PROBLEM 8: On December 31, 2015, Park Bo Gum Co. sold used equipment with a carrying amount of P2,000,000 in exchange for a noninterest-bearing note of P5,000,000 requiring ten annual payments of P500,000. The first payment was made on December 31, 2016. The market interest for a similar note was 12%. The present value of an ordinary annuity at 12% is 5.65 for ten periods and 5.33 for nine periods. What is the carrying amount of the note receivable on December 31, 2015? P5,000,000 P2,285,000. P2,665,000 P4,500,000 What is the gain on the sale of equipment to be recognized in 2015? P3,000,000 P2,175,000 P825,000. Nil What amount should be recognized as interest income for 2016? P600,000 P339,000. P319,800 P300,000
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
PROBLEM 8: On December 31, 2015, Park Bo Gum Co. sold used equipment with a carrying amount of P2,000,000 in exchange for a noninterest-bearing note of P5,000,000 requiring ten annual payments of P500,000. The first payment was made on December 31, 2016.
The market interest for a similar note was 12%. The present value of an ordinary annuity at 12% is 5.65 for ten periods and 5.33 for nine periods.
- What is the carrying amount of the note receivable on December 31, 2015?
- P5,000,000
- P2,285,000.
- P2,665,000
- P4,500,000
- What is the gain on the sale of equipment to be recognized in 2015?
- P3,000,000
- P2,175,000
- P825,000.
- Nil
- What amount should be recognized as interest income for 2016?
- P600,000
- P339,000.
- P319,800
- P300,000
- What is the carrying amount of the note receivable on December 31, 2016?
- P2,664,000.
- P4,500,000
- P2,825,000
- P2,325,000
PROBLEM 9: Paasa Co. sold machinery to Hoping Co. on January 1, 2015, for which the cash selling price was P7,582,000. Hopin entered into an installment sale contract with Paasa at an interest rate of 10%. The contract required payments of P2,000,000 a year over five years, with the first payment due on December 31, 2015. What amount of interest income should be reported in 2015?
- P1,000,000
- P634,020
- P758,200.
- Nil
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