On April 1, 2021, Leni Company (a calendar-year company) sold a tract of land that originally cost P400,000. Leni received a P600,000 note as payment for the land. The note is payable in three annual installments of P200,000 beginning March 31, 2022 plus interest at the rate of 4% based on the outstanding balance. At April 1, 2021, the prevailing rate of interest for a similar obligation is 10%. The fair value of the note is derived by discounting all future collections using the prevailing interest rate, thus, amounting to P538,424. How much is the interest revenue for the year ended December 31, 2021?

On April 1, 2021, Leni Company (a calendar-year company) sold a tract of land that originally cost P400,000. Leni received a P600,000 note as payment for the land. The note is payable in three annual installments of P200,000 beginning March 31, 2022 plus interest at the rate of 4% based on the outstanding balance. At April 1, 2021, the prevailing rate of interest for a similar obligation is 10%. The fair value of the note is derived by discounting all future collections using the prevailing interest rate, thus, amounting to P538,424. How much is the interest revenue for the year ended December 31, 2021?

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter5: Introduction To Business Expenses

Section: Chapter Questions

Problem 61P

See similar textbooks

Similar questions

On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park 200,000 and had a book value of 20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is 25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Parks December 31, 2019, balance sheet? a. 28,560 b. 29,000 c. 32,500 d. 36,000
On January 1, 2019, Boater Company issues a 20,000 non-interest-bearing, 5-year note for equipment. Neither the fair value of the note nor the equipment is determinable. Boaters incremental borrowing rate is 9%. The asset has a useful life of 7 years. Prepare the journal entry for Boater to record the issuance of the note on January 1.
On July 1, 2019, Aldrich Company purchased as an available-for-sale security 200,000 face value, 9% U.S. Treasury notes for 194,000. The notes mature July 1, 2020, and pay interest semiannually on January 1 and July 1. The notes were sold on December 1, 2019, for 199,000. Aldrich normally uses straight-line amortization on all of its notes. In its income statement for the year ended December 31, 2019, what amount should Aldrich report as a gain on the sale of the available-for-sale security? a. 2,500 b. 3,500 c. 5,000 d. 6,000
On January 1, 2019, Northfield Corporation becomes delinquent on a 100,000, 14% note to First National Bank, on which 16,651 of interest has accrued. On January 2, 2019, the bank agrees to restructure the note. It forgives the accrued interest, extends the repayment date to December 31, 2021, and reduces the interest rate to 10%. Required: Prepare a schedule for Northfield to compute the annual interest expense in regard to the preceding note for each year of the restructuring agreement.
On January 1, 2018, King Inc. borrowed $150,000 and signed a 5-year, note payable with a 10% interest rate. Each annual payment is in the amount of $39,569 and payment is due each Dec. 31. What is the journal entry on Jan. 1 to record the cash received and on Dec. 31 to record the annual payment? (You will need to prepare the first row in the amortization table to determine the amounts.)
Spath Company borrows 75,000 by issuing a 4-year, noninterest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spaths incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate. Required: Prepare the journal entries on Spaths books for 2019 and 2020. (Round answers to 2 decimal places.)
On July 1, 2021, Kiko Company (a calendar-year company) sold a tract of land that originally cost P400,000. Kiko received a P600,000 note as payment for the land. The note is payable in three annual installments of P200,000 beginning June 30, 2022 plus interest at the rate of 13% based on the outstanding balance. At July 1, 2021, the prevailing rate of interest for a similar obligation is 10%; thus, the stated interest was deemed as unrealistic. The fair value of the note is derived by discounting all future collections using the prevailing interest rate, amounting to P630,790. How much is the amortized cost (carrying value) of the notes receivable at December 31, 2021?
On January 1, 2021, Hosana Co. sold equipment in exchange for a P 850,000, 4 year, 11% note, interest is compounded annually and is paid every January 1 of the following year. How much interest was accrued on December 31, 2022? How much is the total amount to be collected at the end of the term of the note?
On January 1, 2021, My Universe Corporation issued a three-year, non-interest bearing note with face value of P3,000,000 for a piece of land purchased from Permission to Dance Corporation. The note is payable in annual installments of P1,000,000 every December 31, starting December 31, 2021. The land has an equivalent cash price of P2,400,000, a price that provides the note an effective interest of 12.0444%. How much is the Notes Payable, net of discount, should be reported as current liability as of December 31, 2021? A. P892,503.32 B. P796,562.18 C. P710,934.40 D. P1,000,000
On October 1, 2020, ABC Manufacturing sold a tract of land that originally cost P400,000. ABC received a P600,000, 6% note as payment for the land. The principal amount of the note is payable on September 30, 2023. Interest is payable every anniversary dates - September 30, 2021, September 30, 2022 and September 30, 2023. On October 1, 2020, the prevailing rate of interest for a similar obligation is 10%. On this date, there is no available cash price for the land. PV of a single payment at 6%- 0.8396; PV of a single payment at 10%- 0.7513; PV of ordinary annuity at 6%- 2.6730; PV of ordinary annuity at 10%- 2.4869. ABC's accounting period ends on December 31. How much is the amortized cost/carrying value of the note receivable reported in ABC’s statement of financial position at December 31, 2021? A. P558,339 B. P563,298 C. P573,215 D. P578,173
On January 1, 2021, My Universe Corporation issued a three-year, non-interest bearing note with face value of P3,000,000 for a piece of land purchased from Permission to Dance Corporation. The note is payable in annual installments of P1,000,000 every December 31, starting December 31, 2021. The land has an equivalent cash price of P2,400,000, a price that provides the note an effective interest of 12.0444%. How much is the Notes Payable, net of discount, should be reported as current liability as of December 31, 2021? P710,934.40 P892,503.32 P796,562.18 P1,000,000
On February 1, 2022 Baby Powder Company purchased an equipment from Shakers Corporation in exchange for a seven-year, non-interest-bearing note requiring five payments of P110,500 and two payments of P140,500. The first five payment of P110,500 is to be made on February 1, 2023 – 2027, and the others are due annually on February 2, 2028 and 2029. At date of issuance, the prevailing rate of interest for this type of note was 9%. In addition, Baby Powder paid cash of P75,000 as down-payment, and incurred installation cost of P15,000; Testing cost of P10,000 and paid insurance of P5,000 while the equipment is in transit. What amount should Baby Powder initially recognized the equipment on February 2, 2022?