CHAPTER 5: NOTES RECEIVABLE - INTEREST BEARING
STRAIGHT PROBLEMS
1. SHEEP COMPANY
01/01/23 Notes Receivable 6 000 000
Land 4 500 000
Gain on Sale of Land 1 500 000
12/31/23 Cash (6M x 6%) 360 000
Interest Income 360 000
12/31/24 Cash 360 000
Interest Income 360 000
2. LAMB COMPANY
07/1/23 Notes Receivable 3 000 000
Accounts Receivable 3 000 000
12/31/23 Accrued Interest Receivable 120 000
Interest Income (3M x 8% x 6/12) 120 000
06/30/24 Cash 240 000
Interest Income 120 000
Interest Receivable (Accrued) 120 000
12/31/24 Interest Receivable (Accrued) 120 000
Interest Income 120 000
3. MUTTON COMPANY
04/01/23 Cash 1 000 000
Notes Receivable 5 000 000
Accumulated Depreciation 4 500 000
Building 10 000 000
*Gain on Sale of Building 500 000
09/30/23 Cash (5M x 12% x 6/12) 300 000
Interest Income 300 000
12/31/23 Interest Receivable (Accrued) 150 000
Interest Income (300k/2) 150 000
*Oct 1 - Dec 31
03/31/24 Cash (Sept 30 - Mar 31) 300 000
Accrued Interest Receivable 150 000
Interest Income 150 000
09/30/24 Cash 300 000
Interest Income 300 000
12/31/24 Accrued Interest Income 150 000
Interest Income (Oct 1 - Dec 31) 150 000
*Selling Price 6 000 000
Less: Book Value (10M - 4.5M) 5 500 000
Gain 500 000
4. BEEF COMPANY
4A
01/01/23 Notes Receivable 2 500 000
**Loss on Sale of Equipment 300 000
Accumulated Depreciation 4 200 000
Equipment 7 000 000
12/31/23 Cash 750 000
Notes Receivable 500 000
Interest Income (2.5M x 10%) 250 000
12/31/24 Cash 700 000
Notes Receivable 500 000
Interest Income (2M x 10%) 200 000
Reversing entry
01/01/24 Interest Income 120 000
Accrued Interest Receivable 120 000
06/30/24 Cash 240 000
Interest Income 240 000
12/31/25 Cash 650 000
Notes Receivable 500 000
Interest Income (1.5M x 10%) 150 000
**Selling Price 2 500 000
Less: Book Value (7M - 4.2M) 2 800 000
Loss (500 000)
4B
Year Notes Receivable Current Assets Noncurrent Assets
2023 2 000 000 500 000 1 500 000
2024 1 500 000 500 000 1 000 000
2025 1 000 000 500 000 500 000
5. BRISKET COMPANY
5A
04/01/23 Notes Receivable 6 000 000
Cash 6 000 000
12/31/23 Interest Receivable (Accrued) 405 000
Interest Income (6M x 9% x 9/12) 405 000
03/31/24 Cash 1 540 000
Interest Receivable (Accrued) 405 000
Notes Receivable (6M/6 mos) 1 000 000
Interest Income (6M x 9% x 9/12) 135 000
12/31/24 Interest Receivable (Accrued) 337 500
Interest Income (5M x 9% x 9/12) 337 500
03/31/25 Cash 1 450 000
Interest Receivable (Accrued) 337 500
Notes Receivable 1 000 000
Interest Income (5M x 9% x 3/12) 117 500
12/31/25 Interest Receivable (Accrued) 270 000
Interest Income (4M x 9% x 9/12) 270 000
5B
Year Notes Interest Current Noncurrent
Receivable Receivable Assets Assets
2023 6 000 000 405 000 1 405 000 5 000 000
2024 5 000 000 337 500 1 337 500 4 000 000
2025 4 000 000 270 000 1 270 000 3 000 000
6. CHUCK COMPANY
6A
01/01/23 Notes Receivable 5 000 000
Cash 5 000 000
12/31/23 Interest Receivable (Accrued) 500 000
Interest Income (5M x 10%) 500 000
12/31/24 Interest Receivable (Accrued) 550 000
Interest Income (5.5M x 10%) 550 000
12/31/25 Interest Receivable (Accrued) 605 000
Interest Income (6 050 000 x 10%) 605 000
12/31/26 Interest Receivable (Accrued) 665 000
Interest Income (6 655 000 x 10%) 665 000
6B
12/31/26 Cash 7 320 500
Interest Receivable (Accrued) 2 320 500
