CPA REVIEW SCHOOL OF THE PHILIPPINES

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FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

NOTES RECEIVABLE AND LOAN IMPAIRMENT

1. On January 1, 2021, an entity sold equipment with a carrying amount of P4,800,000 in exchange
for P6,000,000 noninterest bearing note due January 1, 2024. There was no established exchange
price for the equipment. The prevailing interest rate for this note was 10%. The present value of 1
at 10% for three periods is 0.75.

1. What amount should be reported as gain or loss on sale of equipment in 2021?

a. 1,200,000 gain
b. 2,700,000 gain
c. 300,000 gain
d. 300,000 loss

2. What amount should be reported as interest income for 2021?

a. 600,000
b. 500,000
c. 450,000
d. 400,000

3. What amount should be reported as interest income for 2022?

a. 480,000
b. 495,000
c. 528,000
d. 500,000

2. On January 1, 2021, an entity sold goods in the ordinary course of business in exchange for a
noninterest bearing note of P5,000,000 requiring ten annual payments of P500,000. The first
payment was made on December 31, 2021. The market interest for similar note was 12%. The
present value of an ordinary annuity of 1 is 5.65 for ten periods and 5.33 for nine periods.

1. What amount should be recognized as sales revenue on January 1, 2021?

a. 5,000,000
b. 2,825,000
c. 2,665,000
d. 4,500,000

2. What amount should be recognized as interest income for 2021`?

a. 600,000
b. 339,000
c. 319,800
d. 261,000

3. What is the carrying amount of the note receivable on December 31, 2021?
a. 2,664,000
b. 4,500,000
c. 3,164,000
d. 2,644,800

4. What amount should be recognized as interest income for 2022?

a. 540,000
b. 600,000
c. 319,680
d. 217,500

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4. Solid Bank loaned P7,500,000 to a borrower on January 1, 2021. The terms of the loan were
payment in full on December 31, 2025 plus annual interest payment at 12% beginning December
31, 2021.

The interest payment was made as scheduled on December 31, 2021. However, due to financial
setbacks, the borrower was unable to make the December 21, 2022 interest payment.

The bank considered the loan impaired and projected the cash flows from the loan on December
31, 2022. The bank had accrued the interest on December 31, 2022.
Amount projected
Date of cash flow December 31, 2022
December 31, 2023 500,000
December 31, 2024 1,000,000
December 31, 2025 2,000,000
December 31, 2026 4,000,000

Present value of 1 at 12%

For one period .89
For two periods .80
For three periods .71
For four periods .64

1. What is the present value of the cash flows from the loan receivable on December 31, 2022?
a. 5,225,000
b. 7,500,000
c. 5,376,000
d. 4,800,000

2. What amount should be recognized as impairment loss for 2022?

a. 2,275,000
b. 3,175,000
c. 5,225,000
d. 2,175,000

3. What amount should be reported by the bank as interest income for 2023?
a. 627,000
b. 900,000
c. 567,000
d. 0

4. What is the carrying amount of the loan receivable on December 31, 2023?
a. 5,352,000
b. 4,725,000
c. 5,225,000
d. 7,000,000

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