Loans and Receivables Long Term

PROBLEMS
1. Smart Company has P3,000,000 note receivable from sale of plant bearing interest at 12% per annum. The note is dated June 1, 2008. The note is payable in 3 annual installments of P1,000,000 plus interest on the unpaid balance every June 1. The initial principal and interest payment was made on June 1, 2009. The interest income for 2009 is a. P300,000 b. P290,000 1. c. P210,000 d. P140,000 1. 1. How much should be recognized as gain on sale of machine? a. P10,000 c. P5,182 b. P14,818 d. P 0 How much should be recognized as interest income in 2010 related to above transaction? a. P3,166 c. P4,066 b. P2,415 d. P 0 P30 Kieso TB 11th- AMP On December 30, 2009, Chang Co. sold a machine to Door Co. in exchange for a noninterest-bearing note requiring ten annual payments of P10,000. Door made the first payment on December 30, 2009. The market interest rate for similar notes at date of issuance was 8%. Information on present value factors is as follows: Period 9 10 Present Value of 1 at 8% 0.50 0.46 Present Value of Ordinary Annuity of 1 at 8% 6.25 6.71

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rro Trans Company sold a tract of land to Former Co. on July 1, 2009, for P8,000,000 under an installment sale contract. Former Co. signed a 4-year 11% note for P5,600,000 on July 1, 2009, in addition to the down payment of P2,400,000. The equal annual payments of principal and interest on the note will be P1,805,000 payable on July 1, 2010, 2011, 2012,and 2013. The land had an established cash price of P8,000,000, and its cost to the company was P6,000,000. The collection of the installments on this note is reasonably assured. The current portion of the installment note receivable on December 31, 2010 is a. P1,805,000 c. P1,319,790 b. P1,400,000 d. P1,189,000 rro

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At the beginning of 2007, Marcos Company received a three-year non-interest-bearing P1,000,000 trade note. Marcos reported this note as a P1,000,000 trade note receivable on its 2007 year-end statement of financial position and P1,000,000 as sales revenue for 2007. What effect did this accounting for the note have on Marcos's profit for 2007, 2008, 2009, and its retained earnings at the end of 2009, respectively? a Overstate, overstate, understate, no effect b Overstate, understate, understate, no effect c Overstate, understate, understate, understate d No effect, no effect, no effect, no effect Pagudpud Company received a seven-year zerointerest-bearing note on February 22, 2009, in exchange for property it sold to Rear Company. There was no established exchange price for this property and the note has no ready market. The prevailing rate of interest for a note of this type was 7% on February 22, 2009, 7.5% on December 31, 2009, 7.7% on February 22, 2010, and 8% on December 31, 2010. What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2009 and 2010, respectively? a. 0% and 0% c. 7% and 7% b. 7% and 7.7% d. 7.5% and 8%

In its December 31, 2009 statement of financial position, what amount should Chang report as note receivable? a. P45,000 c. P62,500 b. P46,000 d. P67,100 AICPA 0595 F-8 1. On December 31, 2008, Sadanga Company finished consultation services and accepted in exchange a promissory note with a face value of P300,000, a due date of December 31, 2011, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. The carrying amount of the note receivable as of December 31, 2009 is a. P300,000 c. P262,694 b. P273,963 d. P247,920 1. On December 31, 2009, Paoay Company received two P5,000,000 notes receivable from customers in exchanged for consulting services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 4% and payable at maturity. The note from Pok Corporation, made under customary trade terms, is due on October 1, 2010 and the note from Wang Corporation is due on December 31, 2014. The market interest rate for similar notes on December 31, 2009 was 10%. The compound interest factors to convert future value into present value at 10% follow: present value of 1 due in nine months, 0.93, and present value of 1 due in five years, 0.62. At what amounts should these two notes receivable be reported in Paoays December 31, 2009 statement of financial position? Pok Wang a. P4,650,000 P3,100,000 b. P5,000,000 P3,720,000 c. P5,000,000 P3,100,000 d. P4,836,000 P3,720,000

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Use the following information for the next two questions. On December 31, 2009, Wolfgang Corporation sold for P50,000 an old machine having an original cost of P90,000 and a carrying amount of P40,000. The terms of the sale were as follows: 1) P10,000 down payment; and 2) P20,000 payable on December 31 each of the next two years. The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction.

