2016 Vol 1 Ch 3 Answers

Chapter 3 – Receivables

CHAPTER 3 - RECEIVABLES Discussion Question 19.

a. b. c.

Accounts Receivable Receivables from Employees (part of non-trade receivables) – current assets Advances to Suppliers – Current assets or deduction from Accounts Payable to the same supplier Accounts Receivable Customers’ Accounts with Credit Balances – Current Liabilities Cost of merchandise must be included in inventories Accounts Receivable Subscriptions Receivable – current asset if collectible within 12 months; otherwise, noncurrent asset or deduction from Shareholders’ Equity Other Non-Trade Receivables – Current asset or non-current asset depending on terms of sale Advances to Suppliers – Current Assets Suppliers’ Accounts with Debit Balances or Advances to Suppliers – Current assets Accounts Receivable Claims for Income Tax Refund – Current Assets Accounts Receivable, amount of loan presented separately as part of liabilities Accounts Receivable Not recognized anymore (for write off)

d. e. f. g. h. i. j. k. l. m. n. o. p.

PROBLEMS 3-1.

(Ginoo Company) Gross Method 2016

Dec.

9 10 19 26 31

Accounts Receivable-First Lady Sales 120,000 x 90% x 95% Accounts Receivable-Men’s World Sales Cash Sales Discounts Accounts Receivable-First Lady Accounts Receivable-Teens’ Kingdom Sales Sales Discounts Allowance for Sales Discounts

102,600 102,600 50,000 50,000 100,548 2,052 102,600 40,000 40,000 800 800

2017

Jan. 5 9

Cash Allowance for Sales Discounts Accounts Receivable-Teens’ Kingdom Cash Accounts Receivable-Men’s World

39,200 800 40,000 50,000 50,000

Net Method 2016

Dec.

9 10 19

Accounts Receivable-First Lady Sales 102,600 x .0.98 Accounts Receivable-Men’s World Sales Cash Accounts Receivable-First Lady

16

100,548 100,548 49,000 49,000 100,548 100,548

Chapter 3 – Receivables

Dec. 26 31

Accounts Receivable-Teens’ Kingdom Sales Accounts Receivable-Men’s World Sales Discount Forfeited

39,200

Cash Accounts Receivable – Teens’ Kingdom Cash Accounts Receivable-Men’s World

39,200

39,200 1,000 1,000

2017

Jan. 5 9

39,200 50,000 50,000

Allowance Method 2016

Dec.

9 10 19 26 31

Accounts Receivable-First Lady Allowance for Sales Discount Sales Accounts Receivable-Men’s World Allowance for Sales Discount Sales Cash Allowance for Sales Discount Accounts Receivable-First Lady Accounts Receivable-Teens’ Kingdom Allowance for Sales Discount Sales Allowance for Sales Discount Sales Discount Forfeited

102,600 2,052 100,548 50,000 1,000 49,000 100,548 2,052 102,600 40,000 800 39,200 1,000 1,000

2017

Jan. 5 9 3-2.

39,200 800 40,000 50,000 50,000

(Colleco Supermarket) June 130

3-3.

Cash Allowance for Sales Discount Accounts Receivable-Teens’ Kingdom Cash Accounts Receivable-Men’s World

Accounts Receivable – Citibank Cash Accounts Receivable – Metrobank Credit Card Service Charges Sales Cash Accounts Receivable - Citibank Accounts Receivable - Metrobank

2,450,000 1,764,000 1,470,000 116,000 5,800,000 3,234,000 2,156,000 1,078,000

(Colayco Company) (1) Jul 14 31 Aug. 15 Nov.

1

Allowance for Doubtful Accounts Accounts Receivable-Moret Co. Notes Receivable Sales Cash Notes Receivable Sales Cash Credit Card Service Charge Sales 4% x 20,000 = 800

17

10,000 10,000 12,000 12,000 20,000 15,000 35,000 19,200 800 20,000

Chapter 3 – Receivables

Nov. 4

5 9

15 15 Dec. 13

3-4.

