Question
Innovative Company manufactures and sells electrical generators. On January 1, 2017, the entity sold an electrical generator costing P700,000 for P1,000,000. The buyer paid P100,000
- Innovative Company manufactures and sells electrical generators. On January 1, 2017, the entity sold an electrical generator costing P700,000 for P1,000,000.
The buyer paid P100,000 down and signed a P900,000 noninterest bearing note payable in three equal installments every December 31.
The Prevailing interest rate for a note of this type is 12%. The present value of an ordinary annuity of 1 for three periods is 2.4018.
Required:
PREPARE JOURNAL ENTRIES FOR THE CURRENT YEAR
2. Gullible Company is a dealer in equipment. On December 31,2017, 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, 2018. The market interest for similar notes was 8%. The relevant present value factors are:
PV of 1 at 8% for 5 periods ...........................................0.68
PV of an ordinary annuity of 1 at 8% for 5 periods....... 3.99
REQUIRED:
A. PREPARE JOURNAL ENTRIES FOR 2017 AND 2018
B. DETERMINE THE CARRYING AMOUNT OF THE NOTE RECEIVABLES ON DECEMBER 31,2018
C. DETERMINE THE INTEREST INCOME FOR 2019
3. On January 1,2017, Enigma Company sold an equipment costing P500,000 which had a carrying amount of P350,000, receiving a P125,000 down payment and, as addition consideration, a P400,000 noninterest bearing note due on January 1, 2020.
There was no established exchange price for the equipment, and the note had no ready market.
The prevailing rate of interest for a note of this at January 1, 2017 was 12%. The present value of 1 at 12% for three periods is 0.7118.
REQUIRED:
PREPARE JOURNAL ENTRIES FOR 2017, 2018, 2019 and 2020
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