PROBLEM 1.

At December 31, 2019, Sally Company’s notes receivable

account consists of the following balances: Notes receivable from sale of
plant, P9,000,000; Notes receivable from officer, P2,400,000.  Additional
information related to the receivables are as follows:

1. The note receivable from sale of plant bears interest at 12%. The note
is payable in 3 annual installments of P3,000,000 plus interest on the
unpaid balance every April 1.  The initial principal and interest
payment was made on April 1, 2020.
2. The notes receivable from officer is dated December 31, 2019, earns
interest at 10% per annum and due on December 31 2022. The 2020
interest was received on December 31, 2020.
3. The corporation sold a piece of equipment to Yeti, Inc. on April 1,
2020, in exchange for a P1,200,000 non-interest bearing note due on
April 1, 2022. The note had no ready market, and there was no
established exchange price for the equipment.  The prevailing interest
rate for a note of this type at April 1, 2020 was 12%.  The PV factor of
1 for two periods at 12% is .797 while PV factor of ordinary annuity of
1 for 2 periods at 12% is 1.690.
4. A tract of land was sold by the corporation to Nina Co. on July 1, 2020
for P6,000,000 under an installment sale contract. Nina Co. signed a
4-year 11% note for P4,200,000 on July 1, 2020 in addition to the
down payment of P1,800,000.  The equal annual payments of
principal and interest on the note will be P1,353,750 payable on July
1, 2021, 2022, 2023 and 2024.  The land had an established cash
price of P6,000,000 and its cost to the corporation was P4,500,000. 
The collection of the installments on this note is reasonably assured.

Based on the above information, determine the following:

1. Noncurrent notes receivable as of December 31, 2020.

 
Flag question: Question 2
Question 23 pts
PROBLEM 1. At December 31, 2019, Sally Company’s notes receivable
account consists of the following balances: Notes receivable from sale of
plant, P9,000,000; Notes receivable from officer, P2,400,000.  Additional
information related to the receivables are as follows:

1. The note receivable from sale of plant bears interest at 12%. The note
is payable in 3 annual installments of P3,000,000 plus interest on the
unpaid balance every April 1.  The initial principal and interest
payment was made on April 1, 2020.
2. The notes receivable from officer is dated December 31, 2019, earns
interest at 10% per annum and due on December 31 2022. The 2020
interest was received on December 31, 2020.
3. The corporation sold a piece of equipment to Yeti, Inc. on April 1,
2020, in exchange for a P1,200,000 non-interest bearing note due on
April 1, 2022. The note had no ready market, and there was no
established exchange price for the equipment.  The prevailing interest
rate for a note of this type at April 1, 2020 was 12%.  The PV factor of
1 for two periods at 12% is .797 while PV factor of ordinary annuity of
1 for 2 periods at 12% is 1.690.
4. A tract of land was sold by the corporation to Nina Co. on July 1, 2020
for P6,000,000 under an installment sale contract. Nina Co. signed a
4-year 11% note for P4,200,000 on July 1, 2020 in addition to the
down payment of P1,800,000.  The equal annual payments of
principal and interest on the note will be P1,353,750 payable on July
1, 2021, 2022, 2023 and 2024.  The land had an established cash
price of P6,000,000 and its cost to the corporation was P4,500,000. 
The collection of the installments on this note is reasonably assured.

Based on the above information, determine the following:

 
2. Current portion of long-term notes receivable as of December 31, 2020.
 

 
Flag question: Question 3
Question 33 pts
PROBLEM 1. At December 31, 2019, Sally Company’s notes receivable
account consists of the following balances: Notes receivable from sale of
plant, P9,000,000; Notes receivable from officer, P2,400,000.  Additional
information related to the receivables are as follows:
 1. The note receivable from sale of plant bears interest at 12%. The note
is payable in 3 annual installments of P3,000,000 plus interest on the
unpaid balance every April 1.  The initial principal and interest
payment was made on April 1, 2020. 6,000,000
2. The notes receivable from officer is dated December 31, 2019, earns
interest at 10% per annum and due on December 31 2022. The 2020
interest was received on December 31, 2020.
3. The corporation sold a piece of equipment to Yeti, Inc. on April 1,
2020, in exchange for a P1,200,000 non-interest bearing note due on
April 1, 2022. The note had no ready market, and there was no
established exchange price for the equipment.  The prevailing interest
rate for a note of this type at April 1, 2020 was 12%.  The PV factor of
1 for two periods at 12% is .797 while PV factor of ordinary annuity of
1 for 2 periods at 12% is 1.690.
4. A tract of land was sold by the corporation to Nina Co. on July 1, 2020
for P6,000,000 under an installment sale contract. Nina Co. signed a
4-year 11% note for P4,200,000 on July 1, 2020 in addition to the
down payment of P1,800,000.  The equal annual payments of
principal and interest on the note will be P1,353,750 payable on July
1, 2021, 2022, 2023 and 2024.  The land had an established cash
price of P6,000,000 and its cost to the corporation was P4,500,000. 
The collection of the installments on this note is reasonably assured.

