Republic of the Philippines

City of Olongapo
GORDON COLLEGE
COLLEGE OF BUSINESS AND ACCOUNTANCY
Bachelor of Science in Accountancy
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (.47) 224 – 2089 loc. 314

Intermediate Accounting I
Class Activity 3

Long - term Receivables

Problem 1:
Northwest Company received a 10% promissory note on July 1, 2022, with a face amount of P300,000. The
principal amount of the note is due to be collected on June 30, 2025, while the interest on the note is due
annually every June 30 starting June 30, 2023. The market rate of interest of this kind of notes is 10%.

Compute for the following:

1.​ Interest income for the year ended December 31, 2022.
2.​ Interest income for the year ended December 31, 2023.
3.​ Current portion of the note on December 31, 2023.
4.​ Non – current portion of the note on December 31, 2023.
5.​ Current portion of the note on December 31, 2024.
6.​ Non – current portion of the note on December 31, 2024.

Problem 2:
Rambo Co. sold a building with historical cost of P50,000,000 and accumulated depreciation of P30,000,000 on
January 1, 2022, for P21,000,000. The customer paid 20% down payment and issued a 5 – year, 8% note for the
balance. The note is payable in equal annual installments of principal and interest of P4,207,700 payable every
December 31 starting December 31, 2022, until 2026.

Requirements:
1.​ Prepare the journal entry on January 1, 2022, to record the sale of the building.
2.​ Prepare the journal entry on December 31, 2022, to record the first installment collection.
3.​ Determine the interest income to be reported for the year 2022 through 2026.
4.​ Determine the carrying value of the note on December 31, 2022, up to 2026.

Problem 3:
On January 1, 2022, State Co. sold and equipment to Nation Co. Nation issued a 5 – year P500,0000, 10% note
to State. The note requires the interest to be paid annually every December 31 starting December 31, 2022 until
the maturity of the note on December 31, 2026. The equipment has a cost of P1,000,000 and accumulated
depreciation as of January 1, 2022 of P550,000. The prevailing interest rate for a note of this type is 12%.
Round of PV factors to four decimal places.

Requirements:
1.​ Journal entry on
a.​ January 1, 2022
b.​ December 31, 2022
2.​ Initial measurement of the note on January 1, 2022
3.​ Gain or loss on sale of equipment
4.​ Prepare the amortization schedule

Problem 4: Long – term interest bearing note

On January 1, 2022, State Co. sold and equipment to Nation Co. Nation issued a 5 – year P500,0000, 10% note
to State. The note requires the principal amount to be paid in five equal annual installments and interest on the
unpaid balance to be paid annually every every December 31 starting December 31, 2022. The equipment has a
1 | Page​ ​ 240102
cost of P1,000,000 and accumulated depreciation as of January 1, 2022 of P550,000. The prevailing interest rate
for a note of this type is 12%. Round of PV factors to four decimal places.

Requirement:
Compute for the following:
1.​ At what amount shall the note be initially measured on January 1, 2021?
2.​ What amount should be reported as gain (loss) on sale of equipment?
3.​ Prepare the journal entry on January 1, 2022.
4.​ Prepare the amortization schedule
5.​ What amount should be reported as interest income for 2022?
6.​ Prepare the journal entry on December 31, 2022?
7.​ What is the carrying amount of the note on December 31, 2022?
8.​ How much shall be presented as current assets in relation to the note on December 31, 2022?
9.​ How much shall be presented as non – current assets in relation to the note on December 31, 2022?

Problem 5:
On January 1, 2022, State Co. sold an equipment to Nation Co. Nation issued a 5 – year P500,0000, 12% note
to State. The note requires the interest to be in five equal annual installments and interest on the unpaid balance
to be paid annually every December 31 starting December 31, 2022. The equipment has a cost of P1,000,000
and accumulated depreciation as of January 1, 2022 of P550,000. The prevailing interest rate for a note of this
type is 10%. Round of PV factors to four decimal places.

Requirements:
Compute for the following:
1.​ At what amount shall the note be initially measured on January 1, 2022?
2.​ What amount should be reported as gain (loss) on sale of equipment?
3.​ Prepare the journal entry on January 1, 2022.
4.​ Prepare the amortization schedule.
5.​ What amount should be reported as interest income for 2022?
6.​ Prepare the journal entry on December 31, 2022.
7.​ What is the carrying amount of the note on December 31, 2022?
8.​ How much shall be presented as current assets in relation to the note on December 31, 2022?
9.​ How much shall be presented as non – current assets in relation to the note on December 31, 2022?

Problem 6
On June 1, 2022, TGIF Company sold equipment with historical cost of P10,000,000 and accumulated
depreciation of P6,000,000 in exchange for a P5,000,000 noninterest - bearing note due May 31, 2025. There
was no established exchange price for the equipment. The prevailing rate of interest for a note of this type on
June 1, 2022 was 10%. Round off present value to four decimal places.

Requirements:
1.​ At what amount shall the note be initially measured on June 1, 2022?
2.​ What amount should be reported as gain (loss) on sale of equipment?
3.​ Prepare the journal entry on June 1, 2022.
4.​ Prepare the amortization schedule.
5.​ What amount should be reported as interest income for 2022?
6.​ Prepare the journal entry on December 31, 2022.
7.​ What is the carrying amount of the note on December 31, 2022?
8.​ What amount should be reported as interest income for 2023?

Problem 7
On January 1, 2022, Lucifer Company sold goods worth P4,000,000 to Amenadiel Company. Amenadiel ​
Company signed a non – interest bearing note requiring eight equal annual payments on the face amount every
January 1 beginning January 1, 2022. The prevailing rate of interest for this type of note at date of issuance was
10%. Round off present value factors to four decimal places.

Requirements:
2 | Page​ ​ 240102
Compute for the following:
1.​ How much shall be recognized on January 1, 2022?
2.​ Prepare the amortization schedule.
3.​ What amount should be reported as interest income for 2022?
4.​ What is the carrying amount of the note on December 31, 2022?

Problem 8
On January 1, 2022, TGIF Company sold equipment with historical cost of P10,000,000 and accumulated
depreciation of P5,500,000 in exchange for a P6,000,000 non – interest bearing note due in annual installments
as follows:

Date Amount
December 31, 2022 ₱ 3,000,000.00
December 31, 2023 2,000,000.00
December 31, 2024 1,000,000.00

There was not established exchange price for the equipment. The prevailing rate of interest for a note of this
type on January 1, 2022 was 10%.

Requirements:
Compute for the following:
1.​ At what amount shall the note be initially measured on January 1, 2022?
2.​ What amount should be reported as gain (loss) on sale of equipment?
3.​ Prepare the journal entry on January 1, 2022.
4.​ Prepare the amortization schedule.
5.​ Prepare the journal entry on December 31, 2022.
6.​ Determine the interest income for the years 2022 through 2024.
7.​ Determine the carrying value of the note on December 31, 2022 through 2024.

3 | Page​ ​ 240102