ASSIGNMENT
Notes Receivable
Problem 1
Gullible Company is a dealer in equipment. On December 31,
2019, the entity sold an equipment in exchange for a noninterest
bearing note requiring five annual payments of P500,000.
The first payment was made on December 31, 2020. The market
interest for similar notes was 8%. The relevant present value
factors are:
PV of 1 at 8% for 5 periods 0.68
PV of an ordinary annuity of 1 at 8% for 5 periods 3.99
Required:
1. Prepare journal entries for 2019 and 2020.
2. Determine the carrying amount of the note receivable on
December 31, 2020.
3. Determine the interest income for 2021.
Module 1_Notes and Loans Receivable 2
Problem 2
On January 1, 2019, Enigma Company sold an equipment costing
P500,000 which had a carrying amount of P350,000, receiving a
P125,000 down payment and, as additional consideration, a
P400,000 noninterest bearing note due on January 1, 2022.
There was no established exchange rice for the equipment, and the
note had no ready market.
The prevailing rate of interest for a note of this type at January 1,
2019 was 12%. The present value of 1 at 12% for three periods is
0.7118.
Required:
Prepare journal entries for 2019. 2020. 2021 and 2022.
Module 1_Notes and Loans Receivable 3
Problem 3
On December 31, 2019, Precious Company sold an equipment with carrying
amount of P2,000,000 and received a noninterest-bearing note requiring
payment of P500,000 annually for ten years. The first payment is due
December 31, 2020.
The prevailing rate of interest for this type of note at date of issuance is 12%.
Present value of 1 at 12% for 10 periods 0.322
Present value of ordinary annuity of 1 at 12% for 10 periods 5.650
Compute as required (show solution):
1. On December 31, 2019, what is the carrying amount of the note
receivable?
2. What is the gain on sale of equipment to be recognized in 2019?
3. What amount of interest income should be recognized for 2020?
4. What is the carrying amount of the note receivable on December 31, 2020?
Module 1_Notes and Loans Receivable 4
ASSIGNMENT
Loans Receivable
Problem 4
Awesome Bank granted a loan to a borrower on January 1, 2019.
The interest rate on the loan is 10% payable annually starting
December 31, 2019. The loan matures in five years on December
31, 2023.
Principal amount 4,000,000
Direct origination cost 61,500
Origination fee received from borrower 350,000
The effective rate on the loan after considering the direct
origination cost and origination fee received is 12%.
Required:
1. Compute the carrying amount of the loan receivable on January
1, 2019.
2. Prepare a table of amortization for the loan receivable.
3. Prepare the journal entries for 2019 and 2020.
Module 1_Notes and Loans Receivable 6
Problem 5
Solvent Bank loaned P10,000,000 to a borrower on January 1, 2017. The terms of the loan require
principal payments of P2,000,000 each year for 5 years plus interest at 8%.
The first principal and interest payment is due on December 31, 2017. The borrower made the
required payments on December 31, 2017 and December 31, 2018.
However, during 2019 the borrower began to experience financial difficulties, requiring the bank to
reassess the collectability of the loan.
On December 31, 2019, the bank has determined that the remaining principal repayments will be
collected but the collection of the interest is unlikely. The bank has accrued the interest for 2019.
(hint, accrued means it is already booked or recognized).
Expected Principal Payments
December 31, 2020 1,000,000
December 31, 2021 2,000,000
December 31, 2022 3,000,000
Present value of 1 at 8%
For one period - .93 For two periods - .86 For three periods - .79
Required:
1. Compute the impairment loss on the loan receivable .
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2. Prepare journal entries for 2019, 2020 and 2021.
Problem 6
Solid Bank loaned P5,000,000 to a borrower on January 1, 2017. The terms of the
loan require principal payments of P1,000,000 each year for 5 years plus interest at
8%.
The first principal and interest payment is due on January 1, 2018. The borrower made
the required payments during 2018 and 2019.
However, during 2019 the borrower began to experience financial difficulties, requiring
the bank to reassess the collectability of the loan.
On December 31, 2019, the bank has determined that the remaining principal
payment will be collected as originally scheduled but the collection of the interest is
unlikely.
The bank did not accrue the interest on December 31, 2019.
Present value of 1 at 8%.
For one period – 0.926 For two periods - 0.857 For three periods – 0.794
1. What is the impairment loss for 2019?
2. What is the interest income for 2020?
3. 8
What is the carrying amount of the loan receivable on December 31, 2020?
ASSIGNMENT
Discounting of Notes Receivable
Problem 7
On January 1, 2019, Machete Company sold land with carrying amount of
P1,500,000 in exchange for a 9-month, 10% note with face value of P2,000,000.
The 10% rate properly reflects the time value of money for this type of note.
On April 1, 2019, the entity discounted the note with recourse. The bank
discount rate is 12%. The discounting transaction is accounted for as a secured
borrowing.
On October 1, 2019, the maker dishonored the note receivable. The entity paid
the bank the maturity value of the note plus protest fee of P10,000.
On December 31, 2019, the entity collected the dishonored note receivable in
full plus 12% annual interest on the total amount due.
Required:
Prepare journal entries to record the transactions. 10
Problem 8
Foremost Company received from a customer a one-year, P500,000 note
bearing annual interest of 8%.
After holding the note for six months, the entity discounted the note at the
bank at an effective interest rate of 10%.
1. What amount of cash was received from the bank?
2. What is the loss on note receivable discounting?
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Problem 9
On July 1, 2019, Jolly Company sold goods in exchange for P2,000,000, 8-
month, non-interest bearing note receivable.
At the time of the sale, the note’s market rate of interest was 12%. The note
was discounted at 10% on September 1, 2019.
1. What amount was received from the note receivable discounting?
2. What is the loss on note receivable discounting?
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