PROBLEM 1

Gullible Co. is a dealer in equipment. On December 31, 2020, the entity sold an equipment
in exchange for a noninterest bearing note requiring five annual payments of P500,000.
The first payment was made December 31, 2021.

The market interest for similar notes was 8%. The relevant present value factors are:
PV of 1 at 8% for 5 periods 0.68
PV of an ordinary annuity of 1 at 8% for 5 periods 3.99

REQUIRED:
1. Prepare ALL the necessary journal entries
2. Determine the carrying amount or the subsequent measure of the note at the end of each year.
3. Determine the interest income every year.
WRITE YOUR ANSWERS HERRE
PV of an ordinary annuity of 1 at 8% for 5 periods 3.99
1. Prepare ALL the necessary journal entries
2020
Dec. 31 N/R ₱2,500,000.00 This is the entry to record the sale and in
Sales ₱1,995,000.00
Unearned Interest Income ₱505,000.00
#
2021
Dec. 31 Cash ₱500,000.00 Record collection and interest earned
Unearned Interest Income ₱159,600.00
N/R ₱500,000.00
Interest Income ₱159,600.00
#
2022
Dec. 31 Cash ₱500,000.00
Unearned Interest Income ₱132,368.00
N/R ₱500,000.00
Interest Income ₱132,368.00
#
2023
Dec. 31 Cash ₱500,000.00
Unearned Interest Income ₱102,957.00
N/R ₱500,000.00
Interest Income ₱102,957.00
#
2024
Dec. 31 Cash ₱500,000.00
Unearned Interest Income ₱71,194.00
N/R ₱500,000.00
Interest Income ₱71,194.00
#
2025
Dec. 31 Cash ₱500,000.00
Unearned Interest Income ₱38,831.00
N/R ₱500,000.00
Interest Income ₱38,831.00
 500K * 5 years

This is the entry to record the sale and initial measurement/ Intitial Recognition
Unearned Interest Income is a deduction to N/R to get the initial measurement/NOT A LIAB

Record collection and interest earned

2. Determine the carrying amount or the subsequent measure of the note at the end of each year.
2020 2021
N/R, end ₱2,500,000.00 ₱2,000,000.00
Unearned Interest Income, End -₱505,000.00 -₱345,400.00
Amortized Cost/Carrying Amount ₱1,995,000.00 ₱1,654,600.00

3. Determine the interest income every year.

Date Collection Interest Income

(PV x 8%)
12/31/20
12/31/21 ₱500,000.00 ₱159,600
12/31/22 ₱500,000.00 ₱132,368
12/31/23 ₱500,000.00 ₱102,957
12/31/24 ₱500,000.00 ₱71,194
12/31/25 ₱500,000.00 ₱38,881
ent/NOT A LIAB

at the end of each year.

2022 2023 2024 2025
₱1,500,000.00 ₱1,000,000.00 ₱500,000.00 Fully Collected
-₱213,032.00 -₱110,075.00 -₱38,881.00 0
₱1,286,968.00 ₱889,925.00 ₱461,119.00 0

Principal Present Value

(Collection - Interest Income) (PV- Principal)
₱1,995,000.00
₱340,400 ₱1,654,600
₱367,632 ₱1,286,968
₱397,043 ₱889,925
₱428,806 ₱461,119
₱461,119 ₱0
PROBLEM 2

On Jan. 1, 2020, Enigma Co. sold an equipment costing P500,000 which had a carrying amount of P350,000
receiving a P125,000 down payment and as additional consideration, a P400,000 noninterest bearing
note due on January 1, 2023. There was no established exchange price for the equipment.
The note had no ready market.

