CHAPTER 5: Notes Receivable
CHAPTER 5: Notes Receivable - Interest Bearing
Multiple Choice - Theories
1. Given the following statements, determine which of them is/are true
I. Notes receivable are considered as financial assets.
II. Notes receivable are considered as nonmonetary assets.
a. I only c. Both I and II
b. II only d. Neither I nor II
2. This party is the beneficiary of a note receivable
a. Maker
b. Payee
c. Drawee
d. Customer
3. Given the following statements related to a promissory note issued in connection with
borrowing of funds, determine which of them is/are true
I. On maturity date, the payee pays the face amount of the note to the maker.
II. On issuance date, the maker pays the face amount of the note to the payee.
a. I only c. Both I and II
b. II only d. Neither I nor II
4. Setting other inputs constant, which among these interest payment frequencies will result
to the highest amount of accrued interest receivable?
a. Annually
b. Semi-annually
c. Quarterly
d. Monthly
5. Given the following statements, determine which of them is/are false
I. Serial notes receivable will result to decreasing amount of interest income every
year.
II. Term notes receivable will result to steady amount of interest income every year.
a. I only c. Both I and II
b. Il only d. Neither I nor II
6. On April 1, 2023, an entity received a two-year promissory note from one of its customers
as a payment for its overdue account. The principal is payable at the end of two-year period
while the interest is payable annually every March 31, starting in 2024. As of December 31,
2023 reporting date, the accrued interest receivable shall comprise of
a. 12 months
b. 9 months
c. 6 months
d. 3 months
7. On April 1, 2023, an entity received a two-year, interest-bearing promissory note from one
of its customers as a payment for its overdue account. The principal is payable at the end of
two-year period while the interest is payable semi-annually every September 30 and March
31 of each year, starting in 2023. As of December 31, 2023 reporting date, the accrued
interest receivable shall comprise of
a. 12 months
b. 9 months
c. 6 months
d. 3 months
8. On May 1, 2023, an entity received a five-year, interest-bearing promissory note. The
whole face amount is payable on maturity date while the interest is payable every April 30
and October 31 of each year, starting in 2023. Based on this information, determine which of
the following statements is/are correct:
I. Interest income for the year 2023 is composed of 8-month worth of interest.
II. Accrued interest receivable as of December 31, 2023 is composed of 6-month worth
of interest.
a. I only c. Both I and II
b. Il only d. Neither I nor II
9. On July 1, 2023, an entity received a four-year, interest-bearing promissory note, The
whole face amount is payable on maturity date while the interest is payable every June 30 of
each year, starting in 2024. Based on this information, determine which of the following
statements is/are correct:
I. Interest income for the year 2024 is composed of 6-month worth of interest.
II. Accrued interest receivable as of December 31, 2023 is composed of 6-month worth
of interest.
a. I only c. Both I and II
b. II only d. Neither I nor II
10. On October 1, 2023, an entity received a P5,000,000, five-year, interest-bearing
promissory note. The P1,000,000 face amount is payable every September 30 of each year,
starting in 2024. The interest is also payable at the same time as the partial principal
payments. Based on this information, which of the following statements is not correct?
a. Interest income for 2023 is based on the P5,000,000 face amount prorated for three
months.
b. Accrued interest receivable as of December 31, 2023 has the same amount as -- the
interest income for 2023
c. Accrued interest receivable as of December 31, 2024 is based on the P3,000,000
face amount prorated for three months.
d. Interest income for 2024 is the sum of interest based on the P5,000,000 face amount
prorated for nine months and interest based on the P4,000,000 face amount prorated
for three months.
Multiple Choice - Problems
1. On March 1, 2023, MEDIUM Company sold its land with carrying amount of P2,750,000
by receiving P500,000 cash and P3,000,000 face amount promissory note that will mature
on February 28, 2027. The note bears annual interest of 10% and payable every February
28 of each year, starting in 2024.
The gain or loss on sale shall be
a. P750,000 loss c. P250,000 loss
b. P750,000 gain d. P250,000 gain
Interest income for the year 2023 shall be
a. P250,000 c. P291,667
b. P300,000 d. P350,000
Accrued interest receivable as of December 31, 2023 shall be
a. P250,000 c. P291,667
b. P300,000 d. P350,000
Interest income for the year 2024 shall be
a. P250,000 c. P291,667
b. P300,000 d. P350,000
2. On September 1, 2023, RARE Company sold its building with carrying amount of
P4,600,000 by receiving P1,000,000 cash and P3,500,000 face amount promissory note that
will mature on August 31, 2028. The note bears 12% annual Interest and is payable every
February 28 and August 31 of each year, starting on February 28, 2024.
