Problem 2: (Long-term note that bears a reasonable interest rate)

Tusk Company sold an equipment on January 1, 2018 for P7,000,000. The company received a cash
down payment of P1,000,000 and a 4-year, 12% note for the balance.

The note is payable in equal annual installments of principal and interest of P1,975,400 payables on
December 31 of each year until 2021.

1. What is the interest income for 2018? 720,000

2. What is the carrying amount of the note receivable on December 31, 2018? 4,744,600

3. What is the interest income for 2019? 539,352

4. What is the carrying amount of the note receivable on December 31, 2019? 3,338,552

Principal 7,000,000

Less: Down payment (1,000,000)

Note receivable - January 1, 2018 6,000,000

Notes receivable January 1, 2018 6,000,000

Less: Principal payment Dec. 31,2018

Annual payment 1,975,400

Interest Income (6M*12%) (720,000) (1,255,400)

Carrying amount of notes receivable - Dec. 31 2018 4,744,600

Notes receivable January 1, 2019 4,744,600

Less: Principal payment Dec. 31,2019

Annual payment 1,975,400

Interest Income (4,744,600*12%) (569,352) -1,406,048

Carrying amount of notes receivable - Dec. 31 2019 3,338,552