presentation of notes receivable

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Notes Receivable

• Notes receivable are written commitments without conditions in which an individual or business pledges to pay a specified amount at a predetermined date or upon request.

Before deciding to pursue his  MBA , Andy previously spent two years at Credit Suisse in Investment Banking, primarily working on  M&A  and  IPO  transactions. Prior to joining Credit Suisse, Andy was a Business Analyst Intern for  Capital One  and worked as an associate for Cambridge Realty Capital Companies.

Andy graduated from University of Chicago with a Bachelor of Arts in Economics and Statistics and is currently an  MBA  candidate at The University of Chicago Booth School of Business with a concentration in Analytical Finance.

What are Notes Receivables?

Understanding notes receivables, components of notes receivable, example of notes receivable, notes receivable vs notes payable, advantages of notes receivables, disadvantages of notes receivables, accounts receivable vs notes receivable, notes receivables faqs.

Notes receivable represent assets associated with a written promissory note outlining the payment terms for a transaction between the "payee" (often a company, also known as a creditor) and the "maker" of the note (typically a customer or employee, also known a debtor).

Notes receivable can arise in various business relationships involving interactions with other businesses, financial institutions , or individuals. Typically, these situations occur when a buyer requires an extended period beyond the usual billing terms to settle payment for a purchase.

These notes find representation on the balance sheet , reflecting the monetary value of promissory notes owed to a business, anticipating future payments.

They grant the holder the entitlement to receive the specified amount stipulated in the contractual agreement. These notes essentially serve as written assurances of the debtor to remit cash to another party by a designated future date.

If a note receivable is expected to be collected within one year, it is classified as a current asset on the balance sheet. Otherwise, if the collection extends beyond one year, it is categorized as a non-current asset.

Frequently, businesses permit customers to transform overdue accounts ( accounts receivable ) into notes receivable, providing debtors with the advantage of an extended payment period.

Key Takeaways

• A note receivable is also called a promissory note or simply a note.
• The interest earned on it shows up on the income statement. So, when a payment is received on a note, it affects both the balance sheet and the income statement.
• Unlike accounts receivable, notes receivable involve a formal written agreement or promissory note. This document includes essential details such as principal amount, interest rate, repayment terms, maturity date, and collateral.

Notes receivables constitute a written agreement where a borrower commits to repay a specific amount of money, including interest, to the lender on a set date in the future. Therefore, notes are considered negotiable instruments, like cheques and bank drafts.

Notes receivable may originate from various sources, such as loans granted to individuals or businesses, advances provided to employees, or customers with higher credit risk who require an extended payment period for outstanding accounts.

Notes can also find application in the context of property, plant, and equipment sales or the exchange of long-term assets.

In instances where notes stem from loans, they may specify collateral in the form of the borrower's assets, which the lender can take possession of if the note remains unpaid by the maturity date.

From the perspective of the note issuer, the document is referred to as notes payable, indicating the obligation to repay a designated amount on a predetermined future date to the holder of the notes receivable.

The note presents all terms and conditions transparently to remove any possible misunderstandings between the parties in the future.

Additionally, it explicitly specifies both the principal amount, equivalent to the face value of the notes, and the accompanying interest that must be paid.

Businesses worldwide commonly engage in buying and selling on credit. A formal commitment to make payment on a designated future date is generated when a supplier sells goods on credit.

These formal commitments, often referred to as promissory notes, are considered notes receivable upon acceptance.

The following are the key components of notes receivable:

• Principal Amount: The principal amount, also known as the face value or principal sum, is the initial sum of money the borrower agrees to repay the lender. It forms the basis for interest calculations and represents the primary amount lent or borrowed.
• Interest Rate: The interest rate is the percentage applied to the initial amount for a designated duration, influencing the expense of borrowing or the earnings on an investment for the lender.
• Maturity Date: The maturity date signifies the deadline by which the borrower must repay the principal amount and any accumulated interest to the lender. It establishes the repayment schedule, differentiating between short-term and long-term notes.
• Terms of Repayment: The terms of repayment encompass the schedule and method by which the borrower will make payments. It includes details such as the frequency of payments (monthly, quarterly, annually) and whether payments are in equal installments or structured differently. Clearly defined repayment terms ensure both parties are aware of their obligations and help in financial planning.
• Interest Accrual Method: The interest accrual method determines how interest is calculated and accrued over time. Common methods include simple interest or compound interest. The chosen method affects the total interest amount and the financial implications for both the borrower and the lender.
• Collateral (if any): Collateral is an asset pledged by the borrower to secure the note. It serves as a form of security for the lender in case of default.
• Default and Remedies: The terms outline what constitutes a default (failure to fulfill obligations) and the remedies available to the lender in case of default. Clearly defined default provisions help protect the lender's interests and provide a legal framework for addressing default situations.
• Negotiability and Transferability: Notes may be negotiable or non-negotiable, and the terms of the note may restrict their transferability. This impacts the ease with which the note can be transferred to another party, potentially influencing liquidity.

