GV Anika A.

Diampoc BSA 1

Chapter 5: Notes Receivable

PROBLEMS

Problem 1: TRUE OR FALSE

_FALSE_1. Interest receivable is computed by multiplying the carrying amount of a note by the effective
interest rate.

_FALSE_2. On Jan. 1, 20x1, Crybaby Co. received a noninterest-bearing note with face amount of P2M
and approximately recognized it at P1,241,843. The note matures in lump sum on Dec. 31, 20x5. The
effective interest is 10%. The unamortized discount on Dec 31, 20x2 is P497,370.

_TRUE_3. Raining Co. receives a 3-year, noninterest-bearing note of P1,000,000. Raining Co. determines
that the effective interest rate on the transaction 10%. The initial carrying amount of the note receivable
is computed as: P1,000,000 x PV of 1 @ 10%, n=3.

_FALSE_4. Wet Co. receives a noninterest-bearing note if P3,000,000. The note is collectible in three
equal annual installments of P1,000,000, due at the end of each year. Wet Co. determines that the
effective interest rate on the transaction is 10%. The initial carrying amount of the note receivable is
computed as P1,000,000 x PV of 1 @10%, n=3.

_TRUE_5. Fold Co. receives a 2-year, noninterest-bearing note of P1,200,000 in exchange for the sale of a
commodity. If the customer had paid in cash at the sale date, the purchase price would have been
P800,000. At initial recognition, Fold Co. records unearned interest of P400,000.

_FALSE_6. Bind Co. receives a 2-year, noninterest bearing note of P500,000 from the sale of equipment
with a cash price of P400,000. The note requires lump sum payment at maturity date. Bind Co.
determines that the effective interest rate on the transaction is 10%. The interest income in Year 1 is
P50,000.

_TRUE_7. Cut Co. receives a long-term, noninterest-bearing note of P100,000. The note requires a lump
sum payment at maturity date. Cut Co. determines that the effective interest rate on the transaction is
10% while the appropriate present value factor is 0.90. the interest income in Year 1 is P9,000.

_TRUE_8. Use the information in the preceding problem (i.e., Cut Co.). The interest income in Year 2 is
P9,900.

_FALSE_9. Bond Co. receives a P1,000,000, noninterest-bearing note that is collectible in installments.
On initial recognition, the carrying amount of the note was P900,000. If the amortization of the note
during the period is P50,000, the carrying amount of the note at the end of the period must be
P950,000.

_TRUE_10. Pawn Co. receives a P1,200,000, noninterest-bearing note that is collectible in installments.
On initial recognition, the carrying amount of the note was P900,000. At the end of Year 1, the carrying
amount of the note was P800,000, the amortization of the note in Year 1 must be P100,000.
PROBLEM 2: MULTIPLE CHOICE – THEORY

__C__1. Which of the following statements is incorrect?

a. Receivables other than trade receivables are initially recognized at fair value plus transaction
costs
b. Unearned interest income on a receivable is treated as contra-asset asset account rather
than a liability
c. A short - term, non - trade receivable may nevertheless be discounted if it clearly contains a
financing component.
d. All interest - bearing notes need not be discounted.

__A__2. The concept that best supports the discounting of notes to their present value is

a. time value of money

b. matching
c. accrual basis
d. legal form over substance

__C__3. Which of the following rates is used to compute for interest income on receivable?

a. Stated rate
b. Nominal rate
c. Effective interest rate
d. Coupon rate

__A__4. Railing Co. obtained a 4-year, P600,000, noninterest-bearing note that requires payment in lump
sum at maturity date. Railing determined that the effective interest rate on the note is 12%. Which of the
following statements is incorrect?

a. Railing Co. will most likely measure the note on initial recognition by multiplying the face
amount of the note by PV of 1 @12%, n=4.
b. Railing Co. will most likely measure the note on initial recognition by multiplying the face
amount of the note by PV of ordinary annuity 1 @12%, n=4.
c. Railing Co. will most likely measure the note on initial recognition by multiplying the face
amount of the note by PV of an annuity due of 1 @12%, n=4.
d. Any of these as an accounting policy choice.

