008. Irene pays a down
payment of P180,000 and signs a non-interest bearing note for P540,000 payable in 3 equal annual installments every
December 31. The prevailing interest rate is 10%, and the present value of an ordinary annuity of 1 at 10% for 3 periods is
2.4869.

Required:

10. Gain (Loss) on sale __________________________

11. Interest Income, 12/31/08 __________________________
12. How much will be presented as Notes Receivable in its December 31, 2009 Statement of Financial position?
_____________________

E. On January 1, 2006, Viel sold to Brian a machinery costing P300,000 with accumulated depreciation of P50,000. Viel
received a down payment of P30,000 cash and a P320,000, non-interest bearing note due on January 1, 2009. The prevailing
interest rate for a note of this type is 10%. The present value of 1 at 10% for 3 years is 0.7513.

Required:
13. Gain(loss) on sale _____________________
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 14. Interest income during 2007 _____________________
15. How much will be presented as Notes Receivable in its December 31, 2007 Statement of Financial position?
_____________________

F. Dream Bank granted a loan of P4,000,000 a borrower on January 1, 2019. The term of the loan is for 3 years, with a stated
interest rate of 11%. Interest is to be paid yearly at the end of each year with the principal at the end. A total charge of
P311,700 was incurred by the bank, of which P61,500 was absorbed by the bank. The effective rate of the loan is 13%.

Required:
16. What is the interest income for 2020? __________________
17. What is the carrying amount of the loan on December 31, 2020? __________________

G. On January 1, 2019, ABC Bank extended a 10%, 4-year, P5,000,000 loan to XYZ Inc. ABC Bank incurred direct
origination costs of P411,850. Origination fee charged against the borrower is 5%. The effective interest rate of the loan is
9%.

Required:
18. What is the carrying amount of the loan on December 31, 2019? __________________
19. What is the interest income for 2020? __________________

H. Chaste Company loaned P6,000,000 to a borrower on January 1, 2021. The term of the loan require principal payments of
P1,200,000 each year for 5 years plus interest at 8%.

The first principal payment and interest payment is due on January 1, 2022. The borrower made the required
payments during 2022 and 2023. However, during 2023 the borrower began to experience financial difficulties, requiring the
bank to reassess the collectability of the loan.

On December 31, 2023, the bank has determined that the remaining principal payment will be collected as originally
scheduled but the collection of the interest is unlikely. The bank did not accrue the interest on December 31, 2023. The
present value of 1 at 8% is as follows: for one period, 0.93; for two periods, 0.86; and for three periods, 0.79.
Required:
20. How much total cash was received on January 1, 2023?_____________________
21. What is the impairment loss on December 31, 2023? _____________________
22. What is the interest income for 2024?______________________
23. What is the carrying amount of the loan receivable on December 31, 2024?____________________

I. Fighting Bank loaned P8,000,000 to a borrower on January 1, 2020. The contract specified that the loan had a 5-year term
and a 7% interest rate.

Interest is payable annually every December 31 and the principal amount will be collected on December 31, 2024. Interest is
collected for 2020.

On December 31, 2020, the bank determined that the loan has a 12-month probability of default of 3% and expected to
collect only 90% of the principal.

On December 31, 2021, the bank determined that there was a significant increase in the credit risk of the loan receivable but
no objective evidence of impairment. The bank concluded that there is a 35% probability of default over the remaining life of
the loan and the bank expected to collect only 70% of the principal balance. Interest is collected for 2021.

On December 31, 2022, the borrower was in financial difficulty and the loan was considered impaired. The bank concluded
that only 40% of the principal balance will be collected on December 31, 2024. Interest is collected for 2022.
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The present value of 1 at & 7% for five periods is 0.71, 0.76 four periods, 0.82 for three periods, and 0.89 for two periods.

Required:
24. How much is the loan impairment loss on December 31, 2020? ____________________
25. How much is the loan impairment loss on December 31, 2021? ____________________
26. How much is the interest income on December 31, 2022? ____________________
27. What is the book value of the loan receivable on December 31, 2022? ____________________
28. How much is the interest income on December 31, 2023? ____________________
29. How much is the book value of the loan on December 31, 2023? ____________________
30. How much is the interest income on December 31, 2024? ____________________

**Goodluck!!!**

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