Based on the above information, determine the following:

 
3. Accrued interest receivable as of December 31, 2020.
 

771,000

 
Flag question: Question 4
Question 43 pts
PROBLEM 1. At December 31, 2019, Sally Company’s notes receivable
account consists of the following balances: Notes receivable from sale of
plant, P9,000,000; Notes receivable from officer, P2,400,000.  Additional
information related to the receivables are as follows:

1. The note receivable from sale of plant bears interest at 12%. The note
is payable in 3 annual installments of P3,000,000 plus interest on the
unpaid balance every April 1.  The initial principal and interest
payment was made on April 1, 2020.
2. The notes receivable from officer is dated December 31, 2019, earns
interest at 10% per annum and due on December 31 2022. The 2020
interest was received on December 31, 2020.
3. The corporation sold a piece of equipment to Yeti, Inc. on April 1,
2020, in exchange for a P1,200,000 non-interest bearing note due on
April 1, 2022. The note had no ready market, and there was no
established exchange price for the equipment.  The prevailing interest
rate for a note of this type at April 1, 2020 was 12%.  The PV factor of
1 for two periods at 12% is .797 while PV factor of ordinary annuity of
1 for 2 periods at 12% is 1.690.
4. A tract of land was sold by the corporation to Nina Co. on July 1, 2020
for P6,000,000 under an installment sale contract. Nina Co. signed a
4-year 11% note for P4,200,000 on July 1, 2020 in addition to the
down payment of P1,800,000.  The equal annual payments of
principal and interest on the note will be P1,353,750 payable on July
1, 2021, 2022, 2023 and 2024.  The land had an established cash
price of P6,000,000 and its cost to the corporation was P4,500,000. 
The collection of the installments on this note is reasonably assured.

Based on the above information, determine the following:

 
4. Interest income for the year 2020.
 

 
Flag question: Question 5
Question 53 pts
 
 
 
PROBLEM 2.    Fisher Lending Corporation approved a loan in the amount of
P5,000,000 on January 1, 2018.   The interest rate on the loan is 10% payable
annually starting December 31, 2018.  The loan matures in 5 years on
December 31, 2022.   Fisher incurs P39,400 of direct loan origination cost and
P10,000 of indirect loan origination cost.  In addition, Fisher charges the client
an 8-point non-refundable loan origination fee.
Compute for the following requirements.   Round off present values to 4
decimal places and final answers to nearest hundred.

1. What is the carrying amount of the loan as of January 1, 2018?

 
Flag question: Question 6
Question 63 pts
 
 
 
PROBLEM 2.    Fisher Lending Corporation approved a loan in the amount of
P5,000,000 on January 1, 2018.   The interest rate on the loan is 10% payable
annually starting December 31, 2018.  The loan matures in 5 years on
December 31, 2022.   Fisher incurs P39,400 of direct loan origination cost and
P10,000 of indirect loan origination cost.  In addition, Fisher charges the client
an 8-point non-refundable loan origination fee.
Compute for the following requirements.   Round off present values to 4
decimal places and final answers to nearest hundred.
 
2. What is the effective rate of the loan?
 
write the number only for the percentage.  Example 10  instead of 10%

 
Flag question: Question 7
Question 73 pts
 
 
 PROBLEM 2.    Fisher Lending Corporation approved a loan in the amount of
P5,000,000 on January 1, 2018.   The interest rate on the loan is 10% payable
annually starting December 31, 2018.  The loan matures in 5 years on
December 31, 2022.   Fisher incurs P39,400 of direct loan origination cost and
P10,000 of indirect loan origination cost.  In addition, Fisher charges the client
an 8-point non-refundable loan origination fee.
Compute for the following requirements.   Round off present values to 4
decimal places and final answers to nearest hundred.
 