Gain or loss on sale shall be
a. P100,000 loss c. P1,100,000 loss
b. P100,000 gain d. P1,100,000 gain
Interest income for the year 2023 shall be
a. P140,000 c. P420,000
b. P280,000 d. P540,000
Accrued interest receivable as of December 31, 2024 shall be
a. P140,000 c. P420,000
b. P280,000 d. P540,000
Interest income for the year 2024 shall be
a. P140,000 c. P420,000
b. P280,000 d. P540,000
3. On May 1, 2023, COLD Company received a notes receivable with face amount of
P6,000,000 from selling its land with carrying amount of P6,300,000. The face amount is
payable in five equal annual installments every April 30 of each year, starting in 2024. The
note bears 6% annual interest and payable on the same dates as the installment payments
of the face amount.
Interest income for the year 2024 shall be
a. P312,000 c. P288,000
b. P240,000 d. P336,000
Accrued interest receivable as of December 31, 2024 shall b
a. P240,000 b. P360,000
c. P192,000 d. P288,000
Interest income for the year 2025 shall be
a. P312,000 c. P240,000
b. P336,000 d. P288,000
Total amounts to be included in the current and noncurrent assets, respectively, as of
December 31, 2023 with respect to the note receivable shall be
a. P1,200,000 and P4,800,000 c. P1,200,000 and P3.600.000
b. P1,440,000 and P4,800,000 d. P1,440,000 and P3,600,000
Total amounts to be included in the current and noncurrent assets, respectively, as of
December 31, 2024 with respect to the note receivable shall be
a. P1,392,000 and P3,600,000 c. P1,392,000 and P2,400,000
b. P1,440,000 and P3,600,000 d. P1,440,000 and P2,400,000
4. As of December 31, 2023, entity reported a notes recel receivable with carrying amount of
P4,500,000 dated September 1, 2022. Upon inspection of the terms of the note, it bears
12% interest per annum that is payable every August 31 of each year, starting in 2023. In
addition, the face amount is payable in P500,000 annual Installments on the same dates as
the payment of annual interest.
Interest income for 2023 shall be
a. P640,000 c. P600,000
b. P580,000 d. P540,000
Interest income for 2024 shall be
a. P500,000 c. P520,000
b. P480,000 d. P600,000
Total amounts to be included in the current and noncurrent assets, respectively, as of
December 31, 2023 with respect to the note receivable shall be
a. P500,000 and P4,000,000 c. P500,000 and P4,500,000
b. P680,000 and P4,000,000 d. P680,000 and P4,500,000
Total amounts to be included in the current and noncurrent assets, respectively, as of
December 31, 2024 with respect to the note receivable shall be
a. P660,000 and P3,500,000 c. P500,000 and P4,000,000
b. P500,000 and P3,500,000 d. P660,000 and P4,000,000
5. During the year 2023, FREEZE Company received the following promissory notes:
● On March 1, five-year note with P3,000,000 face amount and annual interest of 10%.
The whole face amount is payable on maturity date while the interest is payable every
February 28 of each year, starting in 2024.
● On April 1, six-year note with P5,000,000 face amount and annual interest of 12%.
The whole face amount is payable on maturity date while the interest is payable every
March 31 and September 30 of each year, starting on September 30,2023 30, 2023.
● On July 1, four-year note with P6,000,000 face amount and annual interest of 99%.
The face amount is payable in four annual installments every June 30 of each year,
starting on June 30, 2024. Interest is payable on the ne dates as the face amount
installments.
Total interest income for 2023 shall be
a. P1,440,000 c. P930,000
b. P970.000 d. P860,000
Total accrued interest receivable as of December 31, 2023 shall be
a. P970,000 c. P670,000
b. P860,000 d. P590,000
Total amounts to be included in the of December 31, 2023 with respect current and
noncurrent assets, respectively, as to all of the notes receivable shall be
a P670,000 and P14,000,000 c. P1,870,000 and P12,800,000
b. P970,000 and P14,00,000 d. P2,170,000 and P12,800,000
Total interest income for 2024 shall be
a. P1,440,000 c. P1,050,000
b. P1,386,000 d. P1,156,000
Total accrued interest receivable as of December 31, 2024 shall b
a. P616,000 c. P676,000
b. P716,000 d. P786,000
Total amounts to be included in the current and noncurrent assets, respectively, as of
December 31, 2024 with respect to all of the notes receivable shall be
a. P1,816,000 and P11,600,000 c. P616,000 and P12,800,000
b. P1,986,000 and P11,600,000 d. P786,000 and P12,800,000
6. At the beginning of the year 2023, AMBER Company received a five-year P6,000,000
promissory note from its customer as a settlement of an overdue account. The note bears
8%, compounded annually.
Interest income for the year 2024 shall be
a. P480,000 c. P518,400
b. P559,872 d. P604,662
Total accrued interest receivable as of December 31, 2025 shall be
a. P1,440,000 c. P1,639,749
b. P2,162,934 d. P1,558,272
CHAPTER 5: Notes Receivable - Subject to Present Value
Multiple Choice - Theories
1. Interest-bearing notes receivable are initially measured at their
a. Face amount, regardless of the relationship between stated rate and market rate.
b. Face amount, only if the stated rate and market rate are substantially equal.
c. Present value, regardless of the relationship between stated rate and market rate.
d. Present value, only if the stated rate is higher than the market rate.
2. In determining the interest income for a term noninterest-bearing promissory note. which
of the following is true?
a. No interest income shall be recognized since it has no stated rate.
b. Interest income shall be based on the market rate at the end of reporting period.
c. Interest income shall be based on the market rate on initial recognition.
d. Interest Income shall be based on the market rate at the beginning of reporting
period.
3. In relation to a serial noninterest-bearing promissory note, which of the following
statements is/are true?
a. The amount of interest income increases every year.
b. The annual net decrease in its carrying amount is equal to the installment payment of
the principal.
c. Both a and b
d. Neither a nor b
4. The difference between the initial measurement of a noninterest-bearing promissory note
shall be recognized as
a. a liability
b. deduction from equity
c. immediate amount of loss
d. a contra-asset account
5. The difference between the initial measurement of a noninterest-bearing promissory note
and its face amount shall be subsequently recognized as
a. Direct addition to equity.
b. Direct addition to interest income.
c. Direct deduction from equity.
d. Direct deduction from the carrying amount of notes receivable
6. If the stated rate of a promissory note is substantially different from the average market
rate, which of the following is relevant?
a. The promissory note shall be initially measured at its face amount.
b. Accrued interest receivable shall be recognized using the market rate.
c. Interest income shall be based on the market rate on initial recognition.
d. The promissory note shall be subsequently measured equal to its remaining face
amount
7. Most of the time, effective interest rate is equal to
a. Market rate on initial recognition
b. Market rate as of the reporting date
c. Market rate as of the beginning of the reporting period
d. Average market rate all throughout the period.
8. The following correctly indicates the PV factor to be used for noninterest-bearing
promissory notes, except
a. PV factor of single payment if the whole face amount is payable on maturity date.
b. PV factor of ordinary annuity if the face amount is payable in equal periodic
installments in equal intervals and the payments are made at the end of each period.
c. PV factor of annuity due if the face amount is payable in equal periodic installments
in equal intervals and the payments are made at the beginning of each period.
d. All of the above are correct.
9. Which of the correctly indicates the correct computation of the initial present value of term
interest-bearing promissory note with stated rate not substantially equal to market?
a. PV factor of single payment shall be used for the face amount while the PV factor of
ordinary annuity shall be used for the annual interest based on stated rate.
b. PV factor of ordinary annuity shall be used for the face amount while the PV factor of
single payment shall be used for the annual interest based on stated rate.
c. PV factor of ordinary annuity shall be used for both the face amount and annual
interest based on stated rate.
d. PV factor of single payment shall be used for both the face amount and annual
interest based on stated rate.
10. Which of the following statements is/are true in relation to a serial noninterest-bearing
note receivable?
a. Its carrying amount at the end of each year is increasing.
b. Annual interest income is decreasing.
c. Both a and b.
d. Neither a nor b.
Multiple Choice - Problems
1. At the beginning of 2023, FOLK Company sold goods costing P1,000,000 to a buyer who
signed a noninterest-bearing promissory note with a face amount of P2,500,000. The note
will mature on December 31, 2026. Relevant market rate on the date of issuance is 6%.
