BACHELOR OF BUSINESS ADMINISTRATION

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BUSINESS ADMINISTRATION

FINANCIAL ACCOUNTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
HARD19. On December 31, Year 1, L COMPANY sold used equipment with carrying amount of P2, 000, 000 in exchange for a noninterest bearing note requiring ten annual payments of P500, 000. The first payment was made on December 31, Year 2. The market interest for similar note was 12%. The present value of an ordinary annuity of 1 is 5.65 for ten periods and 5.33 for nine periods. What is the carrying amount of the note receivable on December 31, Year 1?
A
5, 000, 000
B
2, 825, 000
C
2, 665, 000
D
4, 500, 000
Explanation: 

Detailed explanation-1: -Subsequent Measurement Notes Receivable are later recorded at amortized cost. Amortized cost is the initial value of the Notes Receivable (which were initially recorded at Fair Value) less any principal repayments and then adjusted for amortization of the premium and any impairment.

Detailed explanation-2: -Notes may be referred to as interest bearing or non-interest bearing: Interest-bearing notes have a stated rate of interest that is payable in addition to the face value of the note. Notes that are zero-bearing or non-interest bearing do not have a stated rate of interest.

Detailed explanation-3: -Notes receivable can be classified as current or long-term assets or both: Amounts due within 12 months are classified as short-term and any amounts beyond that are classified as long-term.

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