Notes Receivable 5 000 000
CHAPTER 5A: NOTES RECEIVABLE - SUBJECT TO PRESENT VALUE
STRAIGHT PROBLEMS
1. MISTLETOE COMPANY
Date Interest Income Amortization Unearned Book Value
Interest Income
Jan 1, 2023 *1 916 502 ***4 083 498
Dec 31, 2023 326 680 326 680 1 589 822 4 410 178
Dec 31, 2024 352 814 352 814 1 237 008 4 762 992
Dec 31, 2025 381 039 381 039 855 969 5 144 031
Dec 31, 2026 411 522 411 522 444 447 5 555 553
Dec 31, 2027 444 447 444 447 – 6 000 000
*For last year: subtract to the FV
*Face Value 6 000 000
Less: Present Value 4 083 498
Unearned Interest Income 1 916 502
**Selling Price 5 083 498
Less: Book Value 5 000 000
Gain 83 498
***Face Value 6 000 000
Multiply by: PV Factor 0.680583
Book Value 4 083 498
01/01/23 Cash 1 000 000
Notes Receivable 6 000 000
Land 5 000 000
Unearned Interest Income 1 916 502
Gain on Sale 83 498
12/31/23 Unearned Interest Income 326 680
Interest Income 326 680
12/31/24 Unearned Interest Income 352 814
Interest Income 352 814
2. MANGER COMPANY
Date Interest Amortization Unearned Book Value
Income Interest
Income
April 1, 2023 *1 312 087 ***3 187 913
Mar 31, 2024 286 912 286 912 1 025 175 3 474 825
Mar 31, 2025 312 734 312 734 712 441 3 787 559
Mar 31, 2026 340 880 340 880 371 561 4 128 439
Mar 31, 2027 371 561 371 561 – 4 500 000
*Face Value 4 500 000
Less: Present Value 3 187 913
Unearned Interest Income 1 312 087
**Notes Receivable 4 500 000
Less: U.I.I (1 312 087 - 215 184) 1 096 903
Book Value, 12/31/23 3 403 097
***Face Value 4 500 000
Multiply by: PV Factor 0.708425
Book Value 3 187 913
04/01/23 Notes Receivable 4 500 000
Sales 3 187 913
Unearned Interest Income 1 312 087
12/31/23 Unearned Interest Income 215 184
Interest Income (286 912 x 9/12) 215 184
03/31/24 Unearned Interest Income 71 728
Interest Income (286 912 x 3/12) 71 728
12/31/24 Unearned Interest Income 234 551
Interest Income (312 734 x 9/12) 234 551
3. NATIVITY COMPANY
3A
Date Principal Interest Amortiza Unearne Book Face
Payment Income tion d Interest Value Amount
(PV x %) (P.P - I.I) Income (BV -
Amort.)
Jan 1, *986 768 **3 813 4 800 000
2023 232
Dec 31, 800 000 226 926 533 074 719 842 3 280 158 4 000 000
2023
Dec 31, 800 000 229 611 570 389 490 231 2 709 769 3 200 000
2024
Dec 31, 800 000 189 684 610 316 300 547 2 099 453 2 400 000
2025
*Face Value 4 800 000
Less: Present Value 3 813 232
Unearned Interest Income 986 768
**Principal Payment 800 000
Multiply by: PV Factor 4.766540
Book Value 3 813 232
***Selling Price 3 813 232
Less: Book Value 4 200 000
Loss 386 768
01/01/23 Notes Receivable 4 800 000
Accumulated Depreciation 3 800 000
Loss on Sale 386 768
Building 8 000 000
Unearned Interest Income 986 768
12/31/23 Unearned Interest Income 266 926
Interest Income 266 926
Cash 800 000
Notes Receivable 800 000
3B
Current Noncurrent Total
Notes Receivable 800 000 3 200 000 4 000 000
Less: U.I.I 229 611 490 231 719 842
BV, 12/31/23 570 389 2 709 769 3 280 158
Current Noncurrent Total
Notes Receivable 800 000 2 400 000 3 200 000
Less: U.I.I 189 684 300 547 490 231
BV, 12/31/24 610 316 2 099 453 2 709 769
4. CANE COMPANY
Date Principal Interest Amortiza Unearne Book Face
Payment Income tion d Interest Value Amount
(BV x %) (P.P - I.I) Income
Oct 1, *1 813 ***5 686 7 500 000
2023 820 180
