Reference no: EM132812166
Problem 1 - On Dec. 31, 2020, Kantian Company sold an equipment with carrying amount of P2,000,000 and received a noninterest-bearing note requiring payment of P500,000 annually for ten years. The first payment is due Dec. 31, 2021.
The prevailing rate of interest for this type of note at date of issuance is 12%.
Present value of 1 at 12% for 10 periods 0.322
Present value of ordinary annuity of 1 at 12% for 10 periods 5.650
Problem 2 - On Jan. 1 , 2020, Alyzza Company sold a building and received as consideration P1,000,000 cash and a P4,000,000 noninterest-bearing note due on Jan. 1, 2023.
There was no established exchange price for the building and the note had no ready market.
The prevailing rate of interest for a note of this type on Jan. 1, 2020 was 10%. The present value of 1 at 10% for three periods is 0.75.
Requirements -
1. Compute the Unearned Interest Income on the date of sale.
2. Prepare the amortization table.
3. Prepare the Journal entry on the 1st, 2nd, and last year.
4. Compute the Carrying amount of the note on the 2nd year.
5. Compute the Interest Income on the 2nd year.
6. Compute the Unearned Interest Income on the 3rd year.
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