Chapter-5 Notes- Receivable IA-PART-1A PDF

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Chapter 5Notes ReceivablePROBLEM 1: TRUE OR FALSE1. TRUE FALSE (1M x PV of ordinary annuity of 1 @10%, n=3) TRUE TRUE TRUE FALSE 40, TRUE (100,000 x .90) = 90,000 x 10% = 9, TRUE (100,000 x .90 x 110% x 10%) = 9,900 OR (90,000 + 9,000) x 10% = 9, FALSE 850,000 (the note is collectible in installment...

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Chapter 5 Notes Receivable PROBLEM 1: TRUE OR FALSE 1. TRUE 2. FALSE (1M x PV of ordinary annuity of 1 @10%, n=3) 3. TRUE 4. TRUE 5. TRUE 6. FALSE 40,000 7. TRUE (100,000 x .90) = 90,000 x 10% = 9,000 8. TRUE (100,000 x .90 x 110% x 10%) = 9,900 OR (90,000 + 9,000) x 10% = 9,900 9. FALSE 850,000 (the note is collectible in installments) 10. TRUE PROBLEM 2: CLASSROOM DISCUSSION 1.

A

2.

C

3. Solutions: Initial measurement: ₱133,100 x PV of ₱1 @10%, n= 3 = ₱100,000 Requirement (a):

Date 1/1/x1 12/31/x1 12/31/x2 12/31/x3

Unearned interest 33,100 23,100 12,100 -

Interest income 10,000 11,000 12,100

Requirement (b): 1/1/x1 Note receivable 133,100 Unearned interest Land 12/31/x1 Unearned interest Interest income

33,100 100,000

10,000 10,000 1

Present value 100,000 110,000 121,000 133,100

12/31/x2 Unearned interest Interest income

11,000

12/31/x3 Unearned interest Interest income

12,100

12/31/x3 Cash Note receivable

133,100

4.

11,000

12,100

133,100

C

5. Solutions: Initial measurement: ₱100,000 x PV ordinary annuity of ₱1 @10%, n=3 = ₱248,685

Requirement (a): Date 1/1/x1 12/31/x1 12/31/x2 12/31/x3

Collection s

Interest income

Amortizatio n

100,000 100,000 100,000

24,869 17,355 9,091

75,132 82,645 90,909

Present value 248,685 173,554 90,909 (0)

Requirement (b): Current portion = 82,645 (see table above) Noncurrent portion = 173,554 (see table above) Requirement (c): Interest income in 20x2 and 20x3: (17,355 + 9,091) = 26,446 OR Outstanding balance of face amount (100K x 2) Carrying amt. on 12/31/x1 Unearned interest on 12/31/x1

200,000 (173,554) 26,446

Requirement (d): 1/1/x1 Note receivable 300,000 Accum. depreciation 700,000 Loss (squeeze) 51,315 Unearned interest (300,000 – 248,685) 51,315 Equipment 1,000,000 2

12/31/x1 Unearned interest Interest income Cash

24,869 24,869 100,000

Note receivable 12/31/x2 Unearned interest Interest income Cash

100,000 17,355 17,355 100,000

Note receivable 12/31/x3 Unearned interest Interest income Cash

100,000

9,091 9,091 100,000

Note receivable

6.

100,000

D

7. Solutions: Initial measurement: (1.2M ÷ 3) = 400,000; 400,000 x PV of an annuity due of ₱1 @10%, n=3 = 1,094,215

Requirement (a): Date 1/1/x1 1/1/x1 1/1/x2 1/1/x3

Collection s

Interest income

Amortizatio n

400,000 400,000 400,000

69,421 36,364

400,000 330,579 363,636

Requirement (b): 69,421 – see table above.

