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Intermediate
Accounting 1
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Notes Receivable
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Problem 6-8: On Jan. 1, 2020, Savage Company sold goods to another entity. The buyer signed a noninterest-
bearing note requiring payment of P600,000 annually for seven years. The first payment was made on Jan. 1,
2020
The prevailing rate of interest for this type of note at date of issuance was 10%
Periods Present Present value of
value of 1 at ordinary annuity of
10% at 10%
6 .56 4.36
7 .51 4.87

 What amount should be reported as sales revenue

A 3,216,000
B 2,922,000
C 2,616,000
D 2,142,000
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Problem 6-8: On Jan. 1, 2020, Savage Company sold goods to another entity. The buyer signed a noninterest-
bearing note requiring payment of P600,000 annually for seven years. The first payment was made on Jan. 1,
2020
The prevailing rate of interest for this type of note at date of issuance was 10%
Periods Present Present value of
value of 1 at ordinary annuity of
10% 1 at 10%
6 .56 4.36
7 .51 4.87

 What amount should be reported as sales revenue

A 3,216,000 First payment 1/1 600,000
B 2,922,000
PV of 6 payments (600K x 4.36) 2,616,000
C 2,616,000
D 2,142,000 Sales revenue 3,216,000
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Problem 6-9: On Dec. 31, 2020, Humility Company sold a machine to another entity in exchange for a
noninterest-bearing note requiring ten annual payments of P500,000. The buyer made the first payment on
Dec. 31, 2020.
The market interest rate for similar notes at date of issuance was 8%.
Periods Present Present value of
value of 1 at ordinary annuity of
8% 1 at 8%
9 0.50 6.25
10 0.46 6.71

 On Dec. 31, 2020, what is the carrying amount of note?

A 2,250,000
B 2,300,000
C 3,125,000
D 3,355,000
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Problem 6-9: On Dec. 31, 2020, Humility Company sold a machine to another entity in exchange for a
noninterest-bearing note requiring ten annual payments of P500,000. The buyer made the first payment on
Dec. 31, 2020.
The market interest rate for similar notes at date of issuance was 8%.
Periods Present Present value of
value of 1 at ordinary annuity of
8% 1 at 8%
9 0.50 6.25
10 0.46 6.71

 On Dec. 31, 2020, what is the carrying amount of note?

A 2,250,000
B 2,300,000
P500,000 x 6.25 = P3,125,000
C 3,125,000
D 3,355,000
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Problem 6-9: On Dec. 31, 2020, Humility Company sold a machine to another entity in exchange for a
noninterest-bearing note requiring ten annual payments of P500,000. The buyer made the first payment on
Dec. 31, 2020.
The market interest rate for similar notes at date of issuance was 8%.
Periods Present Present value of
value of 1 at ordinary annuity of
8% 1 at 8% If we replace the date to Dec 1,
9 0.50 6.25 2020 the answer would be letter
“D” (P500,000 x 6.71)
10 0.46 6.71

 On Dec. 31, 2020, what is the carrying amount of note?

A 2,250,000
B 2,300,000
P500,000 x 6.25 = P3,125,000
C 3,125,000
D 3,355,000
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End of Presentation.
Reference:
Intermediate Accounting 1a, 2019 Edition
by: Zeus Vernon B. Millan

Intermediate Accounting 1, 2020 Edition by:

Conrado T. Valix, et.al