Question
1.On January 1, 2020, Wisconsin Company loaned P1,780,000 cash to Stone Company. The promissory note made by Stone for P2,000,000 did not bear explicit interest
1.On January 1, 2020, Wisconsin Company loaned P1,780,000 cash to Stone Company. The promissory note made by Stone for P2,000,000 did not bear explicit interest and was due on December 31, 2021. No other rights or privileges were exchanged. The prevailing interest rate for a loan of this type was 6%. The present value of 1 f or two periods at 6% is .89. What amount should be recognized as interest expense for 2020?
2.On January 1, 2020, Pares Company borrowed P3,600,000 from a major customer evidenced by a noninterest bearing note due in three years. The entity agreed to supply the customer's inventory needs for the loan period at lower than market price. At the 12% imputed interest rate for this type of loan, the present value of the note is P2,550,000 on January 1, 2020. What amount of interest expense should be reported in 2020?
3.On January 1, 2020, Monk Company purchased equipment. There was no established market price for the equipment which has an 8-year life and no residual value. The entity gave a P5,250,000 noninterest-bearing note payable in three equal annual installments of P1,750,000 with the first payment due December 31, 2020. The prevailing rate of interest for a note of this type is 8%. The present value of the note at 8% was P4,509,950. What amount should be reported for interest expense in 2020?
4.Joshua Company bought a new machine on January 1, 2020 and agreed to pay in equal annual instalment of P600,000 at the end of each of the next five years. The prevailing interest rate is 12%. The present value of an ordinary annuity of 1 at 12% for five periods is 3.60. The present value of 1 at 12% for five periods is 0.567. What is the interest expense on the note payable for 2020?
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