3. How much is the interest income to be recognized in 2018?
 

 
Flag question: Question 8
Question 84 pts
 
 
 
PROBLEM 2.    Fisher Lending Corporation approved a loan in the amount of
P5,000,000 on January 1, 2018.   The interest rate on the loan is 10% payable
annually starting December 31, 2018.  The loan matures in 5 years on
December 31, 2022.   Fisher incurs P39,400 of direct loan origination cost and
P10,000 of indirect loan origination cost.  In addition, Fisher charges the client
an 8-point non-refundable loan origination fee.
Compute for the following requirements.   Round off present values to 4
decimal places and final answers to nearest hundred.
 
4. What is the carrying amount of the loan as of December 31, 2018?
 
Flag question: Question 9
Question 93 pts
PROBLEM 3.  On January 2, 2018, Estrella Company originates a 10-year
7% P4,000,000. The loan carries an annual interest rate of 7% and is payable
at the end of year 10 (December 31, 2027).  Estrella charges a 1.25% non-
refundable loan origination fee to the borrower and also incurs P100,000 in
direct origination costs.  The contract specifies that the borrower has an option
to pre-pay the instrument at approximately equal to instrument’s amortized
cost  at each exercise date, and that no penalty will be charged for pre-
payment.  But at the inception of the contract, Estrella expects the borrower
not to pre-pay, the amortization period is equal to the instrument’s full term
and for that reason, the effective yield rate is determined at 6.823%.
What is the amortized cost of the instrument on December 31, 2019? (answer
in whole number)
 
(support with amortization table and other computations in your solution
sheets).

 
Flag question: Question 10
Question 103 pts
PROBLEM 4. On December 31, 2018, Mayaman Bank entered into a debt
restructuring agreement with Mayabang Corp which was experiencing
financial difficulties.   A note for P1,000,000 and 1-year’s accrued interest was
due on this date from Mayabang.  The loan receivable from Mayabang was
restructured as follows:

 Reduce the principal obligation to P700,000

 Forgave the P120,000 of accrued interest for 2018
 Extended the maturity date to Dec 31, 2021.
 Reduce the interest rate to 8%. Interest is payable annually on Dec 31,
beginning 2019.

How much interest income should Mayaman Bank report for the year ended
December 31, 2019?
 

Subsequent to initial recognition, a loan receivable shall be measured at amortized cost using
the straight line method. 
2.5.4 Problems on Notes, Loans, Impairment
Started: Apr 5 at 4:01pm
Quiz Instructions
Solve the requirements of each problem and encode your answers without currency
sign.  Follow instructions on number of decimal places to be used for time value
factors. 
 
 
 
Submit solutions here: 2.5.4 SOLUTION PAGE for Notes, Loans and Impairment 
Note: this is a timed quiz. You may check the remaining time you have at any point
while taking the quiz by pressing the keyboard combination SHIFT, ALT, and T... Again:
SHIFT, ALT, and T...
 

Flag question: Question 1

Question 13 pts
Problem 1.  On December 30, 2020, Carnation Co. sold a machine to Rose Co. in
exchange for a noninterest-bearing note requiring ten annual payments of P100,000.
Rose made the first payment on December 30, 2020. The market interest rate for
similar notes at date of issuance was 8%. At what amount should Carnation report as
notes receivable on December 31, 2020?
 
use 4 decimal places for factors. 

 
Flag question: Question 2
Question 23 pts
Problem 2. On January 2, 2020, Alaska Co. sold equipment with a carrying amount of
P480,000 in exchange for a P600,000 noninterest-bearing note due January 2, 2023.
There was no established exchange price for the equipment. The prevailing rate of
interest for a note of this type at January 2, 2020, was 10%.
 
 1. In Alaska’s 2020 income statement,
what amount should be reported as
interest income? 

 
 
(use 4-decimal places factor)
 
 

 
Flag question: Question 3
Question 33 pts
Problem 2. On January 2, 2020, Alaska Co. sold equipment with a carrying amount of
P480,000 in exchange for a P600,000 noninterest-bearing note due January 2, 2023.
There was no established exchange price for the equipment. The prevailing rate of
interest for a note of this type at January 2, 2020, was 10%.
 