__C__5. On May 1 of this year, a company received a one-year note receivable bearing interest at the
market rate. The face amount of the note receivable and the entire amount of the interest are due on
April 30 of next year. At December 31 of this year, the company should report on its balance sheet:

a. No interest receivable
b. A deferred credit for credit for interest applicable to next year.
c. Interest receivable for the interest accruing this year.
d. Interest receivable for the entire amount of the interest due on April 30 of the next year.
__C__6. Drops Co. receives a 3-year, P600,000, noninterest-bearing note that requires three equal
annual payments at the end of each year. The effective interest rate on the note is 14%. How should
Drops Co. measure the note on initial recognition?

a. P600,000 x PV of ordinary annuity of 1 @14%, n=3

b. P600,000 x PV of 1 @14%, n=3
c. P200,000 x PV of ordinary annuity of 1 @14%, n=3
d. P200,000 x PV of an annuity due of 1 @14%, n=3

__A__7. An entity receives a three-year, P1M noninterest-bearing note that matures in lump sum
payment. The effective interest rate is 12%. Which of the following is incorrect?

a. The measurement of the note on initial recognition is computed as P1M x PV of an ordinary

annuity of 1 @12%, n=4.
b. No interest income shall be recognized on the note because it is noninterest-bearing.
c. The amortized cost of the note increases each year.
d. The amortized cost of the note decreases each year.

___D__8. An entity receives a three-year, P1M noninterest-bearing note that matures in three equal
annual payments due at the end of each year. The effective interest rate on the note is 12%. Which of
the following is incorrect?

a. The measurement of the note on initial recognition is computed as P1M x PV of an ordinary

annuity of 1 @12%, n=4.
b. No interest income shall be recognized on the note because it is noninterest-bearing.
c. The amortized cost of the note increases each year.
d. The amortized cost of the note decreases each year.

___D__9. A company received two one-year notes in payment for merchandise sold. One note has a face
amount of P6,000 and was interest-bearing at an annual rate of 18 percent. The other note has a face
amount of P7,080 and was non-interest-bearing (its implied interest rate was 18 percent).

a. The total amount of cash ultimately to be received will be more for the interest-bearing note.
b. Both notes will cause the same total interest to be recognized.
c. The amount of interest revenue which should be recognized is more for the interest-bearing
note.
d. The amount which should be credited to sales revenue is more for the noninterest-bearing note.

___B__10. On March 1, 20x1, Nickelodeon Co. received a 12% note dated January 1, 20x1. Principal and
interest on the note are due on July 1, 20x1. On initial recognition, which of the following accounts
increased?

a. Prepaid interest
b. Interest receivable
c. Unearned interest income
d. Interest revenue
PROBEM 3: EXERCISES

1. On January 1, 20x1, Lala Bus Co. received a 4-year, noninterest bearing note of P1,000,000 in
exchange for land with carrying amount of P500,000. The note is due on December 31, 20x4. The
effective interest rate is 14%.
Requirements:
a. Prepare the amortization table.

Interest Unearned Present

Date Income interest Value PV of 1 @14%, n = 1.14^-4 =
Jan. 1, 20x1 407,920 592,080 0.592080
Dec 31, 20x1 82,891 325,029 674,971
1,000,000 * 0.592080 = 592,080
Dec. 31, 20x2 94,496 230,533 769,467 1,000,000 – 592,080 = 407,920
Dec. 31, 20x3 107,725 122,808 877,192
1,000,00
Dec. 31, 20x4 122,808 0

b. Provide all the necessary journal entries.

Jan. 1, 20x1 Notes Receivable 1,000,000

Loss on sale of land (squeeze) (7,920)
Land 500,000
Unearned interest income 407,920
Dec. 31, 20x1 Unearned interest income 82,891
Interest Income 82,891
Dec. 31, 20x2 Unearned interest income 94,496
Interest Income 94,496
Dec. 31, 20x3 Unearned interest income 107,725
Interest Income 107,725
Dec. 31, 20x4 Unearned interest income 122,808
Interest Income 122,808
Dec. 31, 20x4 Cash 1,000,000
Note Receivable 1,000,000

2. On January 1, 20x1, Meow Co. received a 3-year, noninterest bearing note of P900,000 in exchange
for machinery with historical cost of P1,200,000 and accumulated depreciation of P400,000. The
note is due on December 31, 20x3. The effective interest rate is 12%.
Requirements:
a. Prepare the amortization table.

Interest Unearned Present PV of 1 @12%, n = 1.12^-3 =

Date Income interest Value
0.711780
Jan. 1, 20x1 259,398 640,602
Dec 31, 20x1 76,872 182,526 717,474 900,000 * 0.711780 = 640,602
Dec. 31, 20x2 86,097 96,429 803,571 900,000 – 640,602 = 259,398
 Dec. 31, 20x3 96,429 900,000

b. Provide all the necessary journal entries.

