Balance, Johny V.

Inojosa, Mary Catherine Ace M.

Valenzuela, April Anne C.
Carolino, Jennie Rose V.
Baguisi, Rochelle R.

Chapter 5
Notes Receivable

PROBLEM 1: TRUE OR FALSE

1. FALSE - interest receivable = face amount x nominal rate
2. TRUE (1,241,843 × 110% × 110%) = 1,502,630 carrying amount on Dec. 31, 20x2
2M face amount - 1,502,630 = 497,370
3. TRUE
4. FALSE (1M × PV of ordinary annuity of 1 @10%, n=3)
5. TRUE
6. FALSE 40,000 (400,000 cash price equivalent × 10%)
7. TRUE (100,000 x .90) = 90,000 x 10% = 9,000
8. TRUE (90,000 + 9,000)× 10% = 9,900
9. FALSE 850,000 (the note is collectible in installments)
10. TRUE

PROBLEM 2 : MULTIPLE CHOICE – THEORY

1. D - a note with below-market interest rate is discounted
2. A
3. C
4. A
5. C
6. C
7. C
8. D
9. B
1st note: 6,000 x 18% = 1,080 interest income;
2nd note: (7,080 ÷ 118%) x 18% = 1,080 interest income
10. B

PROBLEM #3
EXERCISES

1. Solutions:
a.
Date Interest income Unearned interest Present Value
 1/1/x1 407,920 592,080

12/31/x1 82,891 325,029 674,971

12/31/x2 94,496 230,533 769,971

12/31/x3 107,725 122,807 877,193

12/31/x4 122,807 0 1,000,000

b. 1/1/x1
Note receivable 1,000,000
Unearned interest 407,920
Land 500,000
Gain 92,080
12/31/x1
Unearned interest 82,891
Interest income 82,891
12/31/x2
Unearned interest 94,496
Interest income 94,496
12/31/x3
Unearned interest 107,725
Interest income 107,725
12/31/x4
Unearned interest 122,807
Interest income 122,807
Cash 1,000,000
Note receivable 1,000,000

2. Solutions:
a.
Date Interest income Unearned interest Present Value

1/1/x1 259,398 640,602

12/31/x1 76,872 182,526 717,474

12/31/x2 86,097 96,429 803,571

12/31/x3 96,429 0 900,000

b. 1/1/x1
Note receivable 900,000
Accum. depn. 400,000
Loss 159,398
Unearned interest 259,398
 Machinery 1,200,000
12/31/x1
Unearned interest 76,872
Interest income 76,872
12/31/x2
Unearned interest 86,097
Interest income 86,097
12/31/x3
Unearned interest 96,429
Interest income 96,429
12/31/x3
Cash 900,000
Note receivable 900,000
3. Solutions:

a.
Date Collections Interest Unearned Present Value
income interest

1/1/x1 759,337

12/31/x1 250,000 91,120 158,880 600,457

12/31/x2 250,000 72,055 177,945 422,512

12/31/x3 250,000 50,701 199,299 223,2113

12/31/x4 250,000 26,787 223,213

b. Current:177,945

Noncurrent:422,512

c.
1/1/x1
Note receivable 1,000,000
Loss 240,663
Unearned interest 240,663
Land 1,000,000
12/31/x1
Unearned interest 91,120
Interest income 91,120
Cash 250,000
 Note receivable 250,000
12/31/x2
Unearned interest 72,055
Interest income 72,055
Cash 250,000
Note receivable 250,000
12/31/x3
Unearned interest 50,701
Interest income 50,701
Cash 250,000
Note receivable 250,000
12/31/x4
Unearned interest 26,787
Interest income 26,787
Cash 250,000
Note receivable 250,00

4. Solutionds:

a.
Date Collections Interest Unearned Present Value
income interest

1/1/x1 913,290

12/31/x1 400,000 136,994 263,006 650,284

12/31/x2 400,000 97,543 302,457 347,827

12/31/x3 400,000 52,173 347,827 0

b. Current:302,457
Noncurrent:347,827

c. 1/1/x1
Note receivable 1,200,000
Loss 86,710
Unearned interest 286,710
Land 1,000,000
12/31/x1
Unearned interest 136,994
Interest income 136,994
Cash 400,000
Note receivable 400,000
 12/31/x2
Unearned interest 97,543
Interest income 97,543
Cash 400,000
Note receivable 400,000
12/31/x3
Unearned interest 52,173
Interest income 52,173
Cash 400,000
Note receivable 400,000
5. Solutions:

a.
Date Collections Interest Unearned Present Value
income interest

1/1/x1 827,733

1/1/x1 300,000 300,000 527,733

12/31/x2 300,000 47,496 252,504 275,229

12/31/x3 300,000 24,771 275,229 0

b.
Interest Income in 20x1= 47,496

c.

