SAMPLE PROBLEM B

PSBA -MANILA On January 1, 2020, B Corporation manufactured sold an equipment costing

ACCOUNTING 3 V. R. ESPIRITU
TOPIC: NOTES RECEIVABLE
TERMINOLOGIES:
Notes receivable - are claims supported by formal promises to pay usually in
the form of notes.
Promissory note - is an unconditional promise in writing made by one
person to another, signed by the maker, engaging to pay on demand or at a
fixed determinable future time a sum certain in money to order or to
bearer.
Initial measurement of notes receivable - present value
Initial measurement of short term notes receivable - face value
Initial measurement of long term notes receivable:
When interest bearing - Face value
When non-interest bearing - Present value
Subsequent measurement - At amortized cost
Amortized cost - is the amount at which the note receivable is measured
initially minus principal repayment, plus or minus cumulative amortization
of any difference between the initial carrying amount and the principal
maturity amount minus reduction for impairment or uncollectibility.
P560,000 for P800,000. A noninterest bearing note for P800,000 was
received. The note is payable in 4 equal installments every December 31.
The cash sales price of the machinery is P700,000.
Required: Journal entries in the first year.
Amortization of unearned interest income using the
outstanding method
FS presentation
SAMPLE PROBLEM C
On January 1, 2020, B Corporation sold an equipment costing P500,000 for
P800,000. A down payment of P200,000 plus a non-interest bearing note
for P600,000 was received. The note was payable in equal annual
installment of P200,000 every December 31. The prevailing interest rate for
a note of this type is 10%. The present value of an ordinary annuity of 1 for
three periods at 10% is 2.4869.
Required: Journal entries in the first year.
Amortization of unearned interest income using the
effective interest method

Present value - is the sum of all future cash flows discounted using the
prevailing market rate of interest for similar notes.

SAMPLE PROBLEM A
A Corporation sold land originally costing P1.6M for P2M. A 3-year
promissory note for P2M was received bearing a 10% interest compounded
annually.
Required: Journal entries for the first and second year