Answer the following:

Chapter c The amou recognized b. P600,000 x PV of 1 @14%, n-3 C. P200,000 x PV of ordinary annuity of 1 @14%, n-3 d. The amoun d. P200,000 x PV of an annuity due of 1 @14%, n-3 more for the (Adapted 7. An entity receives a three-year, PIM noninterest-bearing note that matures in lump sum payment. The effective interest rate 10. On March 1, 20 January 1, 20x1 is 12%. Which of the following is correct? a. The measurement of the note on initial recognition is July 1, 20x1. O computed as PIM x PV of an ordinary annuity of 1 @12%, accounts increas a. Prepaid intere n=4. b. No interest income shall be recognized on the note b. Interest receiv because it is noninterest-bearing. c. The amortized cost of the note increases each year. d. The amortized cost of the note decreases each year. PROBLEM 3: EXER 1. On January 1, 20 8. An entity receives a three-year, PIM noninterest-bearing note bearing note of that matures in three equal annual payments due at the end of amount of P500 each year. The effective interest rate is 12%. Which of the The effective int following is correct? a. The measurement of the note on initial recognition is computed as PIM x PV of an ordinary annuity of 1@12% Requirements: a. Prepare the amo n=4. b. No interest income shall be recognized on the note b. Provide all the n because it is noninterest-bearing. c. The amortized cost of the note increases each year. 2. On January 1, 2 d. The amortized cost of the note decreases each year. bearing note of historical cost of 9. A company received two one-year notes in payment for merchandise sold. One note has a face amount of P6,000 and P400,000. The no was interest-bearing at an annual rate of 18 percent. The other interest rate is 12 note has a face amount of P7,080 and was non-interest-bearing Requirements: (its implied interest rate was 18 percent). b. a. The total amount of cash ultimately to be received will be Prepare the amo Provide all the n more for the interest-bearing note. b. Both notes will cause the same total interest to be 3 . recognized. On Jan. 1, 20x1, bearing notedate Bind Co. determines that the effective interest rate on the a Which transaction is 10%. The interest income in Year 1 is P50,000. interest 7, Cut Co. receives a long-term, noninterest-bearing note of a state P100.000. The note requires a lump sum payment at maturity b. non date. Cut Co. determines that the effective interest rate on the transaction is 10% while the appropriate present value factor & Railing is 0.90. The interest income in Year 1 is P9,000. note the 8. Use the information in the preceding problem (i.e., Cut Co.). Railing The interest income in Year 2 is P9,900. is 12%. V 9. Bond Co. receives a P1,000,000, noninterest-bearing note that a. Raili is collectible in installments. On initial recognition, the recog carrying amount of the note was P900,000. If the amortization PV of of the note during the period is P50,000, the carrying amount b. Railin of the note at the end of the period must be P950,000. recog 10. Pawn Co. receives a P1,200,000, noninterest-bearing note that PV of is collectible in installments. On initial recognition, the C. Railin carrying amount of the note was P900,000. At the end of Year recogn 1, the carrying amount of the note was P800,000, the PV of amortization of the note in Year 1 must be P100,000 d. Any O 5. On May PROBLEM 2: MULTIPLE CHOICE - THEORY receivable 1. Which of the following statements is incorrect? of the note a. Receivables other than trade receivables are initially due on AP recognized at fair value plus transaction costs. company s b. Unearned interest income on a receivable is treated a. no inter contra-asset asset account rather than a liability. b. a deferr c. A short-term, non-trade receivable may nevertheless c. interest discounted if it clearly contains a financing component d. interest d. All interest-bearing notes need not be discounted. on April 2. The concept that best supports the discounting of notes their present value is 6. Drops Co. re a. time value of money. c. accrual basis. that requires b. matching. d. legal form over substance year. The e Should DropWhich of the following rates is used to compute for the interest income on a receivable? a. stated rate c. effective interest rate b. nominal rate d. coupon rate Railing Co. obtained a 4-year, P600,000, noninterest bearing note that requires payment in lump sum at maturity date. Railing determined that the effective interest rate on the note is 12%. Which of the following statements is correct? a. Railing Co. will most likely measure the note on initial recognition by multiplying the face amount of the note by the atthat PV of 1 @12%, n=4. camege b. Railing Co. will most likely measure the note on initial $950.010 recognition by multiplying the face amount of the note by t-bearing nal PV of ordinary annuity of 1 @12%, n=4. recognition c. Railing Co. will most likely measure the note on initial At the end al recognition by multiplying the face amount of the note by PV of an annuity due of 1 @12%, n=4. 100.020 d. Any of these as an accounting policy choice. 5. On May 1 of this year, a company received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due on April 30 of next year. At December 31 of this year, the ables are in company should report on its balance sheet: a. no interest receivable. b. a deferred credit for interest applicable to next year. C. interest receivable for the interest accruing this year. d. interest receivable for the entire amount of the interest due nav needs Adapted) on April 30 of the next year. discounts Drops Co. receives a 3-year, P600,000, noninterest bearing note that requires three equal annual payments at the end of each year. The effective interest rate on the note is 14% How should Drops Co. measure the note on initial recognition? a. P600,000 x PV of ordinary annuity of 1 @14%, na3Future cash flows factor at Xo = Present value. Interest receivable . nominal rate x face amount. Interest income = effective interest rate x present value. Only post-acquisition accrued interests are recognized as interest income. PROBLEMS PROBLEM 1: TRUE OR FALSE 1. Interest receivable is computed by multiplying the carrying amount of a note by the effective interest rate. 2. On Jan. 1, 20x1, Crybaby Co. received a noninterest-bearing note with face amount of P2M and appropriately recognized it at P1,241,843. The note matures in lump sum on Dec. 31, 20x5. The effective interest is 10%. The unamortized discount on Dec. 31, 20x2 is P497,370. 3. Raining Co. receives a 3-year, noninterest-bearing note of P1,000,000. Raining Co. determines that the effective interest rate on the transaction is 10%. The initial carrying amount of the note receivable is computed as: P1,000,000 x PV of 1 @10%, n=3. 4. Wet Co. receives a noninterest-bearing note of P3,000,000. The note is collectible in three equal annual installments, of P1,000,000, due at the end of each year. Wet Co. determines d throng that the effective interest rate on the transaction is 10%. The initial carrying amount of the note receivable is computed as P1,000,000 x PV of 1 @10%, n=3. 5. Fold Co. receives a 2-year, noninterest-bearing note of P1,200,000 in exchange for the sale of a commodity. If the customer had paid in cash at the sale date, the purchase price would have been P800,000. At initial recognition, Fold Co, records unearned interest of P400,000. 6 Bind Co. receives a 2-year, noninterest-bearing note of 2500,000 from the sale of equipment with a cash price of P400,000. The note requires lump sum payment at maturityNotes Receivable 289 c. The amount of interest revenue which should be recognized is more for the interest-bearing note. d. The amount which should be credited to sales revenue is more for the noninterest-bearing note rest- bearing i (Adapted) ctive interest on 10. On March 1, 20x1, Nickelodeon Co. received a 12% note dated al recognition January 1, 20x1. Principal and interest on the note are due on muity of 1 at July 1, 20x1. On initial recognition, which of the following accounts increased? ed on the not a. Prepaid interest c. Unearned interest income b. Interest receivable d. Interest revenue each year