Notes

Receivable
NOTES RECEIVABLE

Notes receivable refer to claims supported by formal promises to pay usually in

the form of notes.
NOTES RECEIVABLE
NOTES RECEIVABLE
NOTES RECEIVABLE
(P1) LONG-TERM INTEREST – BEARING NOTE

KNOWTS Co. sold to another entity a tract of land costing P5,000,000 for P7,000,000 on January 01, 2020.
The buyer paid P1,000,000 down and signed a 2-year promissory note for the remainder of the purchase
price plus 12% interest compounded annually. The note matures on January o1, 2022.

REQUIRED: Prepare journal entries for 2020, 2021 and 2022

NOTES RECEIVABLE
(P2) LONG-TERM NONINTEREST – BEARING NOTE
PAYABLE IN EQUAL ANNUAL INSTALLMENTS
(cash equivalent price is available = use liability outstanding balance method of amortization)

KNOWTS Co. manufactures and sells computers. On January 01, 2020, the entity sold a computer costing
P400,000 for P600,000. The buyer signed a noninterest-bearing note for P600,000 payable in three (3) equal
annual installments every December 31. The cash selling price of the computer is P540,000

REQUIRED: Prepare journal entries for 2020, 2021 and 2022.

NOTES RECEIVABLE
(P3) LONG-TERM NONINTEREST – BEARING NOTE
PAYABLE IN EQUAL ANNUAL INSTALLMENTS
(cash equivalent price is not available = use effective interest method of amortization

KNOWTS Co. manufactures and sells electrical generators. On January 01, 2020, the entity sold an
electrical generator costing P700,000 for P1,000,000. The buyer paid P100,000 down and signed a P900,000
noninterest-bearing note payable in three (3) equal annual installments every December 31.

The prevailing interest rate for a note of this type is 12%. The present value of an ordinary annuity of 1 for
three (3) periods is 2.4018.

REQUIRED: Prepare journal entries for 2020, 2021 and 2022.

NOTES RECEIVABLE
(P3) LONG-TERM NONINTEREST – BEARING NOTE
PAYABLE IN EQUAL ANNUAL INSTALLMENTS
(cash equivalent price is not available = use effective interest method of amortization

KNOWTS Co. manufactures and sells electrical generators. On January 01, 2020, the entity sold an
electrical generator costing P700,000 for P1,000,000. The buyer paid P100,000 down and signed a P900,000
noninterest-bearing note payable in three (3) equal annual installments every December 31.

The prevailing interest rate for a note of this type is 12%. The present value of an ordinary annuity of 1 for
three (3) periods is 2.4018.

REQUIRED: Prepare journal entries for 2020, 2021 and 2022. (Continuation)
NOTES RECEIVABLE
(P4) LONG-TERM NONINTEREST – BEARING NOTE
PAYABLE IN EQUAL ANNUAL INSTALLMENTS
(cash equivalent price is not available = use effective interest method of amortization

KNOWTS Co. is a dealer in equipment. On December 31, 2020, the entity sold an equipment in exchange
for a noninterest-bearing note requiring five (5) annual payments of P500,000. The first payment was made
on December 31, 2021. The market rate of interest for similar notes was 8%. The relevant present value
factors are:
PV of 1 at 8% for 5 periods 0.68
PV of an ordinary annuity of 1 at 8% for 5 periods 3.99

REQUIRED:
(1) Prepare journal entries for 2020 and 2021
(2) Determine the carrying amount of the note receivable on December 31, 2021
(3) Determine the interest income for 2022
NOTES RECEIVABLE
(P4) LONG-TERM NONINTEREST – BEARING NOTE
PAYABLE IN EQUAL ANNUAL INSTALLMENTS
(cash equivalent price is not available = use effective interest method of amortization

KNOWTS Co. is a dealer in equipment. On December 31, 2020, the entity sold an equipment in exchange
for a noninterest-bearing note requiring five (5) annual payments of P500,000. The first payment was made
on December 31, 2021. The market rate of interest for similar notes was 8%. The relevant present value
factors are:
PV of 1 at 8% for 5 periods 0.68
PV of an ordinary annuity of 1 at 8% for 5 periods 3.99

REQUIRED: (Continuation)
(1) Prepare journal entries for 2020 and 2021
(2) Determine the carrying amount of the note receivable on December 31, 2021
(3) Determine the interest income for 2022
NOTES RECEIVABLE
(P5) LONG-TERM NONINTEREST – BEARING NOTE
PAYABLE IN LUMP-SUM
(cash equivalent price is not available = use effective interest method of amortization

On January 01, 2020, KNOWTS Co. sold an equipment costing P500,000 which had a carrying amount of
P350,000, receiving a P125,000 down payment and as additional consideration, a P400,000 noninterest-
bearing note due on January 01, 2023. There was no established exchange price for the equipment, and
the note had not ready market.

The prevailing rate of interest for a note of this type at January 01, 2020 was 12%. The present value of 1 at
12% for three periods is 0.7118.

REQUIRED: Prepare journal entries for 2020, 2021, 2022 and 2023
NOTES RECEIVABLE
(P5) LONG-TERM NONINTEREST – BEARING NOTE
PAYABLE IN LUMP-SUM
(cash equivalent price is not available = use effective interest method of amortization

On January 01, 2020, KNOWTS Co. sold an equipment costing P500,000 which had a carrying amount of
P350,000, receiving a P125,000 down payment and as additional consideration, a P400,000 noninterest-
bearing note due on January 01, 2023. There was no established exchange price for the equipment, and
the note had not ready market.

The prevailing rate of interest for a note of this type at January 01, 2020 was 12%. The present value of 1 at
12% for three periods is 0.7118.

REQUIRED: Prepare journal entries for 2020, 2021, 2022 and 2023 (Continuation)