The market interest for similar notes was 12%. The relevant present value factor is:
PV of 1 at 12% for 3 periods 0.7118

REQUIRED:
1. Prepare ALL the necessary journal entries
2. Determine the carrying amount or the subsequent measure of the note at the end of each year.
3. Determine the interest income every year.
 WRITE YOUR ANSWERS HERRE

1. Prepare ALL the necessary journal entries

Face of Note ₱400,000.00
Less: PV -₱284,720.00 (400K * 0.7118)
Unearned Interest Income ₱115,280.00

Cash Received ₱125,000.00

PV ₱284,720.00
Sales Price ₱409,720.00
Less: Carrying Amount of Equipment -₱350,000.00
Gain on Sale of Equipment ₱59,720.00

2020
Jan. 1 Cash ₱125,000.00
Notes Receivable ₱400,000.00
Accumulated Depreciation ₱150,000.00
Equipment ₱500,000.00
Gain on Sale of Equipment ₱59,720.00
Unearned Interest Income ₱115,280.00
#
Dec. 31 Unearned Interest Income ₱34,166.00
Interest Income ₱34,166.00
#
2021
Dec. 31 Unearned Interest Income ₱38,266.00
Interest Income ₱38,266.00
#
2022
Dec. 31 Unearned Interest Income ₱42,848.00
Interest Income ₱42,848.00
#
2023
Jan. 1 Cash ₱400,000.00
Notes Receivable ₱400,000.00
#
2. Determine the carrying amount or the subsequent measure of the note at the end of each year.
Date Interest Income Unearned Interest
(PV x 12%) UII - II
1/1/2020 ₱115,280
12/31/20 ₱34,166 ₱81,114
12/31/21 ₱38,266 ₱42,847
12/31/22 ₱42,847 ₱0

Initial Measurement (Jan. 1, 2020) 2020

N/R End ₱400,000 ₱400,000
Unearned Interest Income -₱115,280 -₱81,114
Present Value ₱284,720 ₱318,886

3. Determine the interest income every year.

Date Interest Income Unearned Interest
(PV x 12%) UII - II
1/1/2020 ₱115,280
12/31/20 ₱34,166 ₱81,114
12/31/21 ₱38,266 ₱42,847
12/31/22 ₱42,847 ₱0
e at the end of each year.
Present Value
(PV + Interest Income)
₱284,720
₱318,886
₱357,153
₱400,000

2021 2020
₱400,000 ₱400,000
-₱42,847 ₱0
₱357,153 ₱400,000

Present Value
(PV + Interest Income)
₱284,720
₱318,886
₱357,153
₱400,000
PROBLEM 3 WRITE YOUR ANSWERS HERRE

1. Determine the N/R including

N/R from Sale to Solid Company

N/R from officer

N/R from Boom Company

2. Determine the Noncurrent As
WRITE YOUR ANSWERS HERRE

1. Determine the N/R including accrued interest that should be classified as current asset on Dec. 31, 2020
N/R from Sale to Solid Company
Date Collection Interest (9%) Principal
(PV x 9%) (Collection - Interest Income)
May 1, 2019
May 1, 2020 ₱2,500,000.00 ₱675,000.00 ₱1,825,000.00
May 1, 2021 ₱2,500,000.00 ₱510,750.00 ₱1,989,250.00
May 1, 2022 ₱2,500,000.00 ₱1,185,750.00 ₱3,685,750.00

Date Interest Income Unearned Interest Present Value

(PV x 9%) UII - II (PV + Interest Income)
May 1, 2019 ₱5,570,000.00 ₱1,930,000.00
May 1, 2020 ₱173,700.00 ₱5,396,300.00 ₱2,103,700.00
May 1, 2021 ₱168,296.00 ₱5,228,004.00 ₱2,271,996.00
May 1, 2022 ₱5,228,004.00 ₱0.00 ₱7,500,000.00

N/R from officer

Date Collection Interest (10%) Principal
(PV x 10%) (Collection - Interest Income)
Dec. 31, 2017
Dec. 31, 2018 ₱666,666.67 ₱200,000.00 ₱466,666.67
Dec. 31, 2019 ₱666,666.67 ₱153,333.33 ₱513,333.34
Dec. 31, 2020 ₱666,666.67 ₱353,333.33 ₱1,020,000.00

Date Interest Income Unearned Interest Present Value

(PV x 8%) UII - II (PV + Interest Income)
Dec. 31, 2017 ₱640,000.00 ₱1,360,000.00
Dec. 31, 2018 ₱108,800.00 ₱531,200.00 ₱1,468,800.00
Dec. 31, 2019 ₱117,504.00 ₱413,696.00 ₱1,586,304.00
Dec. 31, 2020 ₱126,904.32 ₱286,791.68 ₱1,713,208.32
Dec. 31, 2021 ₱137,056.67 ₱149,735.01 ₱1,850,264.99
Dec. 31, 2022 ₱149,735.01 ₱0.00 ₱2,000,000.00