1/1/x1
Cash100,000
Note receivable900,000
Unearned interest72,267
Land800,000
Gain127,733
1/1/x1
Cash 300,000
Note receivable300,000
12/31/x1
Unearned interest47,496
Interest income47,496

6. Solutions:
Face amount (1) (400,000 x 4) = 1,600,000
Unearned interest at initial recognition (2) (1.6M - 1,119,272) =480,728
Effective interest rate (3) (179,084 / 1,119,272) = 16%
Term of the note (in years) (4) 4 years

Date Collections Interest Unearned Present Value

income interest

1/1/x1 1,119,272

12/31/x1 400,000 179,084 (5) 220,916 898,356

12/31/x2 400,000 (6) 143,737 256,253 (7) 642,093

12/31/x3 400,000 102,735 (8) 297,265 344,827

(9) 12/31/x4 400,000 (10) 55, 172 344, 828 0

7. Solutions:

1. 213,534+507,015 = 720,549
2. 86,466 / 720,549 = 12%

Date Collections Interest Amortization Present Value

income

1/1/x1 911,205

12/31/x1 300,000 109,345 190,655 720,549

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 32,143 267,857 blehhh :B

PROBLEM #4: MULTIPLE CHOICE – COMPUTATIONAL

1. D 6. D 11. D
2. C 7. D 12. C
3. B 8. C 13. C
4. A 9. A 14. C
5. C 10. B 15. B
CHAPTER 6: RECEIVABLES – ADDITIONAL CONCEPTS

PROBLEM#1 TRUE OR FALSE

1. True
2. True
3. True
4. False
5. False
6. True
7. False
8. True
9. True
10. True

PROBLEM 2: MULTIPLE CHOICE- THEORY

1. B 11. A
2. B 12. A
3. B 13. B
4. D 14. C
5. C 15. A
6. A
7. C
8. C
9. B
10. D

PROBLEM 3: EXERCISES
1. 1,904,000 (2,000,000 + 24,000 – 120,000 = 1,904,000)
2.
3.
4.

PROBLEM 4: MULTIPLE CHOICE-COMPUTATIONAL

1. D
2. C (194,000 X 12.4% / 12 = 2,005)
3. B
4. A (8,200,000 – 623,246)x10% = 757,675
5. D
6. C
7. B (500,000-425,000 = 75,000)
8. D
9. C (40K are 50 % of total 80k. Therefore, 50% of servicing asset would be amortized in year
20x1. Thus, 60,000 x 50% = 30k)

10. C (The cost incurred by Synthia would include a fee of 15,000 (750kx.02) and interest
expense of 12,575 (750k x 12% x 51/365) for a total of 27,575.
11. C (Face amount 500k + 8% = 540k) (Discount 540k x 10% x 6/12= 27k) … (540k-27k =513k)
12.

CHAPTER 7: INVENTORIES

PROBLEM 1: TRUE OR FALSE

1. True
2. False
3. False
4.
5. True
6. False
7. False
8. False
9. True
10. True

PROBLEM 2: MULTIPLE CHOICE- THEORY

1. d 11. d
2. d 12. d
3. b 13. a
4. a 14. a
5. c 15. c
6. a 16. a
7. c 17. a
8. a 18. c
9. d 19. c
10. d 20. D

PROBLEM 3: EXERCISES
1.
2.
3.
4.
5.
PROBLEM 4:
1. B (260K + 10K + 1K + 5K – 16K + 20K – 4K = 276K)
2. C (scenario 1&2 are excluded)
3. C (455K + 57K = 512K)
4. D (40K X 40%= 16K + 27K = 43K)
5. C (NET= 80K + 100K =180K X 98% = 176,400) (GROSS= 80k - 2%= 78,400 + 100k = 178,400)
6. C
7. A
8. C
9. D
10. A
11. C
12. A
13. C
14. A
15. C
16. C
17. D
18. B
19. B
20. A