Reference no: EM133183157
Questions -
Q1. On January 2, 2020, Alaska Co. sold equipment with a carrying amount of P480,000 in exchange for a P600,000 noninterest-bearing note due January 2, 2023. There was no established exchange price for the equipment. The prevailing rate of interest for a note of this type at January 2, 2020, was 10%.
Required - In Alaska's 2020 income statement, what amount should be reported as interest income?
In Alaska's 2020 income statement what amount should be reported as gain (loss) on sale of machinery?
Q2. On December 31, 2020, Choco Co. received two P1,000,000 notes receivable from customers in exchange for services rendered. On both notes, interest is calculated on the outstanding balance at the interest rate of 3% compounded annually and payable at maturity. The note from Milk Corp., made under customary trade terms, is due in nine months and the note from Cream, Inc. is due in five years. The market interest rate for similar notes on December 31, 2020, was 8%. The compound interest factors are as follows:
Future value of P1 due in nine months at 3% 1.0225
Future value of P1 due in five years at 3% 1.1593
Present value of P1 due in nine months at 8% 0.944
Present value of P1 due in five years at 8% 0.6805
Required - Choco does not elect the fair value option for reporting its financial assets. At what amounts should these two notes receivable be reported in Choco's December 31. 2020 statement of financial position?
Q3. On December 1, 2020, Magnolia Co. gave Anchor Co. a P200,000.11% loan. Magnolia paid proceeds of P194,000 after the deduction of a P6,000 nonrefundable loan origination fee. Principal and interest are due in sixty monthly installments of P4,310, beginning January 1, 2021. The repayments yield an effective interest rate of 11% at a present value of P200,000 and 12.4% at a present value of P194,000.
Required - What amount of income from this loan should Magnolia report in its 2020 income statement?
Q4. On January 2, 2020, Alene Company received an P800,000, 8%, 2-year note from Milo Corporation as settlement for an outstanding past due account. The interest is payable every December 31 and the interest due in 2020 were collected on time. In 2021, Milo Corporation was in financial crisis, as a result of this development, Alene Company expects that the interest accruing for 2021 will not be collected and that only P600,000 of the principal amount will be collected in equal installment over the next three years starting December 31, 2022. As of December 31, 2021, the market rate of interest for a similar instrument is 9%.
Required - What amount of impairment loss should Anlene Company recognize on December 31, 2021 related to its notes receivable?
Q5. BTS Bank loaned P5,500,000 to Blackpink Co. on January 1, 2019. The initial loan repayment terms include a 10% interest rate plus annual principal payments of P1,100,000 on January 1 each year. Blackpink made the requiredinterest payment in 2019 but did not make the P1,100,000 principal paymentnor the P550.000 interest payment for 2020. BTS Bank is preparing its annual financial statements on December 31, 2020. Blackpink is having financial difficulty, and BTS Bank has concluded that the loan is impaired.
Analysis of Blackpink's financial condition on December 31, 2020 indicates the principal payments will be collected, but the collection of interest is unlikely. BTS Bank did not accrue the interest on December 31, 2020. The projected cash flows are:
December 31, 2021 - P1,750.000
December 31, 2022 - P2.00.000
December 31, 2023 - P1.750.000
Required - What is the interest income in 2023?
Q6. On June 30, 2021, Anne Company discounted at the bank a customer's P6,000,000, 6-month, 10% note receivable dated April 30, 2021. The bank discounted the note at 12% without recourse.
Required - What is the loss on note receivable discounting?