The following hypothetical example illustrates how notes receivable work:

Company XYZ sells machinery to Company ABC for $50,000; payment is initially expected within 60 days. However, Company B failed to make the payment within the given days. Both parties agree on a promissory note to settle the debt as per the following terms:

• Maker: Company ABC
• Principal: $50,000
• Time frame: 6 months due at maturity
• Interest rate: 6% per year

Example of Journal Entries for Notes Receivable

The accounting journal entries for the note receivable from Company XYZ can be summarized as follows:

Company XYZ's financial records no longer include the accounts receivable from 

Company ABC for the initial invoice. Instead, a new note receivable has been created, with a maturity date set for six months from now.

This record represents the complete settlement with cash upon maturity. It removes the notes receivable from Company ABC for the original amount and documents interest earnings based on the duration the note remained outstanding.

It is calculated as ($50,000 x 6%) multiplied by the ratio of days outstanding to 365 (183/365).

Let's comprehensively compare the differences between Notes Receivable and Notes Payable:

The following are the advantages of a notes receivable account:

• Formal Agreement:  These notes establish a formal, written agreement between the creditor and debtor, clearly outlining essential terms such as the principal amount, interest rate, and repayment schedule.
• Legal Protection:  It can function as a legally recognized record, offering proof of the debtor's commitment to settle the owed sum. This documentation is significant in situations involving disputes or when legal proceedings are necessary.
• Interest Income:  If interest is charged on the note, the creditor can earn additional income beyond the principal amount. This interest can contribute to the overall profitability of the transaction.
• Flexibility:  They offer flexibility in negotiating terms. Creditors and debtors can adjust the repayment schedule, interest rates, and other terms based on their mutual agreement.
• Financial Planning:  The company can improve its cash flow planning by keeping notes receivables, indicating when they will receive payment.

The following are the disadvantages of a notes receivable account:

• Default Risk:  Failure by the borrower to fulfill the responsibilities specified in the promissory note, such as delayed payments or non-repayment of the entire agreed-upon sum, can expose the lender to potential financial liabilities.
• Liquidity Concerns:  Unlike cash, promissory notes are not as liquid. It may take time to convert the promissory note into cash, especially if the debtor faces financial difficulties.
• Interest Rate Risk:  Creditors face a potential risk when interest rates change. With a fixed-interest rate loan, the creditor may lose the chance to capitalize on higher returns if the prevailing market rates increase.
• Administrative Burden:  Managing and tracking promissory notes can be administratively burdensome. This includes monitoring payment schedules, ensuring compliance with terms, and potentially dealing with late payments.
• Dependence on Debtor's Financial Health:  The effectiveness of promissory notes depends on the financial stability of the debtor. The debtor's financial challenges could impact their ability to fulfill the repayment obligations.

Let's understand the differences between Accounts Receivable and Notes Receivable:

Notes receivable are written commitments made by individuals or businesses to pay a specific amount of money at a predetermined date or upon request.

A promissory note contains information such as the initial borrowed amount, any applicable interest rate , the repayment conditions, the designated maturity date, and specifics regarding collateral or security interests if they exist.

It can be involved in various transactions, including loans, real estate transactions, large credit purchases, and other situations where a formal written agreement is needed.

To log a note receivable, simply debit the notes receivable account and credit the cash account.

Interest on a Note Receivable is calculated based on the agreed-upon interest rate and the outstanding principal amount. Common methods include simple interest or compound interest .

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What are Notes Receivable?

Key components of notes receivable.

• Example of Notes Receivable
• Example of Journal Entries for Notes Receivable

Notes Receivable vs Notes Payable

Additional resources, notes receivable.