2. In Alaska’s 2020 income statement, what amount should be reported as gain (loss)
on sale of machinery?
 
 
(place - sign for loss)

 
Flag question: Question 4
Question 43 pts
Problem 3. On December 31, 2020, Choco Co. received two P1,000,000 notes
receivable from customers in exchange for services rendered. On both notes, interest is
calculated on the outstanding balance at the interest rate of 3% compounded annually
and payable at maturity. The note from Milk Corp., made under customary trade terms,
is due in nine months and the note from Cream, Inc. is due in five years. The market
interest rate for similar notes on December 31, 2020, was 8%. The compound interest
factors are as follows:
Future value of P1 due in nine months at 3%            1.0225
Future value of P1 due in five years at 3%                 1.1593
Present value of P1 due in nine months at 8%          0 .944
Present value of P1 due in five years at 8%                0.6805
Choco does not elect the fair value option for reporting its financial assets. At what
amounts should these two notes receivable be reported in Choco’s December 31, 2020
statement of financial position?
 
 

 
Flag question: Question 5
Question 53 pts
Problem 4. Charlie, Inc. borrowed from Brown Bank under a ten-year loan in the
amount of P1,500,000 with a stated interest rate of 6%. Payments are due monthly, and
are computed to be P16,650. Brown Bank incurs P40,000 of direct loan origination
costs and P12,000 of indirect loan origination costs. In addition, Brown Bank charges
Charlie, Inc. a four-point nonrefundable loan origination fee. What is the initial carrying
amount of the loan that Brown Bank should report?
 

 
Flag question: Question 6
Question 63 pts
Problem 5.  On December 1, 2020, Magnolia Co. gave Anchor Co. a P200,000, 11%
loan. Magnolia paid proceeds of P194,000 after the deduction of a P6,000
nonrefundable loan origination fee. Principal and interest are due in sixty monthly
installments of P4,310, beginning January 1, 2021. The repayments yield an effective
interest rate of 11% at a present value of P200,000 and 12.4% at a present value of
P194,000. What amount of income from this loan should Magnolia report in its 2020
income statement?
     

 
Flag question: Question 7
Question 73 pts
Problem 6. Lactum Company sold its inventory for P300,000 to Chuckie on January 2,
2020 and received a one-year note bearing an interest rate of 12% for the full amount.  
On December 31, 2020, Lactum determined based on Chuckie’s recent financial crisis
and the amount due on January 2, 2021 will not be collected and that only P210,000 of
the principal will be collected with some delay until the end of 2022.  

1. What is the carrying value of the notes

receivable on Lactum’s 2020
statement of financial position?

 
use 4-decimal places for factor

 
Flag question: Question 8
Question 83 pts
Problem 6. Lactum Company sold its inventory for P300,000 to Chuckie on January 2,
2020 and received a one-year note bearing an interest rate of 12% for the full amount.  
On December 31, 2020, Lactum determined based on Chuckie’s recent financial crisis
and the amount due on January 2, 2021 will not be collected and that only P210,000 of
the principal will be collected with some delay until the end of 2022.  
 
2. What is the amount of impairment loss Lactum Company must recognize on its
receivable as of December 31, 2020?
 
 

 
Flag question: Question 9
Question 93 pts
Problem 7.   On January 2, 2020, Anlene Company received an P800,000, 8%, 2-year
note from Milo Corporation as settlement for an outstanding past due account.   The
interest is payable every December 31 and the interest due in 2020 were collected on
time.  In 2021, Milo Corporation was in financial crisis, as a result of this development,
Anlene Company expects that the interest accruing for 2021 will not be collected and
that only P600,000 of the principal amount will be collected in equal installment over the
next three years starting December 31, 2022.  As of December 31, 2021, the market
rate of interest for a similar instrument is 9%.  What amount of impairment loss should
Anlene  Company recognize on December 31, 2021 related to its notes receivable?
 
use 3-decimal places for factor.

 
Flag question: Question 10
Question 103 pts
Problem 8.  BTS Bank loaned P5,500,000 to Blackpink Co. on January 1, 2019.  The
initial loan repayment terms include a 10% interest rate plus annual principal payments
of P1,100,000 on January 1 each year.   Blackpink made the required interest payment
in 2019 but did not make the P1,100,000 principal payment nor the P550,000 interest
payment for 2020.  BTS Bank is preparing its annual financial statements on December
31, 2020.  Blackpink is having financial difficulty, and BTS Bank has concluded that the
loan is impaired.
 
