Problem 8: (Long-term note that bears an unreasonable interest rate; installment principal collection

with periodic
interest collection; Premium on notes)

On January 1, 2018, Solid Co. sold an equipment to Liquid Co. Liquid Co. issued a 4-year, P100,000, 16%
note to Solid
Co. The note requires the principal amount to be paid in four equal annual installments and interest on
the unpaid balance
to be paid annually every December 31 starting December 31, 2018. The equipment has a cost of
P500,000 and
accumulated depreciation as of January 1, 2018 of P350,000. The prevailing interest rate for a note of
this type is 10%
(Round off PV factors to four decimal places).

1. Compute for the following as of December 31, 2018:

a. Gain or loss on sale of equipment.
b. Interest income.
c. Current portion of the notes receivable.
d. Noncurrent portion of the notes receivable

2. Prepare all the necessary entries in 2018.