Lobrigas, Claudine L.

BSIA-IV

Intermediate Accounting 2

Directions: Read and analyze problem. Select the best answer from the choices given and
provide solutions. No merit shall be given for answers without solutions. Encode your answer in
a separate word file and submit in the classwork section of our google class on or before the
date as reflected in your study schedule. Please follow the format in naming the file for
submission. Lastname_Unit4_Topic1_Assessment

Problem #1:

Joshua Company bought a new machine and agreed to pay in equal annual installment of
600,000 at the end of each of the next five years. The prevailing interest rate for this type of
transaction is 12%.

The present value of an ordinary annuity of 1 at 12% for five periods is 3.60. The future
amount of an ordinary annuity of 1 at 12% for five periods is 6.35. The present value of at 12%
for five periods is 0.567.

1. What amount should be reported as note payable if financial statements were prepared
today?

a. 1,700,000

b. 2,160,000

c. 3,000,000

d. 3,810,000

Present value (600,000 x 3.60) = 2,160,000

2. What is the interest expense for the first year?

a. 259,200

b. 187,200

c. 360,000

d. 457,200

Interest expense (2,160,000 x 12%) = 259,200

Problem #2:
 On December 31, 2021, Bart Company purchased a machine from Fell Company in
exchange for a noninterest bearing note requiring eight payments of P200,000. The first
payment was made on December 31, 2021 and the others are due annually on December 31. At
date of issuance, the prevailing rate of interest for this type of note was 11%.

PV of an ordinary annuity of 1 at 11% for 8 periods 5.146

PV of an annuity of 1 in advance at 11% for 8 periods 5.712

On December 31, 2021, what is the carrying amount of the note payable?

a. 1,142,400

b. 1,029,200

c. 1,046,200

d. 942,200

PV of note payable (200,000 x 5.712) 1,142,400

Less: Payment of December 31, 2021 200,000

Carrying amount 942,400

Problem #3:

At year-end, Roth Company issued a P1,000,000 face amount note payable in exchange for
services rendered. The note, made at usual trade terms, is due in nine months and bears
interest, payable at maturity, at the annual rate of 3%. The market interest rate is 8%. The
compound interest factor of 1 due in nine months at 8% is .944.

At what amount should the note payable be reported at year-end?

a. 1,030,000

b. 1,000,000

c. 965,200

d. 944,000

Note payable is 1,000,000 because it is short-term. and it made at usual trade terms.
Problem #4:

On March 1, 2020, Alpha Company borrowed P1,000,000 and signed a 2-year note bearing
interest at 12% per annum compounded annually. Interest is payable in full at maturity on
February 28, 2022. What amount should be reported as accrued interest payable on December
31, 2021?

a. 100,000

b. 120,000

c. 232,000

d. 240,000

Accrued interest from March 01, 2020 to Feb. 28, 2021 (1,000,000 x 12%) 120,000

Accrued interest from March 01, 2020 to Dec. 31, 2021 (1,000,000 + 120,000 x 112,000
12% x 10/12)

Accrued interest payable 232,000

Problem #5:

On January 1, 2021, Jonathan Company borrowed P500,000 8% note due in four years. The
present value of the note on the date of issuance was P367,500. The entity elected irrevocably
the fair value option in measuring the note payable. On December 31, 2021, the fair value of
the note is P408,150.

1. What is the carrying amount of the note payable on December 31, 2021?

a. 500,000

b. 367,500

c. 408,150

d. 460,000

2. What amount should be reported as interest expense for 2021?

a. 40,000

b. 29,400
 c. 32,562

d. 20,000

Interest expense (500,000 x 8%) = 40,000

3. What amount of gain from change in fair value of the note payable should be reported for
2021?

a. 132,500

b. 172,500

c. 91,850

d. 29,400

Face amount 500,000

Fair value 408,150

Gain from change in fair value 91,850

4. At what amount should the discount on note payable be presented on December 31, 2021?

a. 132,500

b. 103,100

c. 91,850

d. 0