Illustration 1 : Simple Interest Illustration 2: Compund

Face Amount 1,500,000 Face Amount 1,000,000

Long term receivable, bearing reasonable interest Long term receivable, bearing reasona
Initial Measurement: Face Amount Initial Measurement: Face Amount
Subsequent Mueasurement: Recoverable Historical cost Subsequent Mueasurement: Recovera
Stated Rate: 10% Stated Rate 10%
Market rate 10%

Date Accounts Debit Credit Date Accounts

Apr. 1 20x1 Notes Receivable 1,500,000 Jan. 1, 20x1 Notes Receivable
Land 850,000
Gain on Sale 650,000 Dec. 31, 20x1 Interest Receivable
Dec. 31, 20x1 Interest Receivable 112,500
Interest Income 112,500 Dec 31, 20x2 Interest Receivable
Apr. 1, 20x2 Cash 650,000
Notes Receivable 500,000 Dec . 31, 20x3 Interest Receivable
Interest Income 37,500
Interest Receivable 112,500 Jan. 1, 20x4 Cash
Dec. 31, 20x2 Interest Receivable 75,000
Interest Income 75,000
Apr. 1, 20x3 Cash 600,000
Notes Receivable 500,000
Interest Income 25,000
Interest Receivable 75,000
Dec. 31, 20x3 Interest Receivable 37,500
Interest Income 37,500
Apr. 1 20x4 Cash 550,000
Notes Receivable 500,000
Interest Receivable 37,500
Iterest Income 12,500

3,525,000 3,525,000
 on 2: Compund Interest
eivable, bearing reasonable interest
ement: Face Amount
Mueasurement: Recoverable Historical cost

Debit Credit
Notes Receivable 1,000,000
Cash 1,000,000
Interest Receivable 100,000
Interest Income 100,000
Interest Receivable 110,000
Interest Income 110,000
Interest Receivable 121,000
Interest Income 121,000
1,333,100
Notes Receivable 1,000,000
Interest Receivable 333,100

2,664,100 2,664,100
Illustration 3: Noninterest-bearing note - lumpsum
Long-term noninterest-bearing receivable
Face amount: 1,000,000
Initial measurement: Present value PV of 1 dahil lumpsum
Subsequent measurement: Amortized cost

Face amount - present value

= unearned interest income
Amortization table - lumpsu
Date Accounts Debit Credit Date
Jan. 1, 20x1 Cash 100,000 Jan. 1, 20x1
Notes Receivable 1,000,000 Dec. 31, 20x1
Accumulated Depreciation 700,000 Dec. 31, 20x2
Loss on Sale (squeeze) 488,220 Dec. 31, 20x3
Transportation Equipment 2,000,000
Unearned Interest Income 288,220

Notes Receivable related journal entries

Date Accounts Debit Credit
Dec. 31, 20x1 Unearned Interest Income 85,413
Interest Income 85,413
Dec. 31, 20x2 Unearned Interest Income 95,663
Interest Income 95,663
Dec. 31, 20x3 Unearned Interest Income 107,143
Interest Income 107,143
Jan. 1, 20x4 Cash 1,000,000
Notes Receivable 1,000,000

3,576,439 3,576,439
ortization table - lumpsum
Interest Income Unearned Interest Present Value
288,220 711,780 = carrying amount
85,413 202,807 797,194
95,663 107,143 892,857
107,143 0 1,000,000
288,219
Illustration 4: Noninterest-bearing note - installments
Long-term noninterestbearing note receivables
Face amount: 1,000,000
Initial measurement: Present Value PV of ordinary annuity of 1
Subsequent measurement: Amortization Cost

Face amount - present value

= unearned interest income 240,663 Amortization table - installments
Date
Date Accounts Debit Credit Jan. 1, 20x1
Jan. 1, 20x1 Cash 100,000 Dec. 31, 20x1
Notes Receivable 1,000,000 Dec. 31, 20x2
Accumulated Depreciation 700,000 Dec. 31, 20x3
Loss on Sale of Equipment 440,663 Dec. 31, 20x4
Transportation Equipment 2,000,000 Totals
Unearned Interest Income 240,663

Notes Receivable related journal entries

Date Accounts Debit Credit
Dec. 31, 20x1 Cash 250,000
Unearned Interest Income 91,120
Notes Receivable 250,000
Interest Income 91,120
Dec. 31, 20x2 Cash 250,000
Unearned Interest Income 72,055
Notes Receivable 250,000
Interest Income 72,055
Dec. 31, 20x3 Cash 250,000
Unearned Interest Income 50,701
Notes Receivable 250,000
Interest Income 50,701
Dec. 31, 20x4 Cash 250,000
Unearned Interest Income 26,786
Notes Receivable 250,000
Interest Income 26,786

