PROBEM 3: EXERCISES

1. On January 1, 20x1, Lala Bus Co. issues a noninterest bearing note of P2,000,000 in exchange for equipment. The note is due on December 31, 20x3. The effective interest rate is 16%. Requirement: a. Provide all the entries during the term of the note.

2. On January 1, 20x1, J & J Co. issues a noninterest bearing note of P3,000,000 in exchange for equipment. The note is due in three equal annual installments every December 31. The effective interest rate is 18%. Requirement: a. compute for current and noncurrent portions of the note payable on December 31, 20x1. b. Compute for the balance of discount on note payable on December 31, 20x1 and determine how this amount is allocated to the current and non current portions of the note. c. Provide all the entries during the term of the note payable

3. On January 1, 20x1, Drive Co. paid cash of P200,000 and issued a noninterest-bearing note P2,000,000 in exchange for vehicle. The note is due in four equal annual installments. The first installment is due on January 1, 20x1 and the succeeding installments are due every 1st of January. The prevailing rate of interest for this type of not is 12%. Requirements: a. Prepare the journal entries. b. How much is the interest expense in 20x2? c. How much is the carrying amount of the note on December 31, 20x1?