Written promissory notes that give the holder the right to receive the amount outlined in an agreement

Notes receivable are a balance sheet item that records the value of promissory notes that a business is owed and should receive payment for. A written promissory note gives the holder, or bearer, the right to receive the amount outlined in the legal agreement. Promissory notes are a written promise to pay cash to another party on or before a specified future date.

If the note receivable is due within a year, then it is treated as a current asset on the balance sheet. If it is not due until a date that is more than one year in the future, then it is treated as a non-current asset on the balance sheet.

Often, a business will allow customers to convert their overdue accounts (the business’ accounts receivable) into notes receivable. By doing so, the debtor typically benefits by having more time to pay.

• A note receivable is also known as a promissory note.
• When the note is due within less than a year, it is considered a current asset on the balance sheet of the company the note is owed to. If its due date is more than a year in the future, it is considered a non-current asset.
• The interest income on notes receivable is recognized on the income statement. Therefore, when payment is made on a note receivable, both the balance sheet and the income statement are affected.

Here are the key components of notes receivable:

• Principal value: The face value of the note
• Maker: The person who makes the note and therefore promises to pay the note’s holder. To a maker, the note is classified as a note payable.
• Payee : The person who holds the note and therefore is due to receive payment from the maker. To a payee, the note is classified as a note receivable
• Stated interest: A note receivable generally includes a predetermined interest rate; the maker of the note is obligated to pay the interest amount due, in addition to the principal amount, at the same time that they pay the principal amount.
• Timeframe: The length of time during which the note is to be repaid. Notes receivable are not usually subject to prepayment penalties, so the maker of the note is free to pay off the note on or before the note’s stated due, or maturity, date.

Example of Notes Receivable

Company A sells machinery to Company B for $300,000, with payment due within 30 days. After 45 days of nonpayment by Company B, both parties agree that Company B will issue a note payable for the principal amount of $300,000, at an interest rate of 10%, and with a payment of $100,000 plus interest due at the end of each month for the next three months. Alternatively, the note may state that the total amount of interest due is to be paid along with the third and final principal payment of $100,000.

In this example, Company A records a notes receivable entry on its balance sheet, while Company B records a notes payable entry on its balance sheet. The principal value is $300,000, $100,000 of which is to be paid monthly. In addition, the agreed upon interest rate on the note is 10%.

Example of Journal Entries for Notes Receivable

Still using the example delineated above, with companies A and B:

A note receivable of $300,000, due in the next 3 months, with payments of $100,000 at the end of each month, and an interest rate of 10%, is recorded for Company A.

The proper journal entries for Company A are as follows:

At the end of the first month, Company B pays $100,000 as well as an interest payment = $2,465.75 (calculated as $300,000 x 10% x 30 / 365 days = $2,465.75).

At the end of the second month, Company B pays $100,000, along with interest of $200,000 x 10% x 30 / 365 days = $1,643.84. Note that the amount of interest is lower because the outstanding principal amount is now only $200,000 ($300,000 – $100,000), having been reduced by the previous month’s payment.

At the end of the third and final month, Company B pays the remaining principal of $100,000, as well as the interest of $100,000 x 10% x 30 / 365 days = $821.92

At the end of the three months, the note, with interest, is completely paid off.

It is not unusual for a company to have both a Notes Receivable and a Notes Payable account on their statement of financial position . Notes Payable is a liability as it records the value a business owes in promissory notes. Notes Receivable are an asset as they record the value that a business is owed in promissory notes. A closely related topic is that of accounts receivable vs. accounts payable.

Thank you for reading our guide to Notes Receivable. To continue learning and advancing your career in corporate finance, you may find the additional free CFI resources below helpful:

• Sales and Collection Cycle
• Accounts Payable
• Accounts Payable Template
• Projecting Balance Sheet Items
• Three Financial Statements
• See all accounting resources
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Notes Receivable Calculations and Journal Entries

Updated: Sep 2, 2019

In our last article (found here ), we reviewed how Notes Receivable are measured. In this article we dive into an example of how to do a Notes Receivable calculation, using both IFRS and ASPE methods.

Recap from our last article

Initially: Notes Receivable are recorded at Fair Value, where Fair Value is the present value of the future cash flows, discounted using the market interest rate.

Subsequently: Notes Receivable are measured at their amortized cost.

When the stated rate is not the same as the market rate, or the note is non-interest bearing, the note is recorded at either a premium or a discount.