3,481,325 3,481,325
 759,337

rtization table - installments

Collections Interest Income Amortization Present Value
759,337
250,000 91,120 158,880 600,457
250,000 72,055 177,945 422,512
250,000 50,701 199,299 223,214
250,000 26,786 223,214 -1
1,000,000 240,662 759,338
Illustration 5: Noninterest-bearing note - installments in advance (1st year)
Long-term noninterestbearing note receivables
Face amount: 1,000,000
Initial measurement: Present Value PV of annuity due of 1
Subsequent measurement: Amortization Cost

Face amount - present value

= unearned interest income 149,542 Amortization table - installment
Date
Date Accounts Debit Credit Jan. 1, 20x1
Jan. 1, 20x1 Cash 100,000 Jan. 1, 20x1
Notes Receivable 1,000,000 Jan. 1, 20x2
Accumulated Depreciation 700,000 Jan. 1, 20x3
Loss on Sale of Equipment 349,552 Jan. 1, 20x4
Transportation Equipment 2,000,000 Totals
Unearned Interest Income 149,542
Jan. 1, 20x1 Cash 250,000
Notes Receivable 250,000

Notes Receivable related journal entries

Date Accounts Debit Credit
Jan 1, 20x2 Cash 250,000
Unearned Interest Income 72,055
Notes Receivable 250,000
Interest Income 72,055
Jan 1, 20x3 Cash 250,000
Unearned Interest Income 50,701
Notes Receivable 250,000
Interest Income 50,701
Jan 1, 20x4 Cash 250,000
Unearned Interest Income 26,786
Notes Receivable 250,000
Interest Income 26,786

3,299,094 3,299,084
n advance (1st year)

850,458

rtization table - installment

Collections Interest Income Amortization Present Value
850,458
250,000 0 250,000 600,458
250,000 72,055 177,945 422,513
250,000 50,702 199,298 223,215
250,000 26,786 223,214 0
1,000,000 149,542 850,458
Illustration 6: Noninterest-bearing note - semi annual cash flows
Long-term noninterestbearing note receivables
Face amount: 1,200,000
Initial measurement: Present Value PV of ordinary annuity of 1
Subsequent measurement: Amortization Cost Effective rate: ( 10% / 2 ) =

Face amount - present value

= unearned interest income 184,862 Amortization table - installments
Date
Date Accounts Debit Credit Jan 1, 20x1
Jan 1, 20x1 Notes Receivable 1,200,000 July 1, 20x1
Accumulated Depreciation 1,100,000 Dec 31, 20x1
Gain on Machinery Sale 115,138 July 1, 20x2
Machinery 2,000,000 Dec 31, 20x2
Unearned Interest Income 184,862 July 1, 20x3
Dec 31, 20x3
Notes Receivable related journal entries Totals:
Date Accounts Debit Credit
July 1, 20x1 Cash 200,000
Unearned Interest Income 50,757
Notes Receivable 200,000
Interest Income 50,757
Dec 31, 20x1 Cash 200,000
Unearned Interest Income 43,295
Notes Receivable 200,000
Interest Income 43,295
July 1, 20x2 Cash 200,000
Unearned Interest Income 35,460
Notes Receivable 200,000
Interest Income 35,460
Dec 31, 20x2 Cash 200,000
Unearned Interest Income 27,232
Notes Receivable 200,000
Interest Income 27,232
July 1, 20x3 Cash 200,000
Unearned Interest Income 18,594
Notes Receivable 200,000
Interest Income 18,594
Dec 31, 20x3 Cash 200,000
Unearned Interest Income 9,524
Notes Receivable 200,000
Interest Income 9,524

3,684,862 3,684,862
ash flows

1,015,138
0.05

rtization table - installments

Collections Interest Income Amortization Present Value
1,015,138
200,000 50,757 149,243 865,895
200,000 43,295 156,705 709,190
200,000 35,459 164,541 544,649
200,000 27,232 172,768 371,882
200,000 18,594 181,406 190,476
200,000 9,524 190,476 -1
1,200,000 184,861 1,015,139
Illustration 7: Noninterest-bearing note - non-uniform cash flows
Long-term noninterestbearing note receivables
Face amount: 1,200,000
Initial measurement: Present Value
Subsequent measurement: Amortization Cost Effective rate 0.10
You will use PV of 1 because the cash flow of payments are not equal. PV of annuity is only applicable in equal payments
You will use PV of 1 in every payment

