Problem 4: (Noninterest-bearing note with installment payments; Ordinary annuity)

On January 1, 2019, DEXTER Company sold equipment with a carrying amount of P4,800,000 in
exchange for a P6,000,000
non-interest bearing note due in annual installments of P2,000,000 every December 31 starting
December 31, 2019. There was no established exchange price for the equipment.

The prevailing rate of interest for a note of this type on January 1, 2019 was 10%. The present value of 1
at 10% for three periods is 0.75 and the present value of an ordinary annuity of 1 at 10% is 2.49.

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

(300,000)

2. How much shall be presented as current assets in relation to the note on December 31, 2019?
4,500,000

3. How much shall be presented as non-current assets in relation to the note on December 31, 2019?

4. What amount should be reported as interest income for 2020? 495,000

Carrying amount 4,800,000

Present value of NR ( 6M*.75) 4,500,000
Loss on sale (300,000)

Present value of NR ( 6M*.75) 4,500,000

Multiply: Interest rate 10%
Interest income 2019 450,000

Present value of NR ( 6M*.75) 4,500,000

Add:Interest income 2019 450,000
4,950,000
Multiply: Interest rate 10%
Interst Income 2020 495,000