Jan. 1, 20x1 Notes Receivable 900,000

Accumulated depreciation 400,000
Loss on sale of machinery (squeeze) 159,398
Machinery 1,200,000
Unearned interest income 259,398
Dec. 31, 20x1 Unearned interest income 76,872
Interest Income 82,891
Dec. 31, 20x2 Unearned interest income 86,097
Interest Income 86,097
Dec. 31, 20x3 Unearned interest income 96,429
Interest Income 96,429
Dec. 31, 20x3 Cash 900,000
Note Receivable 900,000

3. On January 1, 20x1, Spidah Co. received a P1,000,000, noninterest bearing note in exchange for land
with carrying amount of P1,000,000. The note is due in four equal annual installments every
December 31. The effective interest rate is 12%.
Requirements:
a. Prepare the amortization table.

Collectio Interest AmortizatioPresent

Date n Income n Value Annual installment = 1M/4 = 250,000
759,33
PV of ordinary annuity of 1 @12%, n
Jan. 1, 20x1 7
= ((1.12) ^ -4 - 1)/12% = 3.037349
250,000 600,45
Dec 31, 20x1 91,120 158,880 8 250,000 * 3.037349 = 759,337
Dec. 31, 250,000 422,51 1,000,000 – 759,337 = 240,633
20x2 72,055 177,945 3
Dec. 31, 250,000 223,21
20x3 50,702 119,298 4
Dec. 31, 250,000
20x4 26,786 223,214 0

b. Determine the current and non-current portions of the note on December 31, 20x1.

Collectio Interest AmortizatioPresent

Date n Income n Value
759,33
Jan. 1, 20x1 7
250,000 600,45
Dec 31, 20x1 91,120 158,880 8
Dec. 31, 250,000 422,51
20x2 72,055 177,945 3
Dec. 31, 250,000 50,702 119,298 223,21
 20x3 4
Dec. 31, 250,000
20x4 26,786 223,214 0

Current portion of notes receivable 177,945

Noncurrent portion of notes receivable 422,513
Carrying amount of notes receivable – Dec. 31, 20x1 600,458
_______________________________________

c. Provide all the necessary journal entries.

Jan. 1, 20x1 Notes Receivable 1,000,000

Loss on sale of land (squeeze) 240,663
Land 1,000,000
Unearned interest income 240,663

Simple Entries

Dec. 31, 20x1 Cash 250,000

Notes Receivable 250,000
Dec. 31, 20x2 Unearned interest income 91,120
Interest Income 91,120

Compound Entries

Dec. 31, 20x2 Cash 250,000

Unearned interest income 72,055
Note Receivable 250,000
Interest Income 72,055
Dec. 31, 20x3 Cash 250,000
Unearned interest income 50,702
Note Receivable 250,000
Interest Income 50,702
Dec. 31, 20x4 Cash 250,000
Unearned interest income 26,786
Note Receivable 250,000
Interest Income 26,786

4. On January 1, 20x1, Wotah Co. received a P1,200,000, noninterest bearing note in exchange for land
with carrying amount of P1,000,000. The note is due in three equal annual installments every
December 31. The effective interest rate is 15%.
Requirements:
a. Prepare the amortization table.

Collection Interest Present Annual installment = 1.2M/3 =

Date Income Amortization Value 400,000
Jan. 1, 20x1 913,290 PV of ordinary annuity of 1 @15%, n
= ((1.15) ^ -3 - 1)/15% = 2.283225

400,000 * 228.322512 = 913,290

1,200,000 – 913,290 = 286,710
 Dec 31, 20x1 400,000 136,994 263,006 650,284
Dec. 31, 20x2 400,000 97,542 302,458 347,826
Dec. 31, 20x3 400,000 52,174 347,826 0

b. Determine the current and non-current portions of the note on December 31, 20x1.

Collection Interest Present

Date Income Amortization Value
Jan. 1, 20x1 913,290
Dec 31, 20x1 400,000 136,994 263,006 650,284
Dec. 31, 20x2 400,000 97,542 302,458 347,826
Dec. 31, 20x3 400,000 52,174 347,826 0

Current portion of notes receivable 302,458

Noncurrent portion of notes receivable 347,826
Carrying amount of notes receivable – Dec. 31, 20x1 650,284
_______________________________________

c. Provide all the necessary journal entries.