Vocabulary Reminder: If a Notes Receivable is issued at a premium, this means that the note is issued by the entity at more than the what the debtor will pay us back in the future (the Face Value). In other words - we lend the debtor more money than they will pay us back in the future, usually in return for a higher interest rate payment throughout the term. If a Notes Receivable is issued at a discount, then the note is issued at a lower value than the Face Value, meaning that we lend the debtor less upfront, than they owe us at the end of the term. This is usually balanced by lower interest rate payments throughout the term.

IFRS: Requires premium or discount to be amortized into income using the effective interest method

ASPE: Premium or discount can be amortized into income using either effective interest method or straight-line method.

Your company receives a $10,000, 4 year, 2% annual interest note, paid semi-annually. The market rate of interest is 8%.

Vocabulary: “Company receives” or “customer enters into” means that someone has taken a loan from the company, and the company earns interest. The company literally “receives” a Notes Receivable, which means it is going to lend money and eventually be owed that money back.

Step 1: Applicable to both IFRS and ASPE

Determine the Present Value (PV) of Future Cash Flows, to record the Note Receivable at its Fair Value. Use a financial calculator to compute the Present Value of the note.

If PV = Face Value, the note is equal to Market Rate

If PV > Face Value, the note is at a premium

If PV < Face Value, the note is at a discount

Since PV < Face Value, the note is at a discount.

Initial Journal Entry to record the Notes Receivable:

Step 2 : Effective Interest Method, required by IFRS

Note that IFRS requires that entities use this method.

Create an amortization schedule. If it is at a premium, then the opening balance > closing balance in the amortization schedule, and the Note will eventually decrease to the Face Value. If it is at a discount, then the opening balance < closing balance in the amortization schedule, and the Note value will eventually increase to the Face Value.

* Remember that because this is paid semi-annually, we are looking at the interest rate per payment period

**Rounding difference

Journal Entries for the Remaining Periods:

End of Payment Period 1:

End of Payment Period 2:

End of Payment Period 8:

When the Note is fully repaid (should be repaid at the end of Period 8):

Step 2 : Straight-Line Method, allowed by ASPE

Note that IFRS does not allow entities to use this method. This method can, however, be used by entities reporting under ASPE.

The straight-line method is a simplified version, where we amortize the discount on a straight-line schedule throughout the term.

Discount Calculation:

Discount = FV - PV = $10,000 - $7,980 = $2,020

Amortization amount per period: divide by total period: $2,020/ 8 = $252.5/period

FV and PMT are always the same sign on the financial calculator. PV is always opposite sign as FV and PMT.

Regardless of the amortization schedule, PV is always the cash given to the debtor now. FV is the “face value” of the note and is the amount eventually paid back at the end of the period.

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Financial Statement Presentation of Receivables

Hi, I'm Dominique Broadway, financial planner and personal finance coach. I'm going to discuss financial statement presentation of receivables. Receivables are the expected payments from other firms, individuals, governmental agencies or investors that are due to your company. Generally Accepted Accounting Principles, also known as GAAP require a company to show illustrating these assets on the balance sheet because they are a corporation's resources. Any amount that is due withing 12 months is a short term receivable. When the maturity exceeds a year, those are called long term receivables. Essentially, receivables are short term loans to a trade partner, such as a customer or long term monetary assistance to a subsidiary. By offering credit terms to customers, a company may be able to sell more goods or services. As customers typically do not pay for goods on delivery. For example, a company may give a 90 day credit term to a customer. Meaning that the can receive goods immediately by agreeing to pay within 90 days. The various types of receivables include customer accounts receivables, notes receivable and other receivables. The amounts that a customer owes is called Customer Account Receivables, which is better known as Accounts Receivable. Notes receivable maybe loans that a company made to another firm. Other receivables may include income tax refunds, salary advances or loans made to top management. Accounts receivables are typically shown as current assets on the balance sheet. Accountant usually record net amounts by deducting bad debt from gross accounts receivables. Bad debts represents amounts that a company believes it may not collect form customers due to temporary monetary problems or bankruptcy. Notes receivable are owed to a corporation through transactions with business partners. Which could be suppliers, customers, or other organizations. Depending on time to maturity, these receivables may be short term or long term and are shown on the balance sheet accordingly. For instance, a company lends 10 million to a supplier experiencing temporary cash shortages. The accountants record it as short term note receivable, if the loan is due in less than a year. Other receivables are the payments a company expects to receive. For example, a firm that expects a refund check from the Internal Revenue Service in fur months, may indicate this amount on the balance sheet as a short term "other receivable." One common misconception, is that customer accounts receivable typically are short term assets because companies may not have sufficient funds to grant long term credit to customers. However there may be cases where customer accounts receivables are shown as long term assets. For example, an airline manufacturer that sells 10 billion worth of aircraft to a country and expects payment over a ten year period. I'm Dominique Broadway, and I've just discussed financial statement presentation of receivables.

