INTERMEDIATE ACCOUNTING 1

Handout 05: Notes Receivable Instructor: John Bo S. Cayetano

1. Short-term noninterest-bearing note receivable are usually recorded at their:

a. Present value
b. Net realizable value
c. Discounted value
d. Maturity value

2. Assuming that the ideal measure of short-term receivable in the balance sheet is the discounted value of
the cash to be received in the future, failure to follow this practice usually does not make the balance sheet
misleading because
a. The amount of discount is not material
b. Most receivables can be sold to a bank or factor
c. Most short-term receivables are not interest-bearing
d. The allowance for uncollectible accounts includes a discount element

3. Statement 1: Interest bearing long-term receivable shall be stated at face value.

Statement 2: Noninterest-bearing long-term receivables shall be stated at present value.
Statement 3: Short-term receivable, interest bearing or not, are generally stated at face value.
a. All statements are true
b. Only statement 1 is true
c. Only statement 2 is false
d. Only statement 3 is false

4. Which of the following notes receivable shall be reported at face value?

a. Long term non-interest bearing notes receivable
b. Long term interest bearing notes receivable with stated rate higher than effect rate
c. Long term interest bearing notes receivables with stated rate lower than effect rate
d. Long term interest bearing notes receivables with stated rate equals effective rate

5. A noninterest-bearing note received in exchange for property goods or service is recorded at

a. Fair market value of property goods or service or note whichever is more reliably determined.
b. Maturity value of the note.
c. Face value of the note.
d. Carrying amount of the property.

Numbers 6-10
On January 1, 2021, Mulawin Company sold equipment with a carrying amount of P4,800,000 in exchange for
P6,000,000 noninterest-bearing note due January 1, 2024. There was no established exchange price for the
equipment.

The prevailing interest rate for this note was 10%. The present value of 1 at 10% for three periods is 0.75.

6. What is the carrying amount of the note receivable on January 1, 2021?

a. 4,950,000 c. 6,000,000
b. 4,500,000 d. 4,800,000

7. What amount should be reported as gain or loss on sale of equipment in 2021?

a. 1,200,000 gain c. 300,000 gain
b. 2,700,000 gain d. 300,000 loss

8. What is the carrying amount of the note on December 31, 2021?

a. 4,950,000 c. 6,000,000
b. 4,500,000 d. 4,800,000

9. What amount should be reported as interest income for 2021?

a. 600,000 c. 528,000
b. 500,000 d. 450,000

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10. What amount should be reported as interest income for 2022?
a. 480,000 c. 528,000
b. 495,000 d. 500,000

Numbers 11-15
On January 1, 2021 Nonstop Company sold a building for P5,000,000 to Icecream Company. Icecream
Company paid P500,000 down and signed a noninterest bearing note for the balance which is payable in three
equal annual installments every December 31 of each year.

The carrying amount of the building is P4,200,000. Assume prevailing interest rate for a note of this type is
12%.

Present value of 1 at 12% for 3 periods 2.4018

Present value annuity at 12% for 3 periods 0.7118

11. How much is the gain or loss on sale of building?

a. 597,300 c. 800,000
b. 97,300 d. 300,000

12. How much is the interest income for the year 2021?
a. 600,000 c. 432,324
b. 492,324 d. 540,000

13. The carrying amount of notes on December 31, 2021 is

a. 3,000,000 c. 2,535,024
b. 3,602,700 d. 4,035,024

14. The current portion of notes on December 31, 2021 is

a. 1,500,000 c. 1,195,797
b. 1,067,676 d. 1,339,227

15. The non-current portion of notes on December 31, 2021 is

a. 1,500,000 c. 1,195,797
b. 1,067,676 d. 1,339,227

Numbers 16-17
On January 1, 2022, Hotel Company sold machinery with historical cost of P3,000,000 and accumulated
depreciation of P900,000 in exchange for a 3-year, P2,100,000 noninterest-bearing note receivable due in
equal semi-annual payments every July 1 and December 31 starting on July 1, 2022.