Jan. 1, 20x1 Notes Receivable 1,200,000

Loss on sale of land (squeeze) 86,710
Land 1,000,000
Unearned interest income 286,710

Simple Entries

Dec. 31, 20x1 Cash 400,000 400,000

Notes Receivable
Dec. 31, 20x2 Unearned interest income 136,994
Interest Income 136,994

Compound Entries

Dec. 31, 20x2 Cash 400,000

Unearned interest income 97,542
Note Receivable 400,000
Interest Income 97,542
Dec. 31, 20x3 Cash 400,000
Unearned interest income 52,174
Note Receivable 400,000
Interest Income 52,174

5. On January 1, 20x1, Sistah Co. sold a piece of land with carrying amount of P800,000 in exchange for
P100,000 cash and P900,000, noninterest bearing note, due in three equal annual installments of
P300,000 beginning Jan. 1, 20x1, every Jan. 1 thereafter. The effective interest rate is 9%.
Requirements:
 a. Prepare the amortization table.
Annual installment = 900K/3 =
Collection Interest Present 300,000
Date Income Amortization Value
Jan. 1, 20x1 827,733 PV of an annuity due of 1 @9%, n =
Jan. 1, 20x1 300,000 - 300,000 527,733 (3-1) = {((1.09) ^ -2 - 1)/9%} - 1 =
Jan. 1, 20x2 300,000 47,496 252,504 275,229 2.759111
Jan. 1, 20x3 300,000 24,770 275,229 0
300,000 * 2.759111= 827,733
900,000 – 913,290 = 81,267
b. How much is the interest income recognized in 20x1?
As of 20x1, the interest income is 0 as shown in the table above.
c. Provide all the necessary journal entries.

Jan. 1, 20x1 Cash 100,000

Notes Receivable 900,000
Loss on sale of land (squeeze) (127,734)
Land 800,000
Unearned interest income 72,266
Jan. 1, 20x1 Cash 300,000
Notes Receivable 300,000
Dec. 31, 20x1 Unearned interest income 47,496
Interest Income 47,496
Jan. 1, 20x2 Cash 300,000
Notes Receivable 300,000

6. Help the inexperienced accountant of Alaialipaw Co. reconstruct the information required in the
numbered blanks:
Face Amount (1) 1,600,000
Unearned interest at initial recognition (2) 480,728
Effective interest rate (3) 16%
Term of the note (in years) (4) 4

Date Collections Interest income Amortization Present Value

1/1/x1 1,119,272
12/31/x1 400,000 179,084 (5) 220,916 898,356
12/31/x2 400,000 (6) 143,737 256,263 (7) 642,093
12/31/x3 400,000 102,735 (8) 297,265 344,827
(9) 12/31/x4 400,000 (10) 55,173 344,828 0

7. The current and noncurrent portions of Baa-baa Co.’s note receivable at the end of the 1 st year are
P213,534 and P507,015, respectively. The note is collectible in four equal annual payments of
P300,000 every Dec 31. Baa-baa Co. reported interest income of P86,466 in the 2 nd year. The note
was initially recognized at P911,205 on Jan. 1 of Year 1.
Requirements:
Prepare a complete amortization table for the note above.

Date Collections Interest income Amortization Present Value

 1/1/x1 911,205
12/31/x1 300,000 109,344 190,656 720,549
12/31/x2 300,000 86,466 213,534 507,015
12/31/x3 300,000 60,842 239,158 267,857
12/31/x4 300,000 32,141 267,857 0

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

_______1. On Jan. 1, 20x1, Call Co. received a 10% note with face amount of P1,200,000. Both principal
and compounded interests are due on January 1, 20x4. How much interest receivable is reported on the
December 31, 20 * 2 statement of financial position?

a. 132,000
b. 120, 000
c. 168, 000
d. 252,000

_______2. Frame Co. has an 8 % note receivable dated June 30, 20x4, in the original amount of
P150,000. Payments of P50,000 in principal plus accrued interest are due annually on July 1, 20x5, 20x6,
and 20x7. In its June 30, 20x6, balance sheet, what amount should Frame report as a current asset for
interest on the note receivable?