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Present value 1,094,215 694,215 363,636 (0)

PROBLEM 3: EXERCISES 1. Solutions: Initial measurement: ₱1,000,000 x PV of ₱1 @14%, n= 4 = ₱592,080 Requirement (a):

Date 1/1/x1 12/31/x1 12/31/x2 12/31/x3 12/31/x4

Unearned interest 407,920 325,029 230,533 122,807 0

Interest income 82,891 94,496 107,725 122,807

Present value 592,080 674,971 769,467 877,193 1,000,000

Requirement (b):

1/1/x1 Note receivable 1,000,000 Unearned interest Land Gain 12/31/x1 Unearned interest Interest income

82,891

12/31/x2 Unearned interest Interest income

94,496

12/31/x3 Unearned interest Interest income

107,725

12/31/x4 Unearned interest Interest income

122,807

Cash Note receivable

407,920 500,000 92,080

82,891

94,496

107,725

122,807 1,000,000 1,000,000

2. Solutions: Initial measurement: ₱900,000 x PV of ₱1 @12%, n= 3 = ₱640,602 Requirement (a): Date Interest income

Unearned

4

Present value

interest 1/1/x1

259,398

640,602

12/31/x1

76,872

182,526

717,474

12/31/x2

86,097

96,429

803,571

12/31/x3

96,429

0

900,000

Requirement (b): 1/1/x1 Note receivable 900,000 Accum. depn. 400,000 Loss 159,398 Unearned interest Machinery 12/31/x1 Unearned interest Interest income

76,872

12/31/x2 Unearned interest Interest income

86,097

12/31/x3 Unearned interest Interest income

96,429

12/31/x3 Cash Note receivable

900,000

259,398 1,200,000

76,872

86,097

96,429

900,000

3. Solution: Initial measurement: ₱250,000 x PV of ₱1 @14%, n= 4 = ₱759,337 Requirement (a): Date 1/1/x1 12/31/x 1 12/31/x 2

Collections

Interest income

Amortizatio n

Present value 759,337

250,000

91,120

158,880

600,457

250,000

72,055

177,945

422,512

5

12/31/x 3 12/31/x 4

250,000

50,701

199,299

223,214

250,000

26,786

223,214

-

Requirement (b): Current portion = 177,945 (see table above) Noncurrent portion = 422,512 (see table above) Requirement (c):

1/1/x1 Note receivable 1,000,000 Loss (squeeze) 240,663 Unearned interest (1M – 759,337) Land 12/31/x1 Unearned interest Interest income Cash

240,663 1,000,000

91,120 91,120 250,000

Note receivable 12/31/x2 Unearned interest Interest income Cash

250,000

72,055 72,055

250,000 Note receivable

12/31/x3 Unearned interest Interest income Cash

250,000

50,701 50,701

250,000 Note receivable

12/31/x4 Unearned interest Interest income Cash

250,000

26,786 26,786

250,000 Note receivable

250,000

4. Solution: Initial measurement:

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₱400,000 x PV of ₱1 @15%, n= 3 = ₱913,290 Requirement (a): Collection Date s 1/1/x1

Interest income

Amortizatio n

Present value 913,290

12/31/x1 12/31/x2 12/31/x3

136,994 97,543 52,174

263,006 302,457 347,826

650,284 347,826 (0)

400,000 400,000 400,000

Requirement (b): Current portion = 302,457 (see table above) Noncurrent portion = 347,826 (see table above) Requirement (c):

1/1/x1 Note receivable 1,200,000 Loss (squeeze) 86,710 Unearned interest (1.2M – 913,290) Land 12/31/x1 Unearned interest Interest income Cash

286,710 1,000,000

136,994 136,994

400,000 Note receivable

12/31/x2 Unearned interest Interest income Cash

400,000

97,543 97,543

400,000 Note receivable

12/31/x3 Unearned interest Interest income Cash

400,000

52,174 52,174

400,000 Note receivable

400,000

5. Solution: Initial measurement: (300,000 x PV of an annuity due of 1 @9%, n=3) = 827,733

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Requirement (a): Collection Date s 1/1/x1 1/1/x1 300,000 1/1/x2 300,000 1/1/x3 300,000

Interest income

Amortizatio n

47,496 24,771

300,000 252,504 275,229

Present value 827,733 527,733 275,229 (0)

Requirement (b): Interest income in 20x1 = 47,496 (see table above) Requirement (c):

1/1/x1 Cash 100,000 Note receivable 900,000 Unearned interest (900K – 827,733) Land Gain (squeeze)

72,267 800,000 127,733

1/1/x1 Cash

300,000 Note receivable

12/31/x1 Unearned interest Interest income

6.