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Dominique Broadway is a financial planner and personal finance coach in Washington, D.C.

Discount on Notes Receivable

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on January 30, 2024

Fact Checked

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Table of Contents

Discount on notes receivable: definition.

It is possible to use notes receivable to obtain immediate cash .

This is done by giving a discount on notes receivable to a bank or other lender prior to their maturity date .

Discount on Notes Receivable: Explanation

Discounting means selling or pledging a customer's notes receivable to the bank at some point prior to the note's maturity date.

The term " discount " is used because the bank deducts the interest it charges from the note's maturity value and thus discounts the note.

The note is usually discounted with recourse. This means that the company discounting the note, known as the endorser, guarantees the eventual full payment of its maturity value.

If the maker fails to make the required payments, the bank will present the note to the endorser and demand full payment.

By discounting a note with recourse, the endorser has a contingent liability. A contingent liability is a possible liability that may or may not occur depending on some future event.

In many cases, these liabilities are not included in the balance sheet with other liabilities.

Rather, they are usually referred to in the footnotes of the financial statements . If the maker pays the bank, the contingent liability will end; if the maker defaults, the contingent liability will become a real liability.

Given that most discounted notes are reviewed for their creditworthiness by both the bank and the endorser, contingent liability rarely turns into a real liability.

Accounting for Discount on Notes Receivable

One of the differences between notes receivable and accounts receivable is the greater negotiability of notes.

A holder of a note can readily convert it to cash by discounting it at a bank, either with or without recourse.

The bank accepts the note and gives the holder cash equal to its maturity value less a discount to the maturity value computed using a discount rate .

As such, the bank receives its money back plus the discount when the note is paid by the maker at maturity.

If the note is not paid at maturity, the bank can collect from the original holder of the note was discounted with recourse. If the arrangement is without recourse, the bank must find another solution.

For notes discounted with recourse, the original holder is contingently liable for paying the note. That is to say, they will have to pay the note in the event of default.

This type of liability is not disclosed in the balance sheet but should be described in a footnote if it is material.

The five-step process is used in accounting for a discount on notes receivable is given as follows:

• Step 1: Compute the maturity value
• Step 2: Compute the discount (discount rate times maturity value)
• Step 3: Compute the proceeds (maturity value less discount)
• Step 4: Compute the net interest income or expense (proceeds less carrying value )
• Step 5: Prepare the journal entry

In the next examples, this process is applied to calculate the discount on three notes receivable by the Sample Company.

The Sample Company discounts a $100,000 note receivable on 15 May 2022. The following facts are known:

Step 1: Compute the maturity value:

Step 2: Compute the discount:

Step 3: Compute the proceeds:

Step 4: Compute the net interest income or expense:

Step 5: Prepare the journal entry:

Suppose that the same note in Example 1 is discounted on 1 April 2022 instead of 15 May. You can assume that all the other facts are the same.

Step 1: Compute the maturity value: $102,000

Now, assuming the same facts as in Example 2, suppose that the note is assigned originally on 30 June 2021. The note is discounted on April 1, 2022.

Disclosures

The example entries show the credit being made directly to the notes receivable account, just as if the note had been collected. This approach is always appropriate if the discounting takes place without recourse.

That is to say, if the original holder is without further liability, then the asset is effectively transferred and its amount should be removed from the books.

This approach is usually suitable if the discount on notes receivable is with recourse, as long as the disclosure of the contingent liability is made either parenthetically or in a footnote (e.g., stating that the note will be paid when it matures).

However, since the holder is contingently liable for paying the maturity value to the bank, it may be appropriate to use a contra account , "Notes Receivable—Discounted." For Example 1, this journal entry would be made as follows:

This account balance can be shown in the balance sheet as a deduction from all notes receivable. This approach is not commonly applied in practice.

Entry at Maturity

If the original entry has a credit to the regular notes receivable account, no entry is needed when the note is paid in full by its maker. If a contra account is used, a journal entry similar to the following one should be made:

If the note is not paid and was discounted without recourse, no further entry is needed.

However, if it was discounted with recourse, the original holder must record its payment to the bank and the restoration of the receivable to its full balance plus interest and any protest fee for failure to pay at maturity.

If the note in Example 1 has defaulted and the Sample Company pays the bank the maturity value and a $100 protest fee, the following entry is needed:

To provide additional information, the debit could be recorded to an account entitled "Notes Receivable—Dishonored."

The following examples show sample disclosures of receivables from actual financial statements. Footnotes are also widely used as a supplement to the balance sheet disclosure to inform readers of other facts about receivables.

Balance sheet disclosures of receivables are shown as follows:

Disclosure of receivables, including footnote details (related-party receivables), are shown for Scott's Liquid Gold Inc. below.

Jerome J. Goldstein, Chairman of the Board and President, assumed the company's obligation to purchase a condominium in Florida (near the Aquafilter plant) and agreed to reimburse the company for its advances toward the construction costs .

On 31 December 2018, the company had a note receivable from Mr. Goldstein representing such advances. The note, amounting to $64,349.44, bears interest at 18% and is due on 31 December 2019.

Discount on Notes Receivable FAQs

What is a discount on notes receivable.

It is possible to use notes receivable to obtain immediate cash. This is done by giving a discount on notes receivable to a bank or other lender prior to their maturity date.

Is the discount on note receivable a current asset?

Notes receivable are usually categorized as current assets, because companies expect to receive them within the next 12 months. However, notes receivable that are not expected to be paid for a period of more than a year may be classified as non-current assets.

Are notes receivable a debit?

When a customer uses a promissory note to buy merchandise, the store records this on the balance sheet by debiting notes receivable and crediting sales.

What is the difference between a notes receivable and a notes payable?

Notes receivable are debts owed to a business by customers. Notes payable are debts a business owes to another company, usually a supplier or vendor.

Are notes receivable a financial instrument?

Notes receivable are also a type of financial asset.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Question: Presentation of Notes Receivable Remarkable Company had the following account balances on January 1, 2021: Note receivable from sale of an idle building 7,500,000 Note receivable from an officer 2,000,000 The P7,500,000 note receivable is dated May 1, 2020, bears interest at 9% and represents the balance of the consideration received from the sale of an idle

Presentation of Notes Receivable

Remarkable Company had the following account balances on January 1, 2021:

Note receivable from sale of an idle building 7,500,000

Note receivable from an officer 2,000,000

The P7,500,000 note receivable is dated May 1, 2020, bears interest at 9% and represents the balance of the consideration received from the sale of an idle building to Solid Company. Principal payments of P2,500,000 plus interest are due annually beginning May 1, 2021. Solid Company made the first principal and interest payment on May 1, 2021.

The P2,000,000 note receivable note receivable is dated December 31, 2018, bears interest at 8% and is due on December 3, 2023. The note is due from the president of Remarkable Company. Interest is payable annually on December 31 and all interest payments were made through December 31, 2021. On July 1, 2021, Remarkable Company sold a parcel of land to Boom Company for P4,000,000 under an installment sale contract. Boom Company made a P1,200,000 cash down payment on July 1, 2021, and signed a 4-year 10% note for the P2,800,000 balance. The equal annual payments of principal and interest on the note totaled P880,000, payable on July 1 of each year from 2022 through 2025. The fair value of the land at the date of sale was P4,000,000. The cost of the land was P3,000,000.

1. Determine the amount of Notes Receivable including accrued interest that should be classified as Current Asset on December 31, 2021.

2. Determine the amount of Notes Receivable that should be classified as Noncurrent Asset on December 31, 2021.

Can someone please explain the solution as well for me to further understand how it came up with the final answer? Thank you.

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Identify the different notes receivable mentioned in the problem, and their respective values at the beginning, which are 2,000,000 note from an officer.

Answer :- a. Total Present Value of Notes Receivable Dec. 31, 2021----------------9,800,000 b. Accrued Interest Receivable on December 31, 2021----------------------730,000 c. Noncurrent portion of Notes Receivable Dec. 31, 2021----------------6,696, …

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