a. 0
b. 4, 000
c. 8, 000
d. 12, 000

______3. On January 1, 20x4, Melanie Co. sold a building, 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, 20x7. There was no established exchange price for the building, and the note had
no ready market. The prevailing rate of interest for a note of this type at January 1, 20x4, was 10%. What
amount of interest income should be included in Melanie's 20x4 income statement?

a. O
b. 30,053
c. 35,053
d. 40,109

______4. On January 2, 20x3, Zyrus Co. sold equipment with a carrying amount of P480,000 in exchange
for a P600,000 noninterest bearing note due January 2, 20X6. There was no established exchange price
for the equipment. The prevailing rate of interest for a note of this type at January 2, 20x3 was 10%. In
Zyrus’ 20x3 income statement, what amount should be reported as gain (loss) on sale of machinery?

a. (30, 000) loss

b. 30,000 gain
c. 120, 000 gain
 d. 270, 000 gain

______5. On January 1, 20x1, Vale Co. sold transportation equipment with a historical cost of
P20,000,000 and accumulated depreciation of P7,000,000 in exchange for cash of P500,000 and a
noninterest - bearing note receivable of P8,000,000 due in 4 equal annual installments starting on
December 31, 20xl and every December 31 thereafter. The prevailing rate of interest for this type of note
is 12 %. How much are the (1) interest income in 20x1, (2) current portion of the note on Dec. 31 20x1,
and (3) carrying amount of the note on Dec. 31,20x2 respectively?

a. 728,964; 1,271,036; 4,803,663

b. 576,964; 1,423,560; 3,380,102
c. 728,964; 1,423,560; 3,380,103
d. 728,964; 1,423,560; 1,785,714

_____6. Puppy Co. received a non- interest bearing note with face amount of P1,000,00 from a customer
on Jan. 1, 20x1. The note is due in five equal annual installments every Dec. 31. The effective interest
rate is 12%. How much is the current portion of the note on Dec 31, 20x2?

a. 127,104
b. 72,896
c. 137,389
d. 142, 356

______7. The current and noncurrent portions of Rainy Morning Co.'s noninterest-bearing note
receivable on Dec. 31, 20x1 are P127,104 and P480,366, respectively. The note has a face amount of
P1M, is dated Jan 1, 20x1 and is due in 5 equal annual installments every Dec. 31. Rainy Morning Co.
reported interest income of P86,515 in 20x1 and P72,876 in 20x2. How much is unamortized discount on
the note on Dec. 31, 20x3?

a. 661,990
b. 756,224
c. 56,224
d. 61,990

_____8. On Jan. 1, 20x1, Meeting Co. received a noninterest-bearing note with face amount of
P1,000,000, due in five equal annual installments starting on Jan 1, 20x1 and every 1 st of January
thereafter. The current rate on Jan. 1 20x1 was 12%. How much are the interest income in 20x1 and the
carrying amount of the note on Dec. 31, 20x1, respectively?

a. 72,896; 607,470
b. 72,896; 480,366
c. 72,896; 680,366
d. 57,644; 338,010

_____9. On Jan 1, 20x1 Pakbet Co. received a 3-year, noninterest bearing note with the face amount of
P2,100,000 due in equal semi-annual payments every July 1 and December 31. The semi-annual interest
rate is 10%. How much are the interest income in 20x1 and the carrying amount of the note on Dec. 31.
20x1, respectively?
 a. 164,591; 1,241,083
b. 88,825; 1,241,083
c. 124,591; 1,612,083
d. 164,591; 1,515,317

_____10. On Jan. 1, 20x1, Parya Co. received a 3-year, P900,000 noninterest-bearing note receivable due
as follows: P400,000 on Dec. 31, 20x1, P300,000 on Dec. 31, 20x2, and P200,000 on Dec. 31, 20x3. The
prevailing rate of interest for this type of note is 10 %. How much is the carrying amount of the
receivable on Dec. 31, 20x1?

a. 467,354
b. 438, 016
c. 376, 345
d. 428, 346

____11. On Jan. 1 20x1, Tarong Co. sold goods on installment at an installment price of P2,370,470 and
received a three-year noninterest-bearing note for the same amount. If paid outright, the cash selling
price would have been P1,600,000. How much is the carrying amount of the note on Dec 31, 20x2?

a. 1,824,000
b. 1,924,320
c. 2,045,674
d. 2,079,360

____12. On January 1, 20x1, Bark Co. sold machinery with historical cost of P5,000,000 and accumulated
depreciation of P1,900,000 in exchange for a 3- year, 3%, P3,000,000 note receivable. Principal is due on
January 1, 20x4 but interest is due annually every December 31. The prevailing interest rate for this type
of note is 12%. How much is the carrying amount of the receivable on December 31, 20x1?

