NOTES RECEIVABLE 1. On December 31, 2013, Mark Company sold used equipment and received a noninterest bearing note requiring payment of P600,000 annually for 5 years. The first payment is due December 31,2014 and a nd the prevailing rate of interest for this type of n ote at date of issuance is 8%. Present value factors are as follows: Present value of 1 at 8% for 5 periods 0.681 Present value of ordinary annuity of 1 at 8% for 5 periods 3.993 In December 31,2013 statement of financial position, what is the carrying amount of the note receivable? A. 800,000 B. 2,395,800 C. 2,400,000 D. 1,657,800 2. Frame Company has an 8% notes receivable dated June 30,2013, in the original amount of P1,500,000. Payments of P500,000 in principal plus accrued interest are due annually on July 1, 2014, 2015,and 2016. In June 30,2015 statement of financial position, what amount should be reported as a current asset for interest on the no tes receivable? A.120,000 B. 40,000 C. 80,000 D.
0
3. On December 31,2013, AMJ Company sold an equipment to JM Company in exchange for a noninterest bearing note requiring ten annual payments of P100,000. JM Company made the first payment on December 31, 2013. The market interest rate for similar notes at date of issuance was 8%. Information on present value factors is: Period
Present value of ordinary annuity of 1 at 8%
9
6.25
10
6.71
In December 31,2013 statement of financial position, what is the carrying amount of the notes receivable? A. B. C. D.
455,000 460,000 625,000 680,000
Use the following for numbers 4-5 Sampaguita Company is a dealer in equipment. On December 31,2013, 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 31,2014. The market interest for similar notes was 12%. The PV of 1 at 12% for 5 periods is .57, and the PV of an ordinary annuity of 1 at 12% for 5 periods is 3.60. 4. What is the carrying amount of the note receivable on December 31,2013? A. 1,200,000 B. 1,700,000 C. 1,350,000 D. 1,800,000 5. What interest income should be reported for 2014? A. 216,000 B. 215,000 C. 210,000 D. 110,000