Sept 30, 1 500 000 568 618 931 282 1 245 202 4 754 798 6 000 000
2024
Sept 30, 1 500 000 475 480 1 024 520 769 722 3 730 278 4 500 000
2025
Sept 30, 1 500 000 373 028 1 126 972 396 694 2 603 306 3 000 000
2026
*Face Value 7 500 000
Book Value 5 686 180
Unearned Interest Income 1 813 820
**Selling Price 6 186 200
Book Value 5 000 000
Gain 1 186 200
***Principal Payment 1 500 000
Multiply by: PV Factor 3.790787
Book Value 5 686 180
10/01/23 Cash 500 000
Notes Receivable 7 500 000
Land 5 000 000
Unearned Interest Income 1 813 820
Gain on Sale 1 186 180
12/31/23 Unearned Interest Income 142 155
Interest Income (568 618 x 3/12) 142 155
09/30/24 Cash 1 500 000
Notes Receivable 1 500 000
Unearned Interest Income 426 463
Interest Income (568 618 x 9/12) 426 463
12/31/24 Unearned Interest Income 118 870
Interest Income (475 480 x 3/12) 118 870
5. CANDY COMPANY
Date Interest Amortization Unearned Book Value
Income Interest
Income
Jan 1, 2023 *927 395 **2 572 605
Dec 31, 2023 205 808 205 808 721 587 2 778 413
Dec 31, 2024 222 273 222 273 499 314 3 000 686
Dec 31, 2025 240 055 240 055 259 259 3 240 741
Dec 31, 2026 259 259 259 259 – 3 500 000
*Face Value 3 500 000
Book Value 2 572 605
Unearned Interest Income 927 395
**Face Value 3 500 000
Multiply by: PV Factor 0.735030
Book Value 2 572 605
***Initial Face Value 2 572 605
Face Value 3 500 000
Day 1 Loss 927 395
01/01/23 Notes Receivable 3 500 000
Day 1 Loss 927 395
Cash 3 500 000
Unearned Interest Income 927 395
12/31/23 Unearned Interest Income 205 808
Interest Income 205 808
12/31/24 Unearned Interest Income 222 273
Interest Income 222 273
6. SLEIGH COMPANY
Date Principal Interest Amortiza Unearne Book Face
Payment Income tion d Interest Value Amount
Income
Jan 1, *601 889 **2 898 3 500 000
2023 111
Dec 31, 875 000 231 849 643 151 370 040 2 254 960 2 625 000
2023
Dec 31, 875 000 180 397 694 603 189 643 1 560 357 1 750 000
2024
Dec 31, 875 000 124 829 750 171 64 814 810 186 875 000
2025
*Face Value 3 500 000
Less: Book Value 2 898 111
Unearned Interest Income 601 889
**Principal Payment 875 000
Multiply by: PV Factor 3.312127
Book Value 2 898 111
01/01/23 Notes Receivable 3 500 000
Day 1 Loss 601 889
Cash 3 500 000
Interest Income 601 889
12/31/23 Cash 875 000
Notes Receivable 875 000
Unearned Interest Income 231 849
Interest Income 231 849
12/31/24 Cash 875 000
Notes Receivable 875 000
Unearned Interest Income 180 397
Interest Income 180 397
7. SNOWMAN COMPANY
Date *Interest Interest Amortizatio Unearned Book Value
Receivable Income n Interest
Income
Jan 1, 2023 **971 917 ***5 028
083
Dec 31, 240 000 452 527 212 527 759 390 5 240 610
2023
Dec 31, 240 000 471 655 231 655 527 735 5 472 265
2024
Dec 31, 240 000 492 504 252 504 275 231 5 724 769
2025
*Face Value 6 000 000
Multiply by: Nominal Rate 4%
Interest Receivable 240 000
**Face Value 6 000 000
Less: Book Value 5 028 083
Unearned Interest Income 971 917
***PV of P: 6M x 0.708425 4 250 550
PV of I: 240k x 3.239720 777 533
Book Value 5 028 083
01/01/23 Cash 2 000 000
Notes Receivable 6 000 000
Loss on Sale 971 917
Land 8 000 000
Unearned Interest Income 971 917
12/31/23 Cash 240 000
Unearned Interest Income 212 527
Interest Income 452 527
12/31/24 Cash 240 000
Unearned Interest Income 231 655
Interest Income 471 655