Face amount - present value PV of 1 summary

= unearned interest income 173,704 Date
Dec 31, 20x1
Date Accounts Debit Credit Dec 31, 20x2
Jan 1, 20x1 Notes Receivable 1,200,000 Dec 31, 20x3
Accumulated Depreciation 1,100,000 Totals
Gain on Machinery Sale 126,296
Machinery 2,000,000 Amortization table - installments
Unearned Interest Income 173,704 Date
Jan 1, 20x1
Notes Receivable related journal entries Dec 31, 20x1
Date Accounts Debit Credit Dec 31, 20x2
Dec 31, 20x1 Cash 600,000 Dec 31, 20x3
Unearned Interest Income 102,630 Totals
Notes Receivable 600,000
Interest Income 102,630
Dec 31, 20x2 Cash 400,000
Unearned Interest Income 52,893
Notes Receivable 400,000
Interest Income 52,893
Dec 31, 20x3 Cash 200,000
Unearned Interest Income 18,182
Notes Receivable 200,000
Interest Income 18,182

3,673,705 3,673,705
ash flows

pplicable in equal payments

1 summary
Collections PV of 1 applications Present Value
600,000 0.90909 545,454
400,000 0.82645 330,580
200,000 0.75131 150,262
1,200,000 1,026,296

rtization table - installments

Collections Interest Income Amortization Present Value
1,026,296
600,000 102,630 497,370 528,926
400,000 52,893 347,107 181,818
200,000 18,182 181,818 0
1,200,000 173,704 1,026,296
Illustration 8: Receivable with cash price equivalent
Long-term noninterestbearing note receivables
Face amount: 1,200,000 Effective rate: 0.06265857
Cash Price Equivalent: 1,000,000 PV of 1 0.833333
Initial measurement: Cash Price Equivalent Present Value 1,000,000
Subsequent measurement: Amortized Cost

Face amount - cash price equivalent

= unearned interest income 200,000
Amortization table - lumpsum
Date Accounts Debit Credit Date
Jan 1, 20x1 Notes Receivable 1,200,000 Jan 1, 20x1
Sales 1,000,000 Dec 31, 20x1
Unearned Interest Income 200,000 Dec 31, 20x2
Dec 31, 20x1 Unearned Interest Income 62,659 Dec 31, 20x3
Interest Income 62,659 Totals
Dec 31, 20x2 Unearned Interest Income 66,585
Interest Income 66,585
Dec 31, 20x3 Unearned Interest Income 70,757
Interest Income 70,757
Dec 31, 30x3 Cash 1,200,000
Notes Receivable 1,200,000

2,599,999 2,599,999
 = exact rate from other methods or tools

= PV of 1 * face amount

rtization table - lumpsum

Interest Income Unearned Interest Present Value
200,000 1,000,000
62,659 137,341 1,062,658
66,585 70,757 1,129,243
70,757 0 1,200,000
200,000
Illustration 9: Note with below-market interest (simple interest)
Principal due at maturity, interests due periodically
Long-term receivable bearing unreasonable interest rate
Face amount: 1,000,000 Stated Rate:
Market Rate:
Initial measurement: Present Value
Subsequent measurement: Amortized Cost Getting the Present Value:
Future Cash Flows
Principal
Annual Interest

Face amount - present value

= unearned interest income 216,165
Amortization table - intallments
Date Accounts Debit Credit Date
Jan 1, 20x1 Note Receivable 1,000,000 Jan 1, 20x1
Accumulated Depreciation 950,000 Jan 1, 20x2
Loss on Sale of Machinery 266,165 Jan 1, 20x3
Machinery 2,000,000 Jan 1, 20x4
Unearned Interest Income 216,165 Totals
Dec 31, 20x1 Interest Receivable 30,000
Unearned Interest Income 64,060
Interest Income 94,060
Jan 1, 20x2 Cash 30,000
Interest receivable 30,000
Dec 31, 20x2 Interest Receivable 30,000
Unearned Interest Income 71,747
Interest Income 101,747
Jan 1, 20x3 Cash 30,000
Interest receivable 30,000
Dec 31, 20x3 Ineterest Receivable 30,000
Unearned Interest Income 80,357
Interest Income 110,357
Jan 1, 20x4 Cash 30,000
Interest receivable 30,000
Jan 1, 20x4 Cash 1,000,000
Note Receivable 1,000,000
nterest)

0.03 = (unreasonable) only used in computing future cash flows

0.12 = effective rate or prevailing rate

ng the Present Value:

