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Practice Notes Receivable

This document contains 6 practice problems related to accounting for notes receivable. The problems cover topics such as: - Determining the present value of notes receivable using market interest rates - Calculating interest income for notes receivable over multiple periods - Recognizing gains or losses on sales transactions involving notes receivable The problems provide information like note terms, market interest rates, and present value factors to calculate the appropriate accounting entries and balances.

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Martha Nicole Maristela
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30K views4 pages

Practice Notes Receivable

This document contains 6 practice problems related to accounting for notes receivable. The problems cover topics such as: - Determining the present value of notes receivable using market interest rates - Calculating interest income for notes receivable over multiple periods - Recognizing gains or losses on sales transactions involving notes receivable The problems provide information like note terms, market interest rates, and present value factors to calculate the appropriate accounting entries and balances.

Uploaded by

Martha Nicole Maristela
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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PRACTICE: NOTES RECEIVABLE

PROBLEM 1

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

The market interest rate for similar notes was 8%

PV of 1 at 8% for 5 periods 0.68

PV of an ordinary annuity of 1 at 8% for 5 periods 3.99

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


a. 2,500,000
b. 1,995,000
c. 1,700,000
d. 1,495,000

2. What amount of interest income should be reported for 2021?


a. 505,000
b. 101,000
c. 159,600
d. 119,600

3. What is the carrying amount of the note receivable on December 31, 2021?
a. 1,654,600
b. 2,154,600
c. 2,000,000
d. 1,495,000

4. What amount of interest income should be reported for 2022?


a. 132,368
b. 172,368
c. 160,000
d. 200,000
PROBLEM 2

On December 31, 2020, Precious Company sold an equipment with carrying amount of P2,000,000 and
received a noninterest-bearing note requiring payment of P500,000 annually for ten years. The first
payment is due December 31, 2021.

The prevailing rate of interest for this type of note at date of issuance is 12%.

PV of 1 at 12% for 10 periods 0.322

PV of ordinary annuity of 1 at 12% for 10 periods 5.650

1. On December 31, 2020, what is the carrying amount of the note receivable?
a. 5,000,000
b. 2,175,000
c. 1,610,000
d. 2,825,000

2. What is the gain on sale of equipment to be recognized in 2020?


a. 3,000,000
b. 2,175,000
c. 825,000
d. 0

3. What amount of interest income should be recognized for 2021?


a. 600,000
b. 339,000
c. 319,800
d. 300,000

4. What is the carrying amount of the note receivable on December 31, 2021?
a. 2,325,000
b. 4,500,000
c. 2,825,000
d. 2,664,000
PROBLEM 3

Frame Company has an 8% note receivable dated June 30, 2018, in the original amount of P1,500,000.
Payments of P500,000 in principal plus accrued interest are due annually on July 1, 2019, 2020 and 2021.
In its June 30, 2020 balance sheet,
What amount should Frame report as a current asset for interest on the note receivable?
a. 120,000
b. 40,000
c. 80,000
d. 0

PROBLEM 4

On December 31, 2020, Jet Company received two P1,000,000 notes receivables from customers in
exchange for services rendered. On both notes, interest is calculated on the outstanding principal balance
at the annual rate of 3% and payable at maturity. The note from Hart Corporation, made under customary
trade terms, is due in nine months and the note from Maxx Company is due in five years. The market
interest rate for similar notes on December 31, 2020 was 8%. The compound interest factors to convert
future value into present value at 8% follow:
Present value of 1 due in nine months .944
Present value of 1 due in five years .680

At what amounts should these two notes receivable be reported in Jet’s December 31, 2020 balance
sheet?
Hart Maxx
a. 944,000 680,000
b. 965,200 782,000
c. 1,000,000 680,000
d. 1,000,000 782,000

PROBLEM 5

On January 1, 2020 Ott Company sold goods to Fox Company. Fox signed a noninterest-bearing note
requiring payment of P600,000 annually for seven years. The first payment was made on January 1, 2020.
The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present
value factors is as follows:
Period Present value of 1 at 10% Present value of ordinary
annuity of 1 at 10%
6 .56 4.36
7 .51 4.87
Ott should record sales revenue in January 2020 of
a. 3,216,000
b. 2,922,000
c. 2,616,000
d. 2,142,000
PROBLEM 6

On December 30, 2020, Chang Company sold a machine to Door Company in exchange for a noninterest
bearing note requiring ten annual payments of P100,000. Door made the first payment on December 30,
2020. The market interest rate for similar notes at date of issuance was 8%. Information on present value
factors is:
Present value Present value of ordinary annuity
Period of 1 at 8% of 1 at 8%
9 0.50 6.25
10 0.46 6.71
In its December 31, 2020 balance sheet, what amount should Chang report as note receivable?
a. 450,000
b. 460,000
c. 625,000
d. 671,000

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