NOTES RECEIVABLE
1. On June 1, 2013, Yola Company loaned Dale P500,000 on a 12% note, payable in five annual
installments of P100,000 beginning January 1, 2014. In connec&on with this loan, Dale was
required to deposit P5,000 in a noninterest-bearing escrow account. The amount held in escrow
is to be returned to Dale a,er all the principal and interest payments have been made.
Interest on the note is payable on the first day of each month beginning July 1, 2013. Dale made
&mely payments through November 1, 2013. On January 1, 2014, Yola received payment of the
first principal installment plus all interest due.
On December 31, 2013, what is the accrued interest receivable on the loan?
a. 0
b. 5,000
c. 10,000
d. 15,000
2. On December 31, 2013, Jet Company received two P1,000,000 notes receivable 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 Company,
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, 2013 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
What is the carrying amount of notes receivable in the December 31, 2013 statement of
financial posi&on?
Hart Maxx
a. 944,000 680,000
b. 965,200 782,000
c. 1,000,000 680,000
d. 1,000,000 782,000
3. On January 1, 2013, O9 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, 2013. The prevailing rate of interest for this type of note at date of issuance was 10%.
Informa&on 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
What amount should be recorded as sales revenue in January 2013?
a. 3,216,000
b. 2,922,000
c. 2,616,000
d. 2,142,000
4. Frame Company has an 8% note receivable dated June 30, 2013, in the original amount of
P1,500,000. Payments of P500,000 in principal plus accrued interest are due annually on July 1,
2014, 2015, 2016. In the June 30, 2015 statement of financial posi&on, what amount should be
reported as a current asset for interest on the note receivable?
a. 120,000
b. 40,000
c. 80,000
d. 0
5. On December 31, 2013, Park Company sold used equipment and received a noninterest-bearing
note requiring payment of P500,000 annually for ten years. The first payment is due December
31, 2014 and the prevailing rate of interest for this type of note at date of issuance is 12%.
Present value factors are as follows:
Present value of 1 at 12% for 10 periods 0.322
Present value of ordinary annuity of 1 at 12% for 10 periods 5.650
In the December 31, 2013 statement of financial posi&on, what is the carrying amount of the
note receivable?
a. 1,610,000
b. 2,175,000
c. 2,825,000
d. 5,000,000
6. On December 31, 2013, 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 31, 2013. The market interest rate for similar notes at date of issuance
was 8%. Informa&on on present value factors is:
Period Present value of 1 at 8% Present value of ordinary annuity of 1 at 8%
9 .50 6.25
10 .46 6.71
In the December 31, 2013 statement of financial posi&on, what is the carrying amount of the
note receivable?
a. 450,000
b. 460,000
c. 625,000
d. 671,000
7. Pangasinan Company is a dealer in equipment. On December 31, 2013, the en&ty 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, 2014. The market interest for similar
notes was 8%. The PV of 1 at 8% for 5 periods is .68, and the PV of an ordinary annuity of 1 at 8%
for 5 periods is 3.99.
1) On December 31, 2013, what is the carrying amount of the note receivable?
a. 2,500,000
b. 1,995,000
c. 1,700,000
d. 1,495,000
2) What interest income should be reported for 2014?
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, 2014?
a. 1,654,600
b. 2,000,000
c. 2,154,600
d. 1,495,000
8. On December 31, 2013, Flirt Company sold for P3,000,000 an old equipment having an original
cost of P5,400,000 and carrying amount of P2,400,000. The terms of the sale were P600,000
down payment and P1,200,000 payable each year on December 31 of the next two years. The
sale agreement made no men&on of interest. However, 9% would be a fair rate for this type of
transac&on. The present value of an ordinary annuity of 1 at 9% for two years is 1.76.
1) What is the interest income for 2014?
a. 216,000
b. 190,080
c. 108,000
d. 106,000
2) What is the carrying amount of the note receivable on December 31, 2014?
a. 1,200,000
b. 1,102,080
c. 2,302,080
d. 1,009,920
9. On June 30, 2013, Pink Company sold goods for P5,000,000 and accepted the customer’s 10%
one-year note in exchange. The 10% interest rate approximates the market rate of return. What
amount should be reported as interest income for the year ended December 31, 2013?
a. 500,000
b. 250,000
c. 125,000
d. 0
10. On June 30, 2013, Green Company accepted a customer’s P2,500,000 noninterest-bearing one-
year note in a sale transac&on. The product sold normally sells for P2,300,000. What amount
should be reported as interest revenue for the year end December 31, 2013?
a. 200,000
b. 100,000
c. 250,000
d. 0
11. On January 1, 2013, Emme Company sold equipment with a carrying amount of P4,800,000 in
exchange for a P6,000,000 noninterest-bearing note due January 1, 2016. There was no
established exchange price for the equipment. The prevailing rate of interest for a note of this
type on January 1, 2013 was 10%. The present value of 1 at 10% for three periods is 0.75.
1) In the 2013 income statement, what amount should be reported as interest income?
a. 90,000
b. 450,000
c. 500,000
d. 600,000
2) In the 2013 income statement, what amount should be reported as gain or loss on sale of
equipment?
a. 300,000 loss
b. 300,000 gain
c. 1,200,000 gain
d. 2,700,000 gain