Problem 6-4 (IAA) Gullible Company is a dealer in equipment. On December 31. 2020, the entity sold an equipment in exchange for a noninterest bearing note requiring five annual payments of P500,000. The first payment was made on December 31, 2021. The market interest for similar notes was 8%. The relevant present value factors are: PV of 1 at 8% for 5 periods PV of an ordinary annuity of 1 at 8% for 5 periods 0.68 3.99 Required: 1. Prepare journal entries for 2020 and 2021. 2. Determine the carrying amount of the note receivable on December 31, 2021. 8. Determine the interest income for 2022.

Problem 6-4 (IAA) Gullible Company is a dealer in equipment. On December 31. 2020, the entity sold an equipment in exchange for a noninterest bearing note requiring five annual payments of P500,000. The first payment was made on December 31, 2021. The market interest for similar notes was 8%. The relevant present value factors are: PV of 1 at 8% for 5 periods PV of an ordinary annuity of 1 at 8% for 5 periods 0.68 3.99 Required: 1. Prepare journal entries for 2020 and 2021. 2. Determine the carrying amount of the note receivable on December 31, 2021. 8. Determine the interest income for 2022.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Hot issue company sold its machine with a carrying amount of P2,000,000 in exchange for 2,500,000 non-interest bearing note that requires five annual payment of 500,000 starting on January 1, 2022 the market interest for similar notes was 10% and the relevant present value factors are:present value of a single payment at 10% for 5 periods 0.621present value of an ordinary annuity of 1 at 10% for 5 periods 3.791present value of annuity due of 1 at 10% for 5 periods 4.170how much is the gain or loss on sale of machine?a. 104,500 gainb. 85,000 lossc. 85,000 gaind. 104,500 loss
4. On April 1, 2021, XYZ CO. issued a 9% interest bearing note with a face amount of P 30,000,000 for the purchase of a machine. The note is payable in five equal annual installments starting on March 31,2022. Interest is payable annually base on the remaining balance. There is no established cash price for the equipment. The prevailing market rate of interest for a note of this type is 12%. How much is the interest expense for the year 2022?
What is the carrying amount of the note as of December 31, 2022
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PRAISEWORTHY Company is a dealer in equipment. On January 1, 2020, PRAISEWORTHY Company sold an equipment with a cost of P3,500,000 in exchange for a noninterest bearing note of P5,000,000 requiring a lump sum payment at the end of 5 years. The market interest for similar notes was 8%. The relevant present value factors are: PV of 1 at 8% for 5 periods 0.68 PV of an ordinary annuity of 1 at 8% for 5 periods 3.99 PV of an annuity due of 1 at 8% for 5 periods 4.31 What is the interest income to be recognized for the year ended December 31, 2020?
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