Aec 22 - Notes Receivable

AEC 22 - NOTES RECEIVABLE
REVIEW ON TIME VALUE OF MONEY:
1. Present value is
a. the value now of a future amount.
b. the amount that must be invested now to produce a known future value.
c. always smaller than the future value.
d. all of these.
2.Which of the following factors would show the largest value for an interest rate of 12% for
six periods?
a. Present value of 1
b. Present value of an ordinary annuity of 1
c. Present value of an annuity due of 1
d. Answer cannot be determined
3. What factor should you use if you want to determine the value now of a ₱1,000 payment due in
three years’ time?
a. Future value of 1
b. Present value of 1
c. Present value of an ordinary annuity of 1
d. Present value of an annuity due of 1
4. What factor should you use for a ₱1,000 note receivable that is collectible in five annual
installments of ₱200 starting one year hence?
d. Any of these
5. What factor should you use for a ₱2,000 note receivable that is collectible in full after
five years?
d. Any of these
6. Which of the following results to the smallest value?

a. Present value of an annuity due of 1 @12%, n=5
b. Present value of an ordinary annuity of 1 @12%, n=5
c. Present value of 1 @12%, n=5
d. Present value of 1 @14%, n=5
7. A higher interest rate results to

a. increased amount of present value.
b. decreased amount of present value.
c. same amount of present value.
d. Answer cannot be determined due to insufficient data
8. A shorter period results to

a. increased amount of present value.
b. decreased amount of present value.
c. same amount of present value.
d. shorter accountant.
9. The present value of 1 for a period of zero equals

a. 1.
b. 0.
c. Error!
d. Answer depends on the interest rate
10. Multiplying a lump sum future amount by a Present Value of 1 factor results to
a. Future amount.
b. Future value of 1.
c. Present value.
d. Present value of 1.
APPLICATION.
A. On January 1, 20x1, ABC Co. sold a transportation equipment with a historical cost of
₱1,000,000 and accumulated depreciation of ₱300,000 in exchange for cash of ₱100,000 and a
noninterest-bearing note receivable of ₱800,000 due on January 1, 20x4. The prevailing rate of
interest for this type of note is 12%.
1. How much is the interest income in 20x1?

2. How much is the carrying amount of the receivable on December 31, 20x2?
B. On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of
₱20,000,000 and accumulated depreciation of ₱7,000,000 in exchange for cash of ₱500,000 and a
noninterest-bearing note receivable of ₱8,000,000 due in 4 equal annual installments starting on
December 31, 20x1 and every December 31 thereafter. The prevailing rate of interest for this
type of note is 12%.

2. How much is the current portion of the receivable on December 31, 20x1?
C. On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of
₱12,000,000 and accumulated depreciation of ₱7,000,000 in exchange for cash of ₱100,000 and a
noninterest-bearing note receivable of ₱4,000,000 due in 4 equal annual installments starting on
January 1, 20x1 and every January 1 thereafter. The prevailing rate of interest for this type of
note is 12%.

3. How much is the carrying amount of the receivable on January 1, 20x3?
D. On January 1, 20x1, ABC Co. sold machinery with historical cost of ₱3,000,000 and accumulated
depreciation of ₱900,000 in exchange for a 3-year, ₱2,100,000 noninterest-bearing note
receivable due in equal semi-annual payments every July 1 and December 31 starting on July 1,
20x1. The prevailing rate of interest for this type of note is 10%.

E. On January 1, 20x1, ABC Co. sold machinery costing ₱3,000,000 with accumulated depreciation
of ₱1,100,000 in exchange for a 3-year, ₱900,000 noninterest-bearing note receivable due as
follows:
Date Amount of installment

December 31, 20x1 400,000
December 31, 20x2 300,000
December 31, 20x3 200,000
Total 900,000
The prevailing rate of interest for this type of note is 10%.
F. On January 1, 20x1, ABC Co. sold inventory costing ₱1,800,000 with a list price of ₱2,200,000
and a cash price of ₱2,000,000 in exchange for a ₱2,400,000 noninterest-bearing note due on
December 31, 20x3.
1. How much is the initial measurement of the receivable?


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AEC 22 - NOTES RECEIVABLE

REVIEW ON TIME VALUE OF MONEY:

6. Which of the following results to the smallest value?

7. A higher interest rate results to

8. A shorter period results to

9. The present value of 1 for a period of zero equals

1. How much is the interest income in 20x1?

1. How much is the interest income in 20x1?

1. How much is the interest income in 20x1?

1. How much is the interest income in 20x1?

Date Amount of installment

The prevailing rate of interest for this type of note is 10%.

1. How much is the initial measurement of the receivable?

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