The amount of sales revenue to be recognized during 2023 shall be
a. P2,500,000 c. P1,854,396
b. P1,980,235 d. P1,924,587
The amount of interest income for the year 2023 shall be
a. P0 c. P118,814
b. P125,943 d. P133,500
The carrying amount of the notes receivable as of December 31, 2023 shall be
a. P2,500,000 c. P2,099,049
b. P2,224,992 d. P2,128,962
The amount of interest income for the year 2024 shall be
a. P0 c. P118,814
b. P125.943 d. P133,500
The carrying amount of the notes receivable as of December 31, 2024 shall be
a. P2,500,000 c. P2,099,049
b. P2,224,992 d. P2,128,962
2. On July 1, 2023, MARGARET Company sold its land for a total price of P7,000,000,
Related carrying amount of the land is P6,000,000. The buyer paid P1,500,000 down
payment and for the balance, signed a noninterest-bearing promissory note that will mature
on June 30, 2026. Relevant market rate is 9%.
The amount of gain or loss on sale of land to be recognized during 2023 shall be
a. P1,000,000 gain c. P252,993 gain
b. P1,000,000 loss d. P252,993 loss
The amount of interest income for the year 2023 shall be
a. P191,116 c. P382,231
b. P495,000 d. P416,631
The carrying amount of the notes receivable as of December 31, 2023 shall be
a. P4,629,238 c. P4,438,123
b. P4,247,007 d. P4,837,554
The amount of interest income for the year 2024 shall be
a. P416,631 c. P454,131
b. P382,231 d. P399,431
The carrying amount of the notes receivable as of December 31, 2024 shall be
a. P4,629,238 c. P4,438,123
b. P4,247,007 d. P4,837,554
3. At the beginning of 2023, ELIZABETH Company sold its building with cost of P9,000,000
and accumulated depreciation of P5,500,000. Total selling price is P4,200,000, which is
equal to the face amount of the noninterest-bearing note issued by the buyer. The note is
payable in six annual installment payments of P700,000 to be made every December 31 of
each year, starting in 2023. Average market rate on the date of issue is 10%.
The amount of gain or loss on sale of building to be recognized during 2023 shall be
a. P451,317 gain c. P700,000 gain
b. P451,317 loss d. P700,000 loss
The amount of interest income for the year 2023 shall be
a. P356,295 c. P265,355
b. P304,868 d. P253,628
The carrying amount of the notes receivable as of December 31, 2023 shall be
a. P2,198,529 c. P2,218,906
b. P2,712,386 d. P2,653,551
The amount of interest income for the year 2024 shall be
a. P356,295 c. P265,355
b. P304,868 d. P253,628
The carrying amount of the notes receivable as of December 31, 2024 shall be
a. P2,198,529 c. P2,218,906
b. P2,712,386 d. P2,653,551
4. On January 1, 2023, GEORGE Company lent P7,000,000 to one of its customers. In
return, it received a four-year noninterest-bearing note that will mature after five -bearing
years, on December 31, 2027. Relevant market rate is 7%.
The amount of day 1 loss to be recognized for 2023 shall be
a. P0 c. P3,129,098
b. P2,009,098 d. P2,679,098
The amount of interest income for the year 2023 shall be
a. P0 c. P373,819
b. P349,363 d. P399,986
The carrying amount of the notes receivable as of December 31, 2023 shall b
a. P5,340,265 c. P5,410,475
b. P5,289,345 d. P5,714,084
The amount of interest income for the year 2024 shall be
a. P0 c. P373,819
b. P349,363 d. P399,986
The carrying amount of the notes receivable as of December 31, 2024 shall be
a. P5,340,265 c. P5,410,475
b. P5,289,345 d. P5,714,084
5. At the beginning of 2023, MARY Company lent P5,000,000 to its chief executive. officer
(CEO). In exchange, the CEO signed a four-year 5% interest-bearing promissory note equal
to the proceeds, even if the prevailing market rates is 9%.
The amount of day 1 loss to be recognized for 2023 shall be
a. P683,855 c. P647,944
b. P715,598 d. P732,952
The amount of interest income for the year 2023 shall be
a. P250,000 c. P398,549
b. P391,685 d. P402,526
The carrying amount of the notes receivable as of December 31, 2023 shall be
a. P4,750,605 c. P4,743,741
b. P4,500,605 d. P4,493,741
The amount of interest income for the year 2024 shall be
a. P404,437 c. P405,054
b. P427,554 d. P426,937
The carrying amount of the notes receivable as of December 31, 2024 shall bel
a. P5,170,678 c. P4,648,178
b. P5,178,159 d. P4,655,659
