Problem
A) On January 1, 2021, ABC Co. extended a ?2,000,000 loan to one of its officers as part of ABC Co.'s car and housing assistance program. The note received is due on January 1, 2024 and bears 10% interest compounded annually. How much should be credited to interest income on December 31, 2021?
a) Based on the previous problem, how much should be the interest receivable on December 31, 2023?
b) How much should be credited to Interest receivable on January 1, 2024?
c) How much cash is expected to be received on January 1, 2024?
B) On January 1, 2021, ABC Co. sold transportation equipment with a historical cost of ?1,500,000 and accumulated depreciation of ?700,000 in exchange for cash of ?100,000 and noninterest-bearing note receivable of ?1,500,000 due in 4 equal annual installments starting on January 1, 2021 and every January 1 thereafter. The prevailing interest for this type of note is 12%. PV of an ordinary annuity of ?1 @12%, n=4 is 3.037349 while the PV of annuity due of ?1 @12%, n=4 is 3.40183. Compute for the present value of the note receivable as of January 1, 2021.
a. Compute for the present value of the note receivable as of January 1, 2021 after applying the first installment.
b. How much is the interest income to be recognized on January 1, 2022?
c. How much should be applied to the principal on January 1, 2022?
d. How much is the present value of the note receivable on January 1, 2023?
e. How much is the interest income on January 1, 2024?
f. How much is the gain/ loss on sale of equipment to be recognized on January 1, 2021? State whether gain or loss.
g. How much is the unearned interest income on January 1, 2021 after applying the first installment?
h. How much is the unearned interest income on January 1, 2022?