On January 1, 2019, Kelly Company sold equipment with a carrying amount of P7, 000,000 in exchange for P9, 000,000 noninterest bearing note due January 1, 2022. There was no established exchange price for the equipment. The prevailing interest rate for this note on January 1, 2019 was 10%. The present value of 1 at 10% for three periods is 0.75. 1. In the 2019 income statement, what amount should be reported as gain or loss on sale of equipment? a. 2,000,000 gain b. 2,250,000 gain c. 250,000 gain d. 250,000 loss 2. In the 2020 income statement, what amount should be reported as interest income? a. 675, 000 b. 742,500 c. 832,500 d. 900,000
On January 1, 2019, Kelly Company sold equipment with a carrying amount of P7, 000,000 in exchange for P9, 000,000 noninterest bearing note due January 1, 2022. There was no established exchange price for the equipment. The prevailing interest rate for this note on January 1, 2019 was 10%. The present value of 1 at 10% for three periods is 0.75. 1. In the 2019 income statement, what amount should be reported as gain or loss on sale of equipment? a. 2,000,000 gain b. 2,250,000 gain c. 250,000 gain d. 250,000 loss 2. In the 2020 income statement, what amount should be reported as interest income? a. 675, 000 b. 742,500 c. 832,500 d. 900,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2019, Kelly Company sold equipment with a carrying amount of P7, 000,000
in exchange for P9, 000,000 noninterest bearing note due January 1, 2022. There was no
established exchange price for the equipment. The prevailing interest rate for this note on
January 1, 2019 was 10%. The present value of 1 at 10% for three periods is 0.75.
1. In the 2019 income statement, what amount should be reported as gain or loss on sale of
equipment?
a. 2,000,000 gain
b. 2,250,000 gain
c. 250,000 gain
d. 250,000 loss
2. In the 2020 income statement, what amount should be reported as interest income?
a. 675, 000
b. 742,500
с. 832,500
d. 900,000
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