Gullible company is a dealer in equipment. On December 31, 2019, the entity sold an equipment

in exchange for a noninterest bearing note requiring five annual payments of P500,000. The first

payment was made on December 31, 2020. The market interest for similar notes was 8%.

Required:

1. Prepare journal entries for 2019 and 2020.

2. Determine the carrying amount of the note receivable on December 31, 2020.

3. Determine the interest income for 2021.