300,000

47,496 47,496

Solution: Face amount (1) (400,000 x 4) = 1,600,000 Unearned interest at initial recognition (2) (1.6M – 1,119,272) = 480,728 Effective interest rate (3) (179,084 ÷ 1,119,272) = 16% Term of the note (in years) (4) 4 years

Date Collections 1/1/x1 12/31/x1 400,000 12/31/x2 400,000 12/31/x3 400,000 12/31/x4 400,000

Interest income 179,084 143,737 102,735 55,172

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Amortizatio n 220,916 256,263 297,265 344,828

Present value 1,119,272 898,356 642,093 344,827 0

7. Solutions: First step: Place the given information on the amortization table: Collection Interest Amortizatio Present Date s income n value 1/1/x1 911,205 12/31/x1 300,000 12/31/x2 300,000 86,466 213,534 507,015 12/31/x3 300,000 12/31/x4 300,000

Second step: Squeeze for the carrying amount of the note on December 31, 20x1. Collection Interest Amortizatio Present Date s income n value 1/1/x1 911,205 12/31/x1 300,000 720,549* 12/31/x2 300,000 86,466 213,534 507,015 12/31/x3 300,000 12/31/x4 300,000 * (213,534 + 507,015) = 720,549 Third step: Compute for the effective interest rate EIR = 86,466 ÷ 720,549 = 12% Fourth step: Squeeze for the other missing information Collection Interest Amortizatio Date s income n 1/1/x1 12/31/x1 300,000 109,345 190,655 12/31/x2 300,000 86,466 213,534 12/31/x3 300,000 60,842 239,158 12/31/x4 300,000 32,143 267,857

9

Present value 911,205 720,549 507,015 267,857 -

PROBLEM 4: CLASSROOM ACTIVITIES ACTIVITY 1: The learners perform the activity, grade themselves, and then pass their scores to the teacher for recording. ACTIVITY 2: The learners perform the activity, grade themselves, and then pass their scores to the teacher for recording. ACTIVITY 3: The learners perform the activity and then pass their printed work to the teacher for grading. ACTIVITY 4: The learners perform the activity and then pass their printed work to the teacher for grading.

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PROBLEM 5: MULTIPLE CHOICE - THEORY 1. D 6. D 11. A 2. B 7. D 12. B 3. D 8. C 13. C 4. B 9. C 14. D 5. C 10. C 15. A PROBLEM 6: MULTIPLE CHOICE: COMPUTATIONAL 1. B (400,000 x .75) = 300,000 x 10% = 30,000 2. A (60,000 x PV annuity due @10%, n=7) = 321,600 rounded off 3. B (600,000 x PV of ₱ 1 @10%, n=3) = 450,789 x 10% = 45,000 rounded off 4. A 480,000 carrying amount – 450,789 present value = 30,000 loss rounded off 5. D Maxx note (10,000 x 1.1593 Future Value of ₱1 @3%, n=5) = 11,593 future value x .680 = 7,883. The answer choice is rounded off 6. C (150K – 50K in July 1, 20x5) = 100K balance x 8% = 8,000 7. C (500,000 x 12% x 2/12) = 10,000 8. B (5,009 x 5) = 25,045 total cash flows from the note receivable less 19,485 present value = 5,560 9. C (10,000 x PV of an annuity due of ₱ 1 @8%, n=10) = 72,468 less 10,000 first installment on Dec. 30, 20x4 = 62,469. Answer choice is rounded-off 10. C Solution: The equal annual year-end payments are computed as follows: PV = Cash Flow x PVF 20,000 = Cash Flow x PV ordinary annuity of 1 @8%, n=5 20,000 = Cash Flow x 3.993 Cash Flow = 20,000 ÷ 3.9927 Cash Flow = 5,009 Total cash flow = 5,009 x 5 years = 25,045 Less: Present value (5,009 x PV ordinary annuity @9%, n=5) = 19,483 Total interest revenue = 5,561 (Answer choice is rounded-off)

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