Reference no: EM133105962
Question 1 - On January 1, 2022, Coco Company sold equipment with historical cost of P 10,000,000 and accumulated depreciation of P 5,500,000 in exchange for a P 6,000,000 noninterest-bearing note due in equal annual installments of P 2,000,000 every December 31 starting December 31, 2022. There was no established exchange price for the equipment.
The prevailing rate of interest for a note of this type on January 1, 2022 was 10%.
Round off present value factors to four decimal places.
1. At what amount shall the note be initially measured on January 1, 2022?
a. 4,500,000
b. 4,507,800
c. 4,973,800
d. 6,000,000
2. What amount should be reported as gain (loss) on sale of equipment.
a. 473,800 gain
b. 473,800 loss
c. 1,500,000 gain
d. 1,500,000 loss
3. What amount should be reported as interest income for 2022?
a. 0
b. 400,000
c. 497,380
d. 600,000
4. What amount should be reported as accrued interest receivable on December 31, 2022?
a. 0
b. 400,000
c. 497,380
d. 600,000
5. What is the carrying amount of the note on December 31, 2022?
a. 1,652,882
b. 1,818,298
c. 2,000,000
d. 3,471,180
6. How much shall be presented as current assets in relation to the note on December 31, 2022?
a. 1,652,882
b. 1,818,298
c. 2,000,000
d. 3,471,180
7. How much shall be presented as non-current assets in relation to the note on December 31, 2022?
a. 1,652,882
b. 1,818,298
c. 2,000,000
d. 3,471,180
8. What amount should be reported as interest income for 2023?
a. 0
b. 200,000
c. 347,118
d. 400,000
Question 2 - Martin Bank, Inc. loaned John Company P 5,000,000 on January 1, 2016. The terms of the loan were payment in full on December 31, 2020 plus annual interest payments at 10% every December 31 starting December 31, 2016 until December 31, 2020.
Due to the economic downtrend brought by COVID-19 pandemic during 2020, Sheep Company is experiencing declining revenues and is likely to default on its loan payment with Martin Bank, Inc. John Company requests for a restructuring of its loan with the bank on December 31, 2020. Martin Bank, Inc. accrued interest for 2020.
The prevailing market rate of interest on December 31, 2020 is 7%.
Round off all present value factors to four decimal places.
Both parties agreed on the following modified terms-
a. Payment in full of the accrued interest on the date of restructuring.
b. Reduction of principal to P 4,500,000
c. Principal amount of P 1,500,000 plus 7% interest on the unpaid principal amount, payable in annual installment beginning December 31, 2021.
9. What is the present value of the expected future cash flows as of the restructuring date?
a. 4,268,997
b. 4,260,997
c. 4,286,799
d. 4,268,990
10. How much is the impairment loss to be recognized for 2020?
a. 730,000
b. 731,000
c. 731,003
d. 731,004
11. How much is the interest income for 2021?
a. 426,099
b. 428,679
c. 426,900
d. 420,900
12. What is the carrying amount of the loan receivable on December 31, 2021?
a. 2,888,897
b. 2,880,897
c. 2,880,890
d. 2,880,899