Problem 3: (Noninterest-bearing note; Lump Sum Payment)

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 January 1, 2022. 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.

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.

1. What amount should be reported as gain or loss on sale of equipment? Loss: 300,000

2. What amount should be reported as interest income for 2019? 450,000

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

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

Present value of note receivable ( 6,000,000*0.75 ) 4,500,000

Carrying amount of equipment 4,800,000

Loss on Sale (300,000)

Interest income - 2019 ( 4,500,000*10%) 450,000