Q1. On December 31, 2015, Picca Company sold a piece of land costing P800,000 and received a three-year, 3%, P1,200,000 note as payment. The interest on the note is payable annually every December 31. The principal amount of the note is payable on December 31, 2018. The prevailing interest rate for similar instrument at December 31, 2015 is 10%. There is no available fair value for the land on the date of sale.
a. The present value of the note is computed as follows:
Principal: P1,200,000 x 0.7513 P901,560
Interest: 1,200,000 x 3% x 2.4869 P89,528
Present value P991,088
b. What amount should be reported as gain or loss on sale of land? ANS.
Q2. P800,000 and received P1,200,000 note as payment. The note is payable in three annual installments of P400,000 beginning December 31, 2013 plus interest at 3% based on outstanding balance. The prevailing interest rate for similar obligation at December 31, 2012 is 10%. There is no available fair value for the land on the date of sale.
a. Determine the present value of the note at the time of sale transaction:
b. Determine the gain on sale of land on December 31, 2012:
c. Prepare journal entries for 2012, 2013, 2014 and 2015: