Problem 6-4 (IAA)
Gullible Company is a dealer in equipment. On December 31, 2022, 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, 2023.

The market interest for similar notes was 8%. The relevant present value factors are:

PV of 1 at 8% for 5 periods0.68
PV of an ordinary annuity of 1 at 8% for 5 periods3.99

Required:
1. Prepare journal entries for 2022 and 2023.
2. Determine the carrying amount of the note receivable on December 31, 2023.
3. Determine the interest income for 2024.

Problem 6-5 (AICPA Adapted)
On January 1, 2022, Enigma Company sold an equipment costing P500,000 which had a carrying amount of P350,000, receiving a P125,000 down payment and, as additional consideration, a P400,000 noninterest-bearing note due on January 1, 2025.

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 type at January 1, 2022 was 12%. The present value of 1 at 12% for three periods is 0.7118.

Required:
Prepare journal entries for 2022, 2023, 2024 and 2025.