NOTES PAYABLE

(1) On January 1, 20x1, Washy-washy Co. acquired a washing machine by Initial Measurement:
paying cash of ₱400,000 and issuing a noninterest-bearing note of
Face amount (4M/4 years) 1,000,000
₱4,000,000 due on January 1, 20x4. The effective interest rate on the note
PV of annuity due of 1, n=4, 12% 3.4018
is 12%. How much is the interest expense in 20x1?
Carrying amount 3,401,831
Answer 341,654
Subsequent Measurement:
Initial Measurement:
Interest Present
Face amount 4,000,000 Date Payments Amortization
Expense Value
PV of 1, n=3, 12% 0.7118 Jan 1, 20x1 3,401,831
Carrying amount 2,847,120 Jan 1, 20x1 1,000,000 - 1,000,000 2,401,831
Dec 31, 20x1 1,000,000 288,220 711,780 1,690,051
Subsequent Measurement:

Date Interest Expense Present Value (3) On January 1, 20x1, Bath Co. issued a ₱4,800,000 noninterest-bearing
Jan 1, 20x1 2,847,120 note due in six equal semi-annual payments starting July 1, 20x1. The
Dec 31, 20x1 341,654 3,188,774 effective interest rate is 10%. How much is the carrying amount of the note
on December 31, 20x1?

(2) On January 1, 20x1, Spin Co. acquired an intangible asset by paying Answer 2,836,760
cash of ₱400,000 and issuing a noninterest-bearing note payable of
Initial Measurement:
₱4,000,000 due in 4 equal annual installments. The first installment is due
on January 1, 20x1, while the succeeding installments are due every Face amount (4.8M/6) 800,000
December 31. The effective interest rate is 12%. How much is the carrying PV of ordinary annuity of 1, n=6, 5% 5.0757
amount of the note on December 31, 20x1? Carrying amount 4,060,553

Answer 1,690,051 Subsequent Measurement:

 Interest Present Subsequent Measurement:
Date Payments Amortization
Expense Value
Interest Present
Jan 1, 20x1 4,060,553 Date Payments Amortization
Expense Value
July 1, 20x1 800,000 203,028 596,972 3,463,581
Jan 1, 20x1 4,105,184
Dec 31, 20x1 800,000 173,179 626,821 2,836,760
Dec 31, 20x1 2,400,000 410,518 1,989,482 2,115,702

(4) On January 1, 20x1, Warehouse Co. acquired a machine in exchange

(5) On January 1, 20x1, Fate Co. purchased an inventory with a list price of
for a ₱4,800,000 noninterest-bearing note due as follows:
₱4,400,000 and a cash selling price of ₱4,000,000 in exchange for a
Date Amount ₱4,800,000 noninterest-bearing note due on December 31, 20x3. The
December 31, 20x1 ₱ 2,400,000 carrying amount of the note on December 31, 20x1 is approximately equal
December 31, 20x2 1,600,000 to _________.
December 31, 20x3 800,000
Answer 4,280,000
Total ₱ 4,800,000
Initial measurement: 4,000,000 (note: cash price equivalent when given)
The prevailing rate of interest of this type of note is 10%. How much is the
interest expense in 20x1? Subsequent measurement:

Answer 410,518 Date Interest Expense Present Value

Jan 1, 20x1 4,000,000
Initial Measurement: Dec 31, 20x1 280,000 4,280,000

PV of 1, n=1 Present
Date Amount Trial and Error (to get interest rate):
to 3, 10% Value
December 31, 20x1 2,400,000 0.9091 2,181,818 6% 7%
December 31, 20x2 1,600,000 0.8264 1,322,314 4.8M * PV of 1, n=3 4,030,172 3,918,229
December 31, 20x3 800,000 0.7513 601,052
Since the PV @ 7% is closer, it will be used as interest rate.
Total 4,800,000 4,105,184
(6) Tweet Co. acquired a machine on January 1, 20x1 by paying cash of Initial Measurement:
₱400,000 and issuing a noninterest-bearing note of ₱4,000,000 due in 4
PV, n=3, 12% Present Value
equal annual installments starting on December 31, 20x1. The prevailing
Principal of 1
rate of interest for this type of note is 12%. How much is the noncurrent
4M 0.7118 2,847,120
portion of the note on December 31, 20x1?
Interest of ordinary annuity
Answer 1,690,051 (4M * 3%) 120K 2.4018 288,220
Total 3,135,340
Initial Measurement:

Face amount (4M/4 years) 1,000,000 Subsequent Measurement:

PV of ordinary annuity of 1, n=4, 12% 3.0373

Payment for Interest Present
Carrying amount 3,037,349 Date Amortization
Interest Expense Value
Jan 1, 20x1 3,135,340
Subsequent Measurement:
Dec 31, 20x1 120,000 376,240 256,241 3,391,581
Interest Present
Date Payments Amortization
Expense Value
(8) On January 1, 20x1, SEEMLY HANDSOME Co., issued a ₱12,000,000
Jan 1, 20x1 3,037,349
non-interest bearing note that is due in three annual installments as
Dec 31, 20x1 1,000,000 364,482 635,518 2,401,831
follows:
Dec 31, 20x2 1,000,000 288,220 711,780 1,690,051
Date Amount
January 1, 20x4 ₱ 6,000,000
(7) On January 1, 20x1, SAVOR TASTE Co. acquired a machine by issuing
January 1, 20x5 4,000,000
a 3-year, 3%, ₱4,000,000 note payable. Principal is due on January 1,
January 1, 20x6 2,000,000
20x4 but interests are to be paid annually. The prevailing interest rate for
Total ₱12,000,000
this type of note is 12%. How much is the carrying amount of the note on
December 31, 20x1?
The effective interest rate is 12%. How much is the carrying amount of the
Answer 3,391,581 note on initial recognition?
(Hint: Mind the payment dates.) Cash 2,847,120
Discount on Note Payable 1,152,880
Answer 7,947,605
Note Payable 4,000,000

Initial Measurement: (note: the term is 3 from jan 1 to date of first

installment)
(10) Which of the following represents a liability?

PV of 1, n=3 Present
Date Amount a. The obligation to pay interest on a five-year note payable that was
to 5, 12% Value
issued on the last day of the current year.
January 1, 20x4 6,000,000 0.7118 4,270,681
January 1, 20x5 4,000,000 0.6355 2,542,072 b. The obligation to pay for goods that an entity expects to order from

January 1, 20x6 2,000,000 0.5674 1,134,853 suppliers next year.

Total 12,000,000 7,947,605 c. The obligation to deliver goods that customers have ordered and paid
for during the current year.

(9) SUCCOR Co. issued a 3-year, noninterest-bearing note of ₱4,000,000 d. The obligation to distribute own shares of stocks next year as a result
to RELIEF, Inc., a related party. The proceeds from the issuance of the of a dividend declaration near the end of the current year.
note were ₱4,000,000. The note matures on December 31, 20x3. The
prevailing interest for similar type of obligation is 12%. The entry on the
initial recognition of the note includes a

Answer

Initial Measurement:

Face amount 4,000,000

PV of 1, n=3, 12% 0.7118
Carrying amount 2,847,120

Journal Entry: