NOTES RECEIVABLE

1. Gloria Company sold one of its factories on January 1, 2011 for P7,000,000. Gloria
received a cash down payment of P1,000,000 and a 4 year, 12% note for the balance. The
note is payable in equal annual payments of principal and interest of P1,975,400 payable
on December 31 of each year until the year 2014, What is the carrying amount of the note
receivable on December 31, 2011?
a. P4,500,000 b. P4,744,600 c. P4,624,600 d. P4,025,600

2. On January 1, 2010, Care Company sold equipment with a carrying amount of

P7,000,000 in exchange for P9,000,000 noninterest bearing note due January
1,2013. There was no established exchange price for the equipment. The prevailing
interest rate for this note on January 1, 2010 was 10%. The present value of 1 at
10% for three periods is 0.75. In the 2010 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
3. In the 2011 income statement, what amount should be reported as interest
income?
a. 675,000 b. 742,500 c. 832,500 d. 900,000

LOANS RECEIVABLE
1. Mother Bank granted a loan to a borrower on January 1, 2012. The interest on
the loan is 10% payable annually starting December 31, 2012. The loan matures
in three years on December 31, 2014. Data related to the loan were:
Principal amount P5,000,000
Origination fee charged against the borrower 340,000
Direct origination cost incurred 100,000
Indirect origination cost incurred 50,000

After considering the origination fee charged against the borrower and the direct
origination cost incurred, the effective rate on the loan is 12%. What is the
carrying amount of the loan receivable on January 1, 2012?
a. P4,760,000 b. P5,000,000 c. P4,810,000 d. P4,660,000
2. What is the interest income for 2012?
a. P571,200 b. P500,000 c. P476,000 d. P547,200
3. What is the carrying amount of the loan receivable on December 31, 2012?
a. P5,000,000 b. P4,760,000 c. P4,831,200 d. P4,910,944

1. Adel Bank loaned P7,000,000 to a borrower on January 1, 2008. The terms of the
loan were payment in full on January 1, 2013, plus annual interest payment at 12%.
The interest payment was made as scheduled on January 1, 2009. However, due to
financial setbacks, the borrower was unable to make its 2010 interest payment. Adel
Bank considers the loan impaired and projects the cash flows from the loan as of
December 31, 2010. The bank has accrued the interest at December 31, 2009, but
did not continue to accrue interest for 2010 due to the impairment of the loan. The
projected cash flows are;
Date of cash flow Amount projected on December 31, 2010
December 31, 2011 500,000
December 31, 2012 1,000,000
December 31, 2013 2,000,000
December 31, 2014 4,000,000
How much is the loan impairment loss to be recognized on December 31, 2010?
a. 2,275,000 b. 3,175,000 c. 5,225,000 d. 2,175,000
2. What is the interest income to be reported by Adel Bank in 2011?
a. 627,000 b. 900,000 c. 567,000 d. 0
3. What is the carrying amount of the loan receivable on December 31, 2011?
a. 5,352,000 b. 4,725,000 c. 5,225,000 d. 7,000,000