N/R from Boom Company

Date Collection Interest (10%) Principal
(PV x 10%) (Collection - Interest Income)
July 1, 2020
July 1, 2021 ₱880,000.00 ₱280,000.00 ₱600,000.00
 July 1, 2022 ₱880,000.00 ₱220,000.00 ₱660,000.00
July 1, 2023 ₱880,000.00 ₱154,000.00 ₱726,000.00
July 1, 2024 ₱880,000.00 ₱66,000.00 ₱814,000.00

N/R from Sale to Solid Company ₱1,989,250.00

N/R from officer ₱1,020,000.00
N/R from Boom Company ₱600,000.00
Current N/R ₱3,609,250.00

2. Determine the Noncurrent Asset on Dec. 31, 2020

N/R from Sale to Solid Company ₱5,675,000.00

N/R from officer ₱0.00
N/R from Boom Company ₱2,200,000.00
Non- Current N/R ₱7,875,000.00
 Solutions:

Present Value
(PV- Principal)
₱7,500,000.00
₱5,675,000.00
₱3,685,750.00
₱0.00

Face of Note ₱7,500,000.00

Less: PV -₱1,930,000.00
2500000*(1+9%)^-3 Unearned Interest Income ₱5,570,000.00

Present Value
(PV- Principal) Face of Note ₱2,000,000.00
₱2,000,000.00 Less: PV -₱1,360,000.00
₱1,533,333.33 Unearned Interest Income ₱640,000.00
₱1,020,000.00
₱0.00

2000000*(1+8%)^-5 July 1, 2020

Notes Receivable ₱2,800,000.00
X 10% X 12/12
Unearned Interest Income ₱280,000.00

Cash Received ₱1,200,000.00

Notes Receivble ₱2,800,000.00
Sales Price ₱4,000,000.00
Less: Cost of Land -₱3,000,000.00
Present Value Gain on Sale of Land ₱1,000,000.00
(PV- Principal)
₱2,800,000.00
₱2,200,000.00
₱1,540,000.00
₱814,000.00
₱0.00
 Solid Company

1/5/2020 Cash

12/31/20 Accured Interest Receivable

President
Cash

NO ACCRUED INTEREST

July 1, 2021 July 1, 2022 July 1, 2023 July 1, 2024

₱2,200,000.00 ₱1,540,000.00 -₱814,000.00 Fully Collected
X 10% X 12/12 X 10% X 12/12 ₱880,000.00 -
₱220,000.00 ₱154,000.00 ₱66,000.00 ₱0.00

Boom
Cash
N/R
Accrued Interest Income
Cash 3,175,000
N/R 2.5 M
Interest Income 225 K (7.5 M x 0.Jan 1 - May 1 2020
Accrued Interest Receivable 450K (7.5 M x 0.May 2 - Dec. 31, 2019
.
Accured Interest Receivable 300K (5M X 0.9X5/1/2929 - 12/31/2020
Interest Income 300K

Cash 160k
Interest Income 160k
(2M x 8%)

NO ACCRUED INTEREST

Cash

Land
Gain on Sale
Accrued Interest Income
Interest Income
PROBLEM 4

Present Value of ordinary ann

REQUIRED
1. On December 31, 2020, what is the carrying amount of the note receivable?
2. What is the sales price?
3. How much is the unearned interest income on Dec. 31, 2020?

Present Value of 1
Present Value of ordinary ann

Present Value of 1
 WRITE YOUR ANSWERS HERRE

1. On December 31, 2020, what is the carrying amount of the note receivable?
Present Value of ordinary annuity
Date Collection Interest Income
(PV x 8%)
Dec. 31 2020
Dec. 31 2021 ₱500,000 ₱250,000
Dec. 31 2022 ₱500,000 ₱230,000
Dec. 31 2023 ₱500,000 ₱208,400
Dec. 31 2024 ₱500,000 ₱185,072
Dec. 31 2025 ₱500,000 ₱159,878
Dec. 31 2026 ₱500,000 ₱132,668
Dec. 31 2027 ₱500,000 ₱103,281
Dec. 31 2028 ₱500,000 ₱71,544
Dec. 31 2029 ₱500,000 ₱37,267
Dec. 31 2030 ₱500,000 ₱496,889

