Reference no: EM133070643
Question 1 - On January 1, 2019, Ott company sold goods to Fox Company. Fox company a noninterest-bearing note requiring payment of P600,000 annually for seven years. The first payment was made on January 1, 2019.
The prevailing rate of interest for this type of note at date of issuance was 10%.
PV of an ordinary annuity of 1 at 10% for 6 periods 4.36.
PV of an ordinary annuity of 1 at 10% for 7 periods 4.87.
1. What amount should be recorded as sales revenue in January 2019?
2. What is the carrying amount of the note receivable on January 1, 2019?
3. What is the interest income for 2019?
4. What is the carrying amount of the note receivable on December 31, 2019?
Question 2 - National Bank granted a loan to a borrower on January 1, 2019. The interest on the loan is 10% payable annually starting December 31, 2019. The loan matures in three years on December 31, 2021.
Principal amount 4,000,000
Originating fee charged against the borrower 342, 100
Direct origination cost incurred 150,000
After considering the origination fee charged against the borrower and the direct origination cost incurred, the effective rate on the loan is 12%.
1. What is the carrying amount of the loan receivable on January 1, 2019?
2. What amount should be recognized as interest income for 2019?
3. What is the carrying amount of the loan receivable on December 31, 2019?
4. What amount should be recognized as interest income for 2020?
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