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Use the following information for the next two questions. 1. On January 1, 2009, Comforter Company sold equipment with a carrying amount of P800,000 to Cold Company. As payment, Cold gave Comforter Company a P1,200,000 note. The note bears an interest rate of 5% and is to be repaid in three annual installments of P400,000 (plus interest on the outstanding balance). The first payment was received on December 31, 2009. The market price of the equipment is not reliably determinable. The prevailing rate of interest for notes of this type is 10%. The interest income to be recognized in 2010 is a. P 40,000 c. P 74,708 b. P 69,587 d. P109,735 Money Bank granted a loan to a borrower on January 1, 2009. The interest rate on the loan is 10% payable annually starting December 31, 2009. The loan matures in five years on December 31, 2013. The data related to the loan are: Principal amount Direct origination cost Indirect origination cost Origination fee received from borrower 1. P4,000,000 61,520 26,400 350,000

The effective interest rate of the loan is a. P10% c. P12% b. P11% d. P13% The carrying amount December 31, 2009 is a. P4,000,000 b. P3,807,730 of the loan receivable on

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c. P3,756,902 d. P3,711,520

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On January 1, 2009, Boy Company sold a machine to Bawang Company. Bawang signed a non-interestbearing note requiring payment of P30,000 annually for seven years. The first payment was made on January 1, 2009. The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present value factors is as follows: Present value of Present value of 1 ordinary annuity of 1 at 10% at 10% .56 4.36 .51 4.87

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On December 31, 2008, Bottle Company sold used equipment to Glass Corp. and received a noninterestbearing note requiring payment of P50,000 annually for ten years. The first payment is due December 31, 2009, and the prevailing rate of interest for this type of note at date of issuance is 12%. Present value factors are as follows: PV of 1 at 12% for 10 periods PV of ordinary annuity of 1 at 12% for 10 periods PV of annuity due of 1 at 12% for 10 periods 0.3220 5.6502 6.3282

Periods 6 7

Boy should record the sale in January 2009 at a. P107,100 c. P130,800 b. P146,100 d. P160,800

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On July 1, 2009, Shaw Co. sold a machine costing P500,000 with accumulated depreciation of P380,000 on the date of sale. Shaw received as consideration for the sale, a P300,000 noninterest-bearing note, due July 1, 2012. 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 July 1, 2009 was 12% and 13% on December 31, 2009. In relation to this transaction, the total income to be recognized in Shaws 2009 profit or loss is (Round off present value factors to four decimal places) a. P180,000 c. P101,445 b. P119,165 d. P106,352 rro-aicpa Boy Company sold a machine to Golden Corporation on January 1, 2009, for which the cash sales price was P379,100. Golden entered into an installment sales contract with Boy, calling for annual payments of P100,000 for five years, including interest at 10%. The first payment was due on December 31, 2009. How much interest income should be recorded by Boy in 2010? a. P27,910 c. P31,701 b. P37,910 d. P50,000

In its December 31, 2009 balance sheet, Bottle should report the carrying amount of the note at a. P316,410 c. P282,510 b. P304,380 d. P266,410 1. Payla Company borrowed from Gold Bank under a 10year loan in the amount of P5,000,000 with interest rate of 6%. Payments are due monthly and are computed to be P55,500. Gold Bank incurs P200,000 of direct loan origination cost and P50,000 of indirect loan origination cost. In addition, Gold Bank charges Payla a 5-point nonrefundable loan origination fee. Gold Bank, the lender, has carrying amount of a. P5,200,000 c. P4,750,000 b. P5,000,000 d. P4,950,000 On December 1, 2009, Money Co. gave Home Co. a P200,000, 11% loan. Money paid proceeds of P194,000 after the deduction of a P6,000 nonrefundable loan origination fee. Principal and interest are due in 60 monthly installments of P4,310, beginning January 1, 2010. The repayments yield an effective interest rate of 11% at a present value of P200,000 and 12.4% at a present value of P194,000. What amount of income from this loan should Money report in its 2009 income statement? a. P 0 c. P2,005 b. P1,833 d. P7,833

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