Present Value of 1
Date Interest Income Unearned Interest
(PV x 8%) UII - II
Dec. 31 2020 ₱ 2,700,000.00
Dec. 31 2021 ₱ 184,000.00 ₱ 2,516,000.00
Dec. 31 2022 ₱ 198,720.00 ₱ 2,317,280.00
Dec. 31 2023 ₱ 214,617.60 ₱ 2,102,662.40
Dec. 31 2024 ₱ 231,787.01 ₱ 1,870,875.39
Dec. 31 2025 ₱ 250,329.97 ₱ 1,620,545.42
Dec. 31 2026 ₱ 270,356.37 ₱ 1,350,189.06
Dec. 31 2027 ₱ 291,984.88 ₱ 1,058,204.18
Dec. 31 2028 ₱ 315,343.67 ₱ 742,860.52
Dec. 31 2029 ₱ 340,571.16 ₱ 402,289.36
Dec. 31 2030 ₱ 402,289.36 ₱ -

2. What is the sales price?

Face of Note
Less: PV
Unearned Interest Income

Collection
PV
Sales Price
 3. How much is the unearned interest income on Dec. 31, 2020?
Present Value of ordinary annuity
N/R, end ₱5,000,000.00
PV -₱3,125,000.00
Unearned Interest Income, End ₱1,875,000.00

Present Value of 1
N/R, end ₱5,000,000.00
PV -₱2,300,000.00
Unearned Interest Income, End ₱2,700,000.00
 Principal Present Value
(Collection - Interest Income) (PV- Principal) Carrying Amount
₱3,125,000 500K * 6.2 ₱3,125,000
₱250,000 ₱2,875,000
₱270,000 ₱2,605,000
₱291,600 ₱2,313,400
₱314,928 ₱1,998,472
₱340,122 ₱1,658,350
₱367,332 ₱1,291,018
₱396,719 ₱894,299
₱428,456 ₱465,843
₱462,733 ₱3,111
₱3,111 ₱0

Present Value
(PV + Interest Income)
₱ 2,300,000.00
₱ 2,484,000.00
₱ 2,682,720.00
₱ 2,897,337.60
₱ 3,129,124.61
₱ 3,379,454.58
₱ 3,649,810.94
₱ 3,941,795.82
₱ 4,257,139.48
₱ 4,597,710.64
₱ 5,000,000.00

₱5,000,000.00 Cash Received

-₱3,125,000.00
₱1,875,000.00

₱500,000.00
₱31,250,000.00
₱31,750,000.00
Face Value (500K x 9)
PV
Unearned Interest Income
PROBLEM 5

REQUIRED:
1. What amount should be reported as gain or loss on the sale of equipment in 2020??
2. What amount should be reported as interest income for 2020?
3. On December 31, 2020, what is the carrying amount of the note receivable?
4. What amount should be reported as interest income for 2021?
WRITE YOUR ANSWERS HERRE

1. What amount should be reported as gain or loss on the sale of equipment in 2020??

Face of Note ₱1,000,000.00

Less: PV -₱712,000.00
Unearned Interest Income ₱288,000.00

Cash Received ₱0.00

PV ₱712,000.00
Sales Price ₱712,000.00
Less: Carrying Amount of Equipment -₱800,000.00
Gain/Loss on Sale of Equipment -₱88,000.00

2. What amount should be reported as interest income for 2020?

Date Interest Income Unearned Interest Present Value

(PV x 12%) UII - II (PV + Interest Income)
1/1/2020 ₱288,000 ₱712,000
12/31/20 ₱85,440 ₱202,560 ₱797,440
12/31/21 ₱95,693 ₱106,867 ₱893,133
12/31/22 ₱106,867 ₱0 ₱1,000,000

712K x 12% = 85, 440

712K x 12% = 85, 440

3. On December 31, 2020, what is the carrying amount of the note receivable?

Date Interest Income Unearned Interest Present Value

(PV x 12%) UII - II (PV + Interest Income)
1/1/2020 ₱288,000 ₱712,000
12/31/20 ₱85,440 ₱202,560 ₱797,440
12/31/21 ₱95,693 ₱106,867 ₱893,133
12/31/22 ₱106,867 ₱0 ₱1,000,000

