PROBLEM 3 SOLUTIONS

1.) A. Initial Measurement:

1,000,000 x PV of 1 @ 14%, n=4 = 0.592080

Date Interest Income Unearned Interest Present Value

Jan. 1, 20x1 ₱407,920.00 ₱592,080.00
Dec. 31, 20x1 ₱82,891.00 ₱325,029.00 ₱674,971.00
Dec. 31, 20x2 ₱94,496.00 ₱230,533.00 ₱769,467.00
Dec. 31, 20x3 ₱107,725.00 ₱122,080.00 ₱877,192.00
Dec. 31, 20x4 ₱122,808.00 ₱1,000,000.00

B. Jan. 1, 20x1 Notes receivable ₱1,000,000.00

Loss on sale of land -₱7,920.00
Land ₱500,000.00
Unearned interest income ₱407,920.00

Dec. 31, 20x1 Unearned interest income ₱82,891.00

Interest income ₱82,891.00

Dec. 31, 20x2 Unearned interest income ₱94,496.00

Interest income ₱94,496.00

Dec. 31, 20x3 Unearned interest income ₱107,725.00

Interest income ₱107,725.00

Dec. 31, 20x4 Unearned interest income ₱122,808.00

Interest income ₱122,808.00

Dec. 31, 20x4 Cash ₱1,000,000.00

Note receivable ₱1,000,000.00

3.) A Annual installment - 250,000

PV of ordinary annuity of 1 @12%, n=4 = 3.037349

Date Collection Interest income Amortization Present Value

Jan. 1, 20x1 ₱759,337.00
Dec. 31, 20x2 ₱250,000.00 ₱91,120.00 ₱158,880.00 ₱600,458.00
Dec. 31, 20x3 ₱250,000.00 ₱72,055.00 ₱177,945.00 ₱422,513.00
Dec. 31, 20x3 ₱250,000.00 ₱50,702.00 ₱119,298.00 ₱223,214.00
Dec. 31, 20x4 ₱250,000.00 ₱26,786.00 ₱223,214.00 ₱0.00

B. Current portion ₱177,945.00

Noncurrent portion ₱422,513.00
Carrying amount Dec. 31, 20x1 ₱600,458.00

C. Jan. 1, 20x1 Note receivable ₱1,000,000.00

Loss on sale of land ₱240,663.00
Land ₱1,000,000.00
Unearned interest income ₱240,663.00
 Dec. 31, 20x1 Cash ₱250,000.00
Note receivable ₱250,000.00

Dec. 31, 20x2 Unearned interest income ₱91,120.00

Interest income ₱91,120.00

Dec. 31, 20x2 Cash ₱250,000.00

Unearned interest income ₱72,055.00
Note receivable ₱250,000.00
Interest income ₱72,055.00

Dec. 31, 20x3 Cash ₱250,000.00

Unearned interest income ₱50,702.00
Note receivable ₱250,000.00
Interest income ₱50,702.00

Dec. 31, 20x4 Cash ₱250,000.00

Unearned interest income ₱26,786.00
Note receivable ₱250,000.00
Interest income ₱26,786.00

5.) A. Annual installment - 300,000

PV of an ordinary annuity due of 1 @9%, n=3 = 2.759111

Date Collection Interest income Amortization Present Value

Jan. 1, 20x1 ₱827,733.00
Jan. 1, 20x1 ₱300,000.00 - ₱300,000.00 ₱527,733.00
Jan. 1, 20x2 ₱300,000.00 ₱47,496.00 ₱252,504.00 ₱275,229.00
Jan. 1, 20x3 ₱300,000.00 ₱24,770.00 ₱275,229.00 ₱0.00

B. How much is the interest income recognized in 20x1?

- The interest income is 0. See the table above.

