Reference no: EM132808286
On January 1, 2020, Jacobs Company sold property to Dains Company which originally cost Jacobs P950,000. There was no established exchange price for this property. Dains gave Jacobs a P1,500,000 zero-interest-bearing note payable in three equal annual installments
of P500,000 with the first payment due December 31, 2020. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a P1,500,000 note payable in three equal annual installments of P500,000 at a 10% rate of interest
is P1,243,500.
Problem 1: What is the amount of interest expense that should be recognized by Dains in 2020, using the effective interest method?
Problem 2: What is the amount of interest expense that should be recognized by Dains in 2021, using the effective interest method?
Problem 3: What is the carrying amount of the note payable on December 31, 2021?
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