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  • Problems On Noninterest Bearing Notes

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    Anj Hwan
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    1. ABC Co extended a $4 million loan to an officer on January 1, 2020 at 10% interest compounded annually. The interest income on December 31, 2022 was $440,000. 2. A Corp sold equipment for cash and a non-interest bearing note and needs to calculate the note's carrying amount and interest income over time. 3. Several companies sold equipment/machinery in exchange for non-interest bearing notes to be paid in installments. They need to calculate initial carrying amounts and interest income/expense over time.

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    Intermediate Accounting 1

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    Problems on Noninterest Bearing Notes

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    1. ABC Co extended a $4 million loan to an officer on January 1, 2020 at 10% interest compounded annually. The interest income on December 31, 2022 was $440,000. 2. A Corp sold equipment for cash and a non-interest bearing note and needs to calculate the note's carrying amount and interest income over time. 3. Several companies sold equipment/machinery in exchange for non-interest bearing notes to be paid in installments. They need to calculate initial carrying amounts and interest income/expense over time.

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    3K views3 pages

    Problems On Noninterest Bearing Notes

    Uploaded by

    Anj Hwan
    1. ABC Co extended a $4 million loan to an officer on January 1, 2020 at 10% interest compounded annually. The interest income on December 31, 2022 was $440,000. 2. A Corp sold equipment for cash and a non-interest bearing note and needs to calculate the note's carrying amount and interest income over time. 3. Several companies sold equipment/machinery in exchange for non-interest bearing notes to be paid in installments. They need to calculate initial carrying amounts and interest income/expense over time.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    of 3

    Problem 1 – COMPOUND INTEREST

    On January 1, 2020, ABC Co. extended a P4,000,000 loan to one of its


    officers as part of ABC’s car and housing assistance program. The note
    receivable is due on January 1, 2023 and bears a 10% interest compounded
    annually. How much is the interest income on December 31, 20x2?
    Answer: 440,000

    Principal 4,000,000
    Rate 10%
    Interest income, 12/31/20x1 400,000

    Principal 4,000,000
    Add: Interest income,
    12/31/20x1 400,000
    Principal and interest 4,400,000
    Rate 10%
    Interest income, 12/31/20x2 440,000

    Principal 4,000,000
    Add: Interest income,
    12/31/20x1& 12/31/22 840,000
    Principal and interest 4,840,000
    Rate 10%
    Interest income, 12/31/20x3 484,000

    Alternatively:
    (4,000,000 x 1.10) x
    Interest income, 20x2 10%
    =440,00
    0

    (4,000,000 x 1.10 x
    Interest income, 12/31/20x2 1.10) x 10%
    =484, 000

    Problem 2 – NON-INTERERST-BEARING NOTE (LUMP SUM)

    On January 1, 20x1, A Corp. sold a transaction equipment with a


    historical cost of P8,000,000 and accumulated depreciation of
    P2,800,000. In consideration for the sale, A Corp received cash of
    P400,000 and a noninterest-bearing note receivable due on January 1,
    20x4. The prevailing rate of interest for this type of note is 12%.
    1. How much is the carrying amount of the note on initial
    recognition?
    2. How much is the interest income for 20x1?
    3. How much is the carrying amount of the note on december 31, 20x1?

    Problem 3 – NON INTEREST BEARING NOTE (INSTALLMENT IN ADVANCE)

    On January 1, 20x1, Protract Co. sold transportation equipment


    with a historical cost of P8,000,000 and accumulated depreciation of
    P2,800,000. In consideration for the sale, Protract received cash of
    P400,000 and a noninterest-bearing note receivable of P4,000,000 due
    in 4 equal annual installments. The first installment was made on
    January 1, 20x1. The prevailing rate of interest for this type of note
    is 12%.
    1. How much is the carrying amount of the note on initial
    recognition?
    2. How much is the interest income for 20x1?
    3. How much is the carrying amount of the note on December 31,
    20x1?

    Problem 4 – NON INTEREST BEARING NOTE (SEMI ANNUAL INSTALLMENT)

    On january 1, 20x1, Emphatic Co. sold machinery with historical


    cost of P8,000,000 and accumulated depreciation of P4,400,000 in
    exchange for a 3-year, P4,800,000 noninterest-bearing note receivable
    due in equal semi-annual payments starting July 1, 20x1. The
    prevailing rate of interest of this type of note is 10%.
    1. How much is the carrying amount of the note on initial
    recognition?
    2. How much is the interest income for 20x1?
    3. How much is the carrying a mount of the note on December 31,
    20x1?

    Problem 5 – NON INTEREST BEARING NOTE (UNEQUAL/NON-UNIFORM


    INSTALLMENT)

    On january 1, 20x1, Resuscitate Co. sold machinery costing


    P8,000,000 with accumulated depreciation of P4,400,000 in exchange for
    a 3-year, P4,800,000 noninterest-bearing note receivable due as
    follows:
    December 31, 20x1 2,400,000
    December 31, 20x2 1,600,000
    December 31, 20x3 800,000
    Total 4,800,000
    The prevailing rate of interest for this type of note is 10%.
    1. How much is the carrying amount of the note on initial
    recognition?
    2. How much is the interest income for 20x3?
    3. How much is the carrying amount of the note on December 31,
    20x2?
    Problem 6- EQUAL INSTALLMENTS

    On January 1, 20x1, Pathetic Co. sold transportation equipment with a


    historical cost of P8,000,000 and accumulated depreciation of P2,800,000. In
    consideration for the sale, Pathetic Co. received cash of P400,000 and a
    noninterest-bearing note receivable of P4,000,000 due in 4 equal annual
    installments starting December 31, 20x1. The prevailing rate of interest of
    this type of note is 12%.
    1. How much is the carrying amount of the note on initial recognition?
    2. How much is the interest income of the note for on December 31, 20x1?
    3. How much is the current portion of the note on December 31, 20x1?
    4. How much is the non-current portion of the note on December 31, 20x1?

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