PV, Jan. 1 2020 (1M x 0.712) ₱712,000

Interest Income 2020 (712000 *12 ₱85,440.00
PV, Dec. 31, 2020 ₱797,440.00

4. What amount should be reported as interest income for 2021?

Date Interest Income Unearned Interest Present Value

(PV x 12%) UII - II (PV + Interest Income)
1/1/2020 ₱288,000 ₱712,000
12/31/20 ₱85,440 ₱202,560 ₱797,440
12/31/21 ₱95,693 ₱106,867 ₱893,133
12/31/22 ₱106,867 ₱0 ₱1,000,000

PV, Dec. 31, 2020 ₱797,440

x 12%
Interest Income for 2021 ₱ 95,693
PROBLEM 6

REQUIRED:
1. What amount should be reported as interest income for 2020?
2. On December 31, 2020, what is the carrying amount of the note receivable?
3. What amount should be reported as interest income for 2021?
WRITE YOUR ANSWERS HERRE
1. What amount should be reported as interest income for 2020?

PV, Jan. 1, 20 ₱ 3,000,000.00

x 10%
Interest Inco ₱ 300,000.00

2. On December 31, 2020, what is the carrying amount of the note receivable?

Given:
Notes Receiva ₱ 4,000,000.00
Period 3
Rate 10%
PV value of 1 0.75

Solution:
N/R ₱4,000,000.00
PV (4M x .75) -₱3,000,000.00
Unearned Int ₱1,000,000.00

Date Interest Income Unearned Interest Present Value

(PV x 10%) UII - II (PV + Interest Income)
Jan. 1, 2020 ₱1,000,000.00 ₱ 3,000,000.00
Dec. 31, 2020 ₱ 300,000.00 ₱700,000.00 ₱ 3,300,000.00
Dec. 31, 2021 ₱ 330,000.00 ₱370,000.00 ₱ 3,630,000.00
Dec. 31, 2022 ₱ 370,000.00 ₱0.00 ₱ 4,000,000.00

3. What amount should be reported as interest income for 2021?

PV, Dec. 31, ₱ 3,300,000.00
x 10%
Interest Inco ₱ 330,000.00

Date Interest Income Unearned Interest Present Value

(PV x %) UII - II (PV + Interest Income)
Date 1 Total Unearned Interest PV AMOUNT
Date 2
Date 3 X
Date 4 (same value as X) ₱0.00 FV OF N/R
Solution:
N/R ₱4,000,000.00
PV (4M x .75) -₱3,000,000.00
Unearned Interest Income ₱1,000,000.00

Interest Income
2020 ₱ 300,000.00
2021 ₱ 330,000.00
2022 ₱ 370,000.00
Total ₱ 1,000,000.00

PV, Jan. 1 2020 (4M * .75) ₱3,000,000.00

Interest Income 2020 (3M *10%) ₱300,000.00
PV, Dec. 31, 2020 ₱3,300,000.00
Interest Income 2021 (3.3M x 10%) ₱330,000.00
PV, Dec. 31, 2021 ₱3,630,000.00
Interest Income 2022 (1M - 630K) ₱370,000.00
PV, Dec 31, 2022 ₱ 4,000,000.00
PROBLEM 7

REQUIRED:
1. At what amount should the note receivable from Zeta Co. be reported at year-end?
2. At what amount should the note receivable from Yola Co. be reported at year-end?
WRITE YOUR ANSWERS HERRE

1. What amount should be reported as Interest Income for 2021?

1M x 6% x 10/12 (Jan 1 to Oct 31, 2021)

3M x 8% x 3/12 )(Jan 1 to March 31, 2021)
Total Interest Revenue

Interest Rate on 1M N/R

Accrued Interest Receivable on Dec. 31, 2020 (3M x 8% x 9/13)

Accurued Interest on 3M note Receivable (March 31 - Dec. 31, 2020)(3M x 8% x 9/12)
Accrued Interest on 1M N/R

