PROBLEM 3: EXERCISES

1.On January 1,20x1, Bark, Inc. issues a noninterest-bearing note of P2,000,000 in exchange for
equipment. The note is due on December 31,20x3. The effective interest rate is 16%.

Requirement: Provide all the entries during the term of the note.

2. On January 1,20x1, J&J Co. issues a noninterest-bearing note of P3,000,000 in exchange for
equipment. The note is due in three equal annual installments every December 31. The effective interest
rate is 18%.

Requirements:

a. Compute for current and noncurrent portions of the note payable on December 31,20x1.
b. Compute for the balance of discount on note payable on December 31,20x1 and determine how
this amount is allocated to the current and noncurrent portions of the note.
c. Provide all the entries during the term of the note payable.

3. On January 1,20x1, Drive Co. paid cash of P200,000 and issued a noninterest-bearing note P2,000,000
in exchange for a vehicle. The note is due in four equal annual installments. The first installment is due
on January 1,20x1 and the succeeding installments are due every 1st of January. The prevailing rate of
interest for this type of note is 12%.

Requirements:

a. Prepare the journal entries.

b. How much is the interest expense in 20x2?
c. How much is the carrying amount of the note on Dec.31,20x1?

4. Help the inexperienced accountant of Ala-alipaw Co. reconstruct the information required in the
numbered blanks:

Face amount (1)

Discount on notes payable on initial recognition (2)
Effective interest rate (3)
Term of the note (in years) (4)

Date Payments Interest Expense Amortization Present Value

1/1/x1 1,119,272
12/31/x1 400,000 179,084 (5) 898,356
12/31/x2 400,000 (6) 256,263 (7)
12/31/x3 400,000 102,735 (8) 344,828
(9) 400,000 (10) 344,828 0
5. The current and noncurrent portions of Baa-baa Co.'s note payable at the end of the 1" year are
P213,534 and P507,016, respectively. The note is payable in four equal annual payments of P300,000
every December 31. Baa-baa Co. reported interest expense of P86,466 in the 2nd year. The note was
initially recognized at P911,205 on Jan. 1 of Year 1.

Requirement: Prepare a complete amortization table for the note.