Intermediate Accounting 1 – NOTES
RECEIVABLE
1. Interest-Bearing Note
Feasible Company sold to another entity a tract of land costing P5,000,000 for P7,000,000 on January
1, 2016. The buyer paid P1,000,000 down and signed a two-year promissory note for the remainder of
the purchase price plus 12% interest compounded annually. The note matures on January 1, 2018.
Prepare journal entries for 2016, 2017 and 2018.
2. Non-Interest Bearing Note (Cash Price Equivalent of the Consideration is Given)
Bygone Company manufactures and sells computers. On January 1, 2016, the entity sold a computer
costing P400,000 for P600,000. The buyer signed a non-interest bearing note for P600,000 payable in
three equal instalments every December 31. The cash selling price of the computer is P540,000.
Prepare the journal entries for the current year.
3. Non-Interest Bearing Note (Ordinary Annuity)
Innovative Company manufactures and sells electrical generators. On January 1, 2016, the entity sold
an electrical generator costing P700,000 for P1,000,000. The buyer paid P100,000 down and signed a
P900,000 noninterest bearing note payable in three equal instalments every December 31.
The prevailing interest rate for a note of this type is 12%. The present value of ordinary annuity of 1
for three periods is 2.4018.
Prepare journal entries for the current year.
4. Non-Interest Bearing Note (Ordinary Annuity)
Gullible Company is a dealer in equipment. On December 31, 2016, the entity sold an equipment in
exchange for a noninterest bearing note requiring five annual payments of P500,000. The first
payment was made on December 31, 2017. The market interest rate for similar notes was 7%. The
relevant present value factors are:
PV of 1 at 8% for 5 periods
PV of an ordinary annuity of 1 at 8% for 5 periods
0.68
3.99
Required:
a. Prepare journal entries for 2016 and 2017.
b. Determine the carrying amount of the note receivable on December 31, 2017.
c. Determine the interest income for 2018.
5. Non-Interest Bearing Note
On January 1, 2016, Enigma Company 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, 2019.
There was no established exchange price for the equipment, and the note had no ready market.
The prevailing rate of interest for a note of this type at January 1, 2016 was 12%. The present value of
1 at 12% for three periods is 0.7118.
Prepare journal entries for 2016, 2017, 2018, and 2019.