REA LEE JOY PIDO
PRACTICE TEST 2.5, Notes Receivable
A. On January 1, 2016, Layla Company sold a tract of land that was acquired several years
ago for P2,800,000. Formatted received a three-year, non-interest-bearing note for
P6,000,000 in exchange for the land. There is no readily available market value for the
land, but for the current market rate of interest for comparable notes is 15%. The note is
payable in equal annual installments of P2,000,000 every December 31, starting
December 31, 2016. Present value of an annuity of P1 for three periods at 15% is
2.2832.
Required:
1. What is the amount of interest revenue recognized in Formatted’s profit and loss for
2016 and for 2017?
2. What is the carrying value of the note at December 31, 2016?
3. What amounts of the note shall be classified as current assets and non-current
assets at December 31, 2016?
1.Carrying value of the note on Jan1, 2016 P 4,566,400
Interest rate 15%
Interest revenue for 2016 P 684,960
Carrying value, January 1,2016 P 3,251,360
Interest rate 15%
Interest revenue for 2017 P 487,704
2. Carrying value, January 1, 2016 P 4,566,400
Add: amortization P 684,960
Less: first payment of principal (P 2,000,000)
Carrying value, December 31, 2016 P 3,251,360
3. Current Assets
Principal due P 2,000,000
Unamortized discount (P 487,704)
Carrying amount, Dec.31,2016 P 1,512,296
Non-current Asset
Principal due P 2,000,000
Unamortized discount
(P260,936)
Carrying amount, Dec. 31, 2016 P 1,739,064
PRACTICE TEST 2.5, Notes Receivable
A. On January 1, 2016, Layla Company sold a tract of land that was acquired several years
ago for P2,800,000. Formatted received a three-year, non-interest-bearing note for
P6,000,000 in exchange for the land. There is no readily available market value for the
land, but for the current market rate of interest for comparable notes is 15%. The note is
payable in equal annual installments of P2,000,000 every December 31, starting
December 31, 2016. Present value of an annuity of P1 for three periods at 15% is
2.2832.
Required:
1. What is the amount of interest revenue recognized in Formatted’s profit and loss for
2016 and for 2017?
2. What is the carrying value of the note at December 31, 2016?
3. What amounts of the note shall be classified as current assets and non-current
assets at December 31, 2016?
1.Carrying value of the note on Jan1, 2016 P 4,566,400
Interest rate 15%
Interest revenue for 2016 P 684,960
Carrying value, January 1,2016 P 3,251,360
Interest rate 15%
Interest revenue for 2017 P 487,704
2. Carrying value, January 1, 2016 P 4,566,400
Add: amortization P 684,960
Less: first payment of principal (P 2,000,000)
Carrying value, December 31, 2016 P 3,251,360
3. Current Assets
Principal due P 2,000,000
Unamortized discount (P 487,704)
Carrying amount, Dec.31,2016 P 1,512,296
Non-current Asset
Principal due P 2,000,000
Unamortized discount
(P260,936)
Carrying amount, Dec. 31, 2016 P 1,739,064
