Determine the amount of interest expense to report

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(a) On January 1, 2017, Ray Reyes Inc. purchased land that had an assessed value of P350,000 at the time of purchase. A P550,000, non-interest-bearing note due January 1, 2020, was given in exchange. There was no established exchange price for the land, nor a ready market value for the note. The interest rate charged on a note of this type is 12%. Determine at what amount the land should be recorded at January 1, 2017, and the interest expense to be reported in 2017 related to this transaction.

(b) On January 1, 2017, Say Santos Furniture Co. borrowed P5,000,000 (face value) from Gar Solis Co., a major customer, through a non-interest-bearing note due in 4 years. Because the note was non-interest-bearing, Say Santos Furniture agreed to sell furniture to this customer at lower than market price. A 10% rate of interest is normally charged on this type of loan. Prepare the journal entry to record this transaction and determine the amount of interest expense to report for 2017.

Reference no: EM133174460

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