The prevailing rate of interest for this type of note is 10%. Information on present value factors is as follows:

PV of PV of annuity of
Periods 1 at 5% 1 at 5%
3 0.8638 2.7235
6 0.7462 5.0757

16. How much is the interest income in 2022?

a. 88,825 c. 128,964
b. 177,649 d. 164,591

17. How much is the carrying amount of the receivable on December 31, 2022?
a. 1,241,086 c. 1,690,059
b. 982,381 d. 1,594,396

Numbers 14 and 15
On March 1, 2020, Namami Company sold goods to Zomiso Company. Zomiso singed a non-interest bearing
note requiring payment of P60,000 annually for seven years. The first payment was made on March 1, 2020. The
prevailing interest for this type of note at the date of issuance was 10%. Information on present value factors is
as follows:

Periods Present value of 1 PV of annuity of 1

at 10% at 10%
6 0.56 4.36
7 0.51 4.87

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18. How much should be reported as sales revenue on March 1, 2020?
a. 420,000 c. 261,600
b. 321,600 d. 292,200

19. What is the amount of interest income for the year 2020?
a. 30,000 c. 26,800
b. 26,160 d. 21,800

Numbers 20-23
On December 31, 2020, You Bring Out The Best In Me Like No One Else Can Do Company finished consultation
services and accepted in exchange a promissory note with a face value of P200,000, due date of December 31,
2023, and a stated rate of 5%, with interest receivable at the end of each year.

The fair value of the services is not readily determinable and the note is not readily marketable. Under the
circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. The following
interest factors are provided:

Table factors for three periods 5% 10%

Future value of 1 1.15763 1.33100
Present value of 1 0.86384 0.75132
Future value of ordinary annuity 3.15250 3.31000
Present value of ordinary 2.72325 2.48685
annuity

20. What is the amount of consultation service revenue to be present in the company’s income statement?
a. 175,133 c. 150,264
b. 24,869 d. 200,000

21. What is the amount of interest income for the year 2021?
a. 17,513 c. 20,000
b. 10,000 d. 7,513

22. What is the carrying value of notes as of December 31, 2022?

a. 190,909 c. 175,133
b. 182,645 d. 200,000

23. What is the current and noncurrent portion of the notes receivable as of December 31, 2022?

Current portion Noncurrent portion

a. 190,909 9,091
b. 200,000 9,091
c. 190,909 0
d. 200,000 0

24. What of the following items is not matched correctly with its basis of valuation for purposes of reporting on
the statement of financial position?
a. Investment in trading securities -> fair value
b. Long-term interest note with unrealistic rates -> face value
c. Inventories of broker traders -> fair value less cost to sell
d. Bearer plant -> cost less accumulated depreciation and accumulated impairment loss

25. The balance sheet of ARC Reserve Your Seat Now! Company reported the following long-term receivable as
of December 31, 2020:

Note receivable form sale of plant 4,500,000

Note receivable from officer 1,200,000

The following are transactions during 2021 and other information pertaining to the company’s long term
receivables:
a. The note receivable form sale of plant bears interest at 12% per annum. The note is payable in 3
annual installments of P1,500,000 plus interest on the unpaid balance every April 1. The initial principal
and interest payment was made on April 1, 2021

b. The note receivable from officer is dated December 31, 2020, earns interest at 10% per annum, and
is due on December 31, 2021. The 2021 interest was received on December 31, 2021

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 What is the accrued interest receivable as of December 31, 2021?
a. 385,500 c. 270,000
b. 428,538 d. 505,500
Numbers 26-30
On January 1, 2022, Stain Company sold a delivery equipment costing P1,000,000 with accumulated
depreciation of P150,000 in exchange of a three year, 10%, P1,800,000 interest bearing note. The note is
collectible in equal annual amount starting December 31, 2022 including interest.

The prevailing rate of interest of similar note on this date was at 12%. The following interest factors are provided:

Periods Present value of 1 PV of annuity of 1

at 12% at 12%
1 0.893 0.893
2 0.797 1.690
3 0.712 2.402

26. How much is the gain or loss on sale of equipment?

a. 740,500 c. 1,131,150
b. 890,300 d. 800,000

27. How much is the interest income in 2022?

a. 198,194 c. 208,836
b. 174,030 d. 180,000

28. How much is the carrying amount of the note on December 31, 2022?
a. 1,349,136 c. 1,200,000
b. 1,769,136 d. 1,169,136

29. How much is the current portion of the note on December 31, 2022?
a. 639,704 c. 589,432
b. 579,704 d. 600,000

30. How much is the noncurrent portion of the note on December 31, 2022?
a. 529,244 c. 589,244
b. 501,986 d. 20,287

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