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Taxation (BSAC 301)

ACTG 14 Chapter 5 Notes Receivable Summary and Problem Solutions

BAUTE, YASMEN P.
BSA-BLOCK A
ACTG 14
CHAPTER 5: NOTES RECEIVABLE
Noninterest-bearing note – lump sum
PROBLEM 6. For classroom discussion
1. On January 1, 20x1, Candle Co. received a 3-year, noninterest bearing note of 133,100 ₱
in exchange for land with carrying amount of 100,100, The note is due on December 31,₱
20x3, The effective interest rate is 10%.
Requirements:
a. Prepare the amortization table.
b. Provide all the necessary journal entries.
PV of 1 @ 10%, n=1.10^3=0.7513148 133,100 * 0.7513148= 100,000 133,100 - 100,000=
33,100
AMORTIZATION TABLE
DATE INTEREST INCOME UNEARNED
INCOME
PRESENT VALUE
Jan. 1,20x1 33,100 100,000
Dec. 31,20x1 10,000 23,100 110,000
Dec. 31, 20x2 11,000 12,100 121,000
Dec. 31, 20x3 12,000 - 133,000
JOURNAL ENTRIES
Jan. 1,20x1 Notes Receivable
Land
Unearned interest income
133,100
100,000
33,100
Dec. 31,20x1 Unearned interest income
Interest income
10,000
10,000
Dec. 31, 20x2 Unearned interest income
Interest income
11,000
11,000
Dec. 31, 20x3 Unearned interest income
Interest income
12,100
12,100
Dec. 31,20x3 Cash
Note receivable
133,100
133,100
Noninterest-bearing note - installments
2. On January 1, 20x1, Stand Co. received a 3-year, noninterest- bearing note of 300,000 ₱
in exchange for equipment with historical cost of 1,000,000 and accumulated ₱
depreciation of 700,000. The note is due in three equal annual installments of 100,000 ₱ ₱
every December 31. The effective interest rate is 10%.
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BAUTE, YASMEN P.
BSA-BLOCK A
ACTG 14
CHAPTER 5: NOTES RECEIVABLE

Noninterest-bearing note – lump sum

PROBLEM 6. For classroom discussion

  1. On January 1, 20x1, Candle Co. received a 3-year, noninterest bearing note of ₱133, in exchange for land with carrying amount of ₱100,100, The note is due on December 31, 20x3, The effective interest rate is 10%.

Requirements:

a. Prepare the amortization table. b. Provide all the necessary journal entries.

PV of 1 @ 10%, n=1^3=0 133,100 * 0= 100,000 133,100 -

100,000= 33,

AMORTIZATION TABLE
DATE INTEREST
INCOME
UNEARNED
INCOME
PRESENT
VALUE

Jan. 1,20x1 33,100 100,

Dec. 31,20x1 10,000 23,100 110, Dec. 31, 20x2 11,000 12,100 121, Dec. 31, 20x3 12,000 - 133,

JOURNAL ENTRIES

Jan. 1,20x1 Notes Receivable Land Unearned interest income

133,
100,
33,

Dec. 31,20x1 Unearned interest income Interest income

10,
10,

Dec. 31, 20x2 Unearned interest income Interest income

11,
11,

Dec. 31, 20x3 Unearned interest income Interest income

12,
12,

Dec. 31,20x 3

Cash Note receivable

133,
133,

Noninterest-bearing note - installments

  1. On January 1, 20x1, Stand Co. received a 3-year, noninterest- bearing note of ₱300, in exchange for equipment with historical cost of ₱1,000,000 and accumulated depreciation of ₱700,000. The note is due in three equal annual installments of ₱100, every December 31. The effective interest rate is 10%.

Requirements:

a. Prepare the amortization table. b. Determine the current and non-current portions of the note on December 31, 20x1. c. Determine the balance of unearned interest income (discount on note receivable) on December 31, 20x1. d. Provide all the necessary journal entries. e. What is the net effect of the transaction in Stand Co.’s 20x1 profit or loss?

Annual installment = 300,000/3=100,000 PV of ordinary annuity of 1 @, n=((1)^-3- 1)/10%= 2 100,000 * 2= 248,685 300,000-248,685= 51,

A TABLE-INSTALLMENT

DATE Collectio n

Interest Income

Amortizat ion

Present Value

Jan. 1,20x1 248,

Dec. 31,20x1 100,000 24,869 75,131 173,

Dec. 31, 20x2 100,000 17,355 82,645 90,

Dec. 31, 20x3 100,000 9,091 9,909 0

B CURRENT AND NON-CURRENT PORTIONS OF THE NOTE ON
DECEMBER 31,20X

DATE Collection Interest Income Amortization Present Value

Jan. 1,20x1 248,

Dec. 31,20x1 100,000 24,869 75,131 173,

Dec. 31, 20x2 100,000 17,355 82,645 90,

Dec. 31, 20x3 100,000 9,091 9,909 0

C INTEREAT INCOME ON DECEMBER 31,20X

Outstanding face amount (300,000-100,000) 200,

Carrying amount of note4s receivable - Dec. 31,20x1 173,

Unearned interest income- Dec. 31,20x1 26,

D. JOURNAL ENTRIES

Jan. 1, 20x

Notes receivable

Accumulated depreciation

Loss on sale of equipment

Equipment

300,
700,
51,
1,000,

This is the noncurrent portion of the note on Dec. 31, 20x1.

The current portion of the note on Dec. 31,20x1.

C. Carrying amount of the receivable on De. 31, 20x

  • Jan. 1,20x2 400,000 69,422 330,578 363,
  • Jan. 1,20x3 400,000 36,367 363,637
    • B. Interest income in 20x1 : 69,
    • C. Carrying amount of the receivable on De. 31, 20x
      • Carrying amount of notes receivable - Jan. 1 20x2 363,
      • Add back: collection on Jan. 1, 20x2 400,
      • Carrying amount of notes receivable - Dec. 31, 20x1 763,