a. 2, 159, 324
b. 2, 249,324
c. 2, 543, 685
d. 3,000,000

_____13. On January 1, 20x1, Tank Co. sold machinery with historical cost of P2,000,00 and accumulated
depreciation of P950,000 in exchange for a 3- year, P1,200,000 note receivable. Principal and 3%
compounded interest are due on January 1, 20x4. The prevailing interest rate for this type of note is 12%.
How much is the carrying amount of the receivable on initial recognition date?

a. 1, 311, 272
b. 2, 000, 000
c. 933, 337
d. 854,136

_______14. Devin Co. sold to Andre Co. a P20,000, 8%, 5-yearnote that required five equal annual year
end payments. This note was discounted to yield a 9% rate to Andre. What should be the total interest
revenue earned by Andre on this note?

a. 9,000
 b. 8,000
c. 5,560
d. 5,050

_____15. On Jan. 1 20x1, Tiles Co. received a P2.4M noninterest - bearing note from a customer due as
follows: Jan. 1, 20x4, P800,000; Jan 1, 20x5, P800,000; and Jan. 1, 20x6, P800,000. The effective interest
rate is 12 %. How much are the carrying amounts of the note on Jan. 1, 20x1 and Jan. 1, 20x4,
respectively?

a. 1,531,779; 1,186,210
b. 1,531,779; 1,352,039
c. 1,476,798; 1, 239,071
d. 1,476,798; 1,352,039

PROBLEM 5: CLASSROOM ACTIVITIES

Activity 1:

Instructions:

1. Find a study partner

2. Each study partner shall make his/her OWN assumptions in filling up the blanks below. DO NOT
discuss your assumptions with your study partner.
Face amount of note:
Type of note:
Type of cash flow:
Date of note:
Maturity date:
Effective interest rate:
*The maximum term is 5 years.
3. Prepare the amortization table for your promissory note.
4. Prepare ALL the journal entries. Assume the note is received in exchange for sales.
5. Show your assumptions to your study partner but DO NOT show your amortization table and
journal entries. Let him/her answer the requirements then check his/her answer. The maximum
score is 5 points. Each mistake corresponds to 1-point deduction. The minimum score is 0.
6. Pass your scores to your teacher for recording

Activity 2:

Instructions: Same as those in Activity 1 above.

Face amount of note:

Type of note:
Type of cash flow:
Date of note:
Maturity date:
Effective interest rate:
 *The maximum term is 5 years.

Activity 3:

(Note: this activity is OPTIONAL. It requires the USE OF A COMPUTER.)

We will prepare an amortization table for the note below using Microsoft Excel.

Activity 4:

PROBLEM 6: FOR CLASSROOM DISCUSSION

Noninterest-bearing note –lump sum

1. On January 1, 20x1, Candle Co. received a 3-year, noninterest bearing note of P133,100 in
exchange for land with carrying amount of P100,000. The note is due on December 31, 20x3.
The effective interest rate is 10%

Requirements:

a. Prepare the amortization table.

b. Provide all necessary journal entries.

Noninterest-bearing note – installments

2. On January 1, 20x1, Stand Co. received a 3-year, noninterest bearing note of P300,000 in
exchange for land with historical cost of P1,000,000 and accumulated depreciation of P700,000.
The note is due in three equal annual installments of P100,000 every December 31. The effective
interest rate is 10%

Requirements:

a. Prepare the amortization table.

b. Determine the current and non-current portions of the note on December 31, 20x1.

c. Determine the balance of unearned interest income (discount on note receivable) on

December 31, 20x1.

d. Provide all necessary journal entries.

e. What is the net effect of the transaction in Stand Co.’s 20x1 profit or loss?

Noninterest-bearing note – installment in advance

3. On January 1, 20x1, Otters Co. received a 3-year, noninterest bearing note of P1,200,000 in
exchange for equipment with historical cost of P2,000,000 and accumulated depreciation of
P700,000. The note is due three equal annual installations beginning on January 1, 20x1 and
every January 1 thereafter. The effective interest rate is 10%

Requirements:

a. Prepare the amortization table.

b. How much is the interest income in 20x1?

c. How much is the carrying amount of the receivable on Dec. 31, 20x1?