Future Cash Flows PV factors Present Value
1,000,000 0.71178 711,780
30,000 2.40183 72,055
783,835 Total Present Value

rtization table - intallments

Collections on Interest Interest Income Amortization Present Value
783,835
30,000 94,060 -64,060 847,895
30,000 101,747 -71,747 919,642
30,000 110,357 -80,357 1,000,000
90,000
Illustration 10: Note with below-market interest (simple interest)
Principal due at maturity, interests due in semi annual installments
Long-term receivable bearing unreasonable interest rate
Face amount: 1,000,000 Stated Rate (3%/2):
Market Rate (12%/2):
Initial measurement: Present Value
Subsequent measurement: Amortized Cost Getting the Present Value:
Future Cash Flows
Principal
Semi annual inte
(1M * 1.5%)
Face amount - present value
= unearned interest income 221,280
Amortization table - intallments
Date Accounts Debit Credit Date
Jan 1, 20x1 Note Receivable 1,000,000 Jan 1, 20x1
Accumulated Depreciation 950,000 Jul 1, 20x1
Loss on Sale of Machinery 271,280 Jan 1, 20x2
Machinery 2,000,000 Jul 1, 20x2
Unearned Interest Income 221,280 Jan 1, 20x3
Jul 1, 20x1 Cash 15,000 Jul 1, 20x3
Unearned Interest Income 31,723 Jan 1, 20x4
Interest Income 46,723 Totals:
Dec 31,20x1 Interest Receivable 15,000
Unearned Interest Income 33,627
Interest Income 48,627
Jan 1, 20x2 Cash 15,000
Interest Receivable 15,000
July 1, 20x2 Cash 15,000
Unearned Interest Income 35,644
Interest Income 50,644
Dec 31, 20x2 Interest Receivable 15,000
Unearned Interest Income 37,783
Interest Income 52,783
Jan 1, 20x3 Cash 15,000
Interest Receivable 15,000
Jul 1, 20x3 Cash 15,000
Unearned Interest Income 40,050
Interest Income 55,050
Dec 31, 20x3 Interest Receivable 15,000
Unearned Interest Income 42,453
Interest Income 57,453
Jan 1, 20x4 Cash 15,000
Interest Receivable 15,000

2,577,560 2,577,560
 interest)
nstallments
0.015 = (unreasonable) only used in computing future cash flows
0.06 = effective rate or prevailing rate

ng the Present Value:

PV of 1 and Ordinary
Future Cash Flows Annuity of 1 Present Value
1,000,000 0.70496 704,961
15,000 4.91732 73,760
778,720 Total Present Value

rtization table - intallments

Collections on Interest Interest Income Amortization Present Value
778,720
15,000 46,723 -31,723 810,444
15,000 48,627 -33,627 844,070
15,000 50,644 -35,644 879,714
15,000 52,783 -37,783 917,497
15,000 55,050 -40,050 957,547
15,000 57,453 -42,453 1,000,000
90,000 311,280 -221,280
Illustration 11: Note with below-market interest (simple interest)
Principal and interests collectible in installments - matic non-uniform cash p
Long-term receivable bearing unreasonable interest rate
Face amount: 1,200,000 Stated Rate:
Market Rate
Initial measurement: Present Value
Subsequent measurement: Amortized Cost

1st year
2nd year
3rd year
Face amount - present value Total Present Value
= unearned interest income 179,451

Date Accounts Debit Credit Amortization table - intallments

Jan 1, 20x1 Note Receivable 1,200,000 Date
Accumulated Depreciation 950,000 Jan 1, 20x1
Loss on sale of machinery 29,451 Dec 31, 20x1
Machinery 2,000,000 Dec 31, 20x2
Unearned Interest Income 179,451 Dec 31, 20x3
Dec 31, 20x1 Cash 436,000 Totals
Unearned Interest 86,466
Note Receivable 400,000
Interest Income 122,466
Dec 31, 20x2 Cash 424,000
Unearned Interest 60,842
Note Receivable 400,000
Interest Income 84,842
Dec 31, 20x3 Cash 412,000
Unearned Interest Income 32,143
Note Receivable 400,000
Interest Income 44,143
interest)
non-uniform cash payments
0.03
0.12

Collections on Collections on Future Cash Flows / PV of 1 Present Value

Pricncipal Interest Total collections
400,000 36,000 436,000 0.8928571429 389,286
400,000 24,000 424,000 0.7971938775 338,010
400,000 12,000 412,000 0.7117802478 293,253
Present Value 1,020,549

rtization table - intallments

Collections Interest Income Amortization Present Value
1,020,549
436,000 122,466 313,534 707,015
424,000 84,842 339,158 367,857
412,000 44,143 367,857 0
1,272,000 251,451 1,020,549