C. Jan. 1, 20x1 Cash ₱100,000.00

Notes receivable ₱900,000.00
Loss on sale of the land -₱127,734.00
Land ₱800,000.00
Unearned interest income ₱72,266.00

Jan. 1, 20x1 Cash ₱300,000.00

Notes receivable ₱300,000.00

Jan. 1, 20x2 Unearned interest income ₱47,496.00

Interest income ₱47,496.00

Jan. 1, 20x3 Cash ₱300,000.00

Notes receivables ₱300,000.00
2.) A. Initial Measurement:
900,000 x PV of 1 @ 12%, n=3 = 0.711780

Date Interest Income Unearned Interest Present Value

Jan. 1, 20x1 ₱259,398.00 ₱640,602.00
Dec. 31, 20x1 ₱76,872.00 ₱182,526.00 ₱717,474.00
Dec. 31, 20x2 ₱86,097.00 ₱96,429.00 ₱803,571.00
Dec. 31, 20x3 ₱96,429.00 ₱900,000.00

B. Jan. 1, 20x1 Note receivable ₱900,000.00

Accumulated depreciation ₱400,000.00
Loss on sale of machinery ₱159,398.00
Machinery
Unearned interest income

Dec. 31, 20x1 Unearned interest income ₱76,872.00

Interest income

Dec. 31, 20x2 Unearned interest income ₱86,097.00

Interest income

Dec. 31, 20x3 Unearned interest income ₱96,429.00

Interest income

Dec. 31, 20x3 Cash ₱900,000.00

Note receivable

4.) A Annual installment - 400,000

PV of ordinary annuity of 1 @15%, n=3 = 2.283225

Date Collection Interest income Amortization

Jan. 1, 20x1
Dec. 31, 20x2 ₱400,000.00 ₱136,994.00 ₱263,006.00
Dec. 31, 20x3 ₱400,000.00 ₱97,542.00 ₱302,458.00
Dec. 31, 20x3 ₱400,000.00 ₱52,174.00 ₱347,826.00

B. Current portion ₱302,458.00

Noncurrent portion ₱347,826.00
Carrying amount Dec. 31, 20x1 ₱650,284.00

C. Jan. 1, 20x1 Note receivable ₱1,200,000.00

Loss on sale of land ₱86,710.00
Land
Unearned interest income

Dec. 31, 20x1 Cash ₱400,000.00

Notes receivable

Dec. 31, 20x2 Unearned interest income ₱136,994.00

 Interest income

Dec. 31, 20x2 Cash ₱400,000.00

Unearned interest income ₱97,542.00
Notes receivable
Interest income

Dec. 31, 20x3 Cash ₱400,000.00

Unearned interest income ₱52,174.00
Notes receivable
Interest income

6.) Face amount (1) 1,600,000

Unearned interest at initial recognition (2) 480,728
Effective interest rate (3) 16%
Term of the note (in years) (4) 4

Date Collection Interest income Amortization

1/1x1
12/31/x1 400,000 179,084 (5) 220,916
12/31/x2 400,000 (6) 143,737 256,263
12/31/x3 400,000 102,735 (8) 297,265
(9) 12/31/x4 400,000 (10) 55,173 344,828.00

7.) Date Collection Interest income Amortization

1/1x1
12/31/x1 ₱300,000.00 ₱109,344.00 ₱190,656.00
12/31/x2 ₱300,000.00 ₱86,466.00 ₱213,534.00
12/31/x3 ₱300,000.00 ₱60,842.00 ₱239,158.00
12/31/x4 ₱300,000.00 ₱32,141.00 ₱267,857.00
 ₱1,200,000.00
₱259,398.00

₱76,872.00

₱86,097.00

₱96,429.00

₱900,000.00

Present Value
₱913,290.00
₱650,284.00
₱347,826.00
₱0.00

₱1,000,000.00
₱286,710.00

₱400,000.00
 ₱136,994.00

₱400,000.00
₱97,542.00

₱400,000.00
₱52,174.00

Present Value
1,119,272
898,356
(7) 642,093
344,827
0

Present Value
₱911,205.00
₱720,549.00
₱507,857.00
₱267,857.00