2. ADA for 2021

Accounts Receivable, Dec. 31, 2020

Credit Sales
Less: Cash Collections
Less: Write-offs
Accounts Receivable, Dec. 31, 2021

Allowance, Dec. 31, 2020

Doubtful Accounts Expense (Squeeze)
Total
Less: Write-offs
Allowance for Doubful Accounts, Dec. 31, 2021(7M x 10%)
 ₱50,000.00
₱60,000.00
₱110,000.00

₱190,000.00
-₱180,000.00
₱10,000.00

₱4,600,000.00 (4.6M + 500K )

₱21,000,000.00
-₱18,000,000.00
-₱600,000.00
₱7,000,000.00 7.5 M

₱500,000.00
₱850,000.00
₱1,350,000.00
-₱600,000.00
₱700,000.00 750K
PROBLEM 8

REQUIRED:
1. What is the total amount reported as accounts receivable on December 31?
2. What is the total amount reported as allowance for doubtful accounts on December 31?
WRITE YOUR ANSWERS HERRE

1. JOURNAL ENTRIES
Cash ₱1,000,000.00
Notes Receivable ₱9,000,000.00
Sales ₱7,250,000.00
Unearned Interest Income ₱2,750,000.00

2. SALES REVENUE
First Payment on Dec. 31, 2020 ₱1,000,000.00
PV of Remainig Payments (1M x 6.25) ₱6,250,000.00
Sales Revenue ₱7,250,000.00

3. Carrying Amount of 2020

N/R ₱9,000,000.00
Unearned Interest Income -₱2,750,000.00
Carrying Amount of 2021 ₱6,250,000.00

4. Interest Income
Carrying Amount of 2020 ₱6,250,000.00
x 8%
Interest Income for 2021 ₱500,000.00

5 Carrying Amount of 2021

N/R, Dec. 31,2020 ₱9,000,000.00
Collection on Dec. 31, 2021 -₱1,000,000.00
N/R, Dec. 31,2021 ₱8,000,000.00
Unearned Interest Income, Dec. 31, 2021 -₱2,250,000.00
Carrying Amount of 2021 ₱5,750,000.00

Unearned Interest Income ₱2,750,000.00

Interest Income for 2021 -₱500,000.00
Unearned Interest Income, Dec. 31, 2021 ₱2,250,000.00
 Date Collection Interest Income Principal Present Value
(PV x 8%) (Collection - Interest Income) (PV- Principal)
12/31/20 ₱6,250,000
12/31/21 ₱1,000,000 ₱500,000 ₱500,000 ₱5,750,000
12/31/22 ₱1,000,000 ₱460,000 ₱540,000 ₱5,210,000
12/31/23 ₱1,000,000 ₱416,800 ₱583,200 ₱4,626,800
12/31/24 ₱1,000,000 ₱370,144 ₱629,856 ₱3,996,944
12/31/25 ₱1,000,000 ₱319,756 ₱680,244 ₱3,316,700
12/31/26 ₱1,000,000 ₱265,336 ₱734,664 ₱2,582,035
12/31/27 ₱1,000,000 ₱206,563 ₱793,437 ₱1,788,598
12/31/28 ₱1,000,000 ₱143,088 ₱856,912 ₱931,686
12/31/29 ₱1,000,000 ₱74,535 ₱925,465 ₱6,221
12/31/30 ₱1,000,000 ₱993,779 ₱6,221 ₱0

Date Collection Interest Income Principal Present Value

(PV x %) (Collection - Interest Income) (PV- Principal)
Date 1 PV AMOUNT
Date 2
Date 3 X
Date 4 (Collection - X) (same amount as X) ₱0

Date Collection Interest Income Principal Present Value

(PV x 8%) (Collection - Interest Income) (PV- Principal)
1/1/2020 ₱2,616,000
1/1/2021 ₱600,000 ₱261,600 ₱338,400 ₱2,277,600
₱600,000 ₱227,760 ₱372,240 ₱1,905,360
₱600,000 ₱190,536 ₱409,464 ₱1,495,896
₱600,000 ₱149,590 ₱450,410 ₱1,045,486
₱600,000 ₱104,549 ₱495,451 ₱550,034
₱600,000 ₱49,966.00 ₱550,034.00 0

₱984,000