Analysis of Blackpink’s financial condition on December 31, 2020 indicates the principal
payments will be collected, but the collection of interest is unlikely.   BTS Bank did not
accrue the interest on December 31, 2020.  The projected cash flows are:
December 31, 2021 – P1,750,000
December 31, 2022 – P2,00,000
December 31, 2023 – P1,750,000
 
 

1. What is the loan impairment loss on

December 31, 2020?

 
Flag question: Question 11
Question 113 pts
Problem 8.  BTS Bank loaned P5,500,000 to Blackpink Co. on January 1, 2019.  The
initial loan repayment terms include a 10% interest rate plus annual principal payments
of P1,100,000 on January 1 each year.   Blackpink made the required interest payment
in 2019 but did not make the P1,100,000 principal payment nor the P550,000 interest
payment for 2020.  BTS Bank is preparing its annual financial statements on December
31, 2020.  Blackpink is having financial difficulty, and BTS Bank has concluded that the
loan is impaired.
 
Analysis of Blackpink’s financial condition on December 31, 2020 indicates the principal
payments will be collected, but the collection of interest is unlikely.   BTS Bank did not
accrue the interest on December 31, 2020.  The projected cash flows are:
December 31, 2021 – P1,750,000
December 31, 2022 – P2,00,000
December 31, 2023 – P1,750,000
 
 
2. What is the interest income to be reported by BTS Bank in 2021?
 

 
Flag question: Question 12
Question 123 pts
Problem 8.  BTS Bank loaned P5,500,000 to Blackpink Co. on January 1, 2019.  The
initial loan repayment terms include a 10% interest rate plus annual principal payments
of P1,100,000 on January 1 each year.   Blackpink made the required interest payment
in 2019 but did not make the P1,100,000 principal payment nor the P550,000 interest
payment for 2020.  BTS Bank is preparing its annual financial statements on December
31, 2020.  Blackpink is having financial difficulty, and BTS Bank has concluded that the
loan is impaired.
 
Analysis of Blackpink’s financial condition on December 31, 2020 indicates the principal
payments will be collected, but the collection of interest is unlikely.   BTS Bank did not
accrue the interest on December 31, 2020.  The projected cash flows are:
December 31, 2021 – P1,750,000
December 31, 2022 – P2,00,000
December 31, 2023 – P1,750,000
 
 
 
3. What is the carrying value of the loan receivable on December 31, 2022?
 

 
Flag question: Question 13
Question 133 pts
Problem 8.  BTS Bank loaned P5,500,000 to Blackpink Co. on January 1, 2019.  The
initial loan repayment terms include a 10% interest rate plus annual principal payments
of P1,100,000 on January 1 each year.   Blackpink made the required interest payment
in 2019 but did not make the P1,100,000 principal payment nor the P550,000 interest
payment for 2020.  BTS Bank is preparing its annual financial statements on December
31, 2020.  Blackpink is having financial difficulty, and BTS Bank has concluded that the
loan is impaired.
 
Analysis of Blackpink’s financial condition on December 31, 2020 indicates the principal
payments will be collected, but the collection of interest is unlikely.   BTS Bank did not
accrue the interest on December 31, 2020.  The projected cash flows are:
December 31, 2021 – P1,750,000
December 31, 2022 – P2,00,000
December 31, 2023 – P1,750,000
 
 
4. What is the interest income in 2022?
 

 
Flag question: Question 14
Question 143 pts
Problem 8.  BTS Bank loaned P5,500,000 to Blackpink Co. on January 1, 2019.  The
initial loan repayment terms include a 10% interest rate plus annual principal payments
of P1,100,000 on January 1 each year.   Blackpink made the required interest payment
in 2019 but did not make the P1,100,000 principal payment nor the P550,000 interest
payment for 2020.  BTS Bank is preparing its annual financial statements on December
31, 2020.  Blackpink is having financial difficulty, and BTS Bank has concluded that the
loan is impaired.
 
Analysis of Blackpink’s financial condition on December 31, 2020 indicates the principal
payments will be collected, but the collection of interest is unlikely.   BTS Bank did not
accrue the interest on December 31, 2020.  The projected cash flows are:
December 31, 2021 – P1,750,000
December 31, 2022 – P2,00,000
December 31, 2023 – P1,750,000
 
 
What is the interest income in 2023?