(b)

(c)

12,000 300 9,000 9,000 8,550 450 9,000 10,000 10,000 10,000 10,000 15,600 15,000 600

Carrying value of the note on January 1, 2016 (6M x 0.6575) Interest rate Interest revenue for 2016

P3,945,000 15% P 591,750

Carrying value of the note on January 1, 2017 (3,945,000 + 591,750) Interest rate Interest revenue for 2017

P4,536,750 15% P 680,513

Carrying value, December 31, 2016 (see above)

P4,536,750

Carrying value, December 31, 2017 (4,536,750 + 680,513)

P5,217,263

Non-current asset at December 31, 2016 and current asset at December 31, 2017

(Formatted Company) (a)

(b)

Carrying value of the note on January 1, 2016 (2 M x 2.2832) Interest rate Interest revenue for 2016

P4,566,400 15% P 684,960

Carrying value, January 1, 2017 (4,566,400 + 684,960 – 2M) Interest rate Interest revenue for 2017

P3,251,360 15% P 487,704

Carrying value, January 1, 2016 Add amortization of discount during 2016 Less first payment of principal Carrying value, December 31, 2016

P4,566,400 684,960 (2,000,000) P3,251,360

(c) Principal due Unamortized discount Carrying amount, December 31, 2016 3-6.

12,300

(Format Company) (a)

3-5.

Accounts Receivable-P. Noval Notes Receivable Interest Revenue 12,000 x .10 x 90/360 = 300 Accounts Receivable-Credit Card Sales Cash Credit Card Service Charge Accounts Receivable-Credit Card 5% x 9,000 = 450 Accounts Receivable-Moret Co. Allowance for Doubtful Accounts Cash Accounts Receivable-Moret Co. Cash Notes Receivable Interest Revenue 15,000 x 12% x 120/360 = 600

Current P2,000,000 487,704 P1,512,296

Non-current P2,000,000 260,936 P1,739,064

Total P4,000,000 748,640 P3,251,360

(HRV Company) (a)

September 30, 2016 (1,000,000)+(3,000,000 x 12%) September 30, 2017 (1,000,000)+(2,000,000 x 12%) September 30, 2018 (1,000,000)+(1,000,000 x 12%)

18

P1,360,000 P1,240,000 P1,120,000

Chapter 3 – Receivables

3- 7.

(b)

January 1 – September 30, 2016 (360,000 x 9/12) October 1 – December 31, 2016 (240,000 x 3/12) Total interest revenue for 2016

P 270,000 60,000 P 330,000

(c)

As of December 31, 2016 Notes receivable Interest receivable (240,000 x 3/12)

Non-current P1,000,000

Current P1,000,000 60,000

(Pinky Pop Company) The note is interest-bearing, but the rate of interest of the note (5%) is unreasonably lower than the prevailing rate (10%) for similar obligation. The present value of the note is determined as follows: 2.5 M + (5% x 7.5 M) = 2,875,000 x 0.9091 P2,613,663 2.5 M + (5% x 5.0 M) = 2,750,000 x 0.8264 2,272,600 2.5 M + (5% x 2.5 M) = 2,625,000 x 0.7513 1,972,163 Total P6,858,426 or

2.5 M x 2.4869 P6,217,250 (5% x 7.5 M) x 0.9091 340,913 (5% x 5.0 M) x 0.8264 206,600 (5% x 2.5 M) x 0.7513 93,913 Total P6,858,676 (Note that the difference is due to the rounding off of present value factors)

(a)

Amortization Table Payment of Interest Date Principal Paid 01/01/16 12/31/16 2,500,000 375,000 12/31/17 2,500,000 250,000 12/31/18 2,500,000 125,000 *difference is due to rounding off

(b)

Interest Revenue 685,843 466,927 238,804*

Amortization of Discount 310,843 216,927 113,804*

Carrying Value 6,858,426 4,669,269 2,386,196 ------------

Journal entries

2016

Jan. 1

Dec. 31

Notes Receivable Discount on Notes Receivable Gain on Sale of Land Land 7,500,000 – 6,858,426 = 641,574 Discount 6,858,426 – 6,000,000 = 858,426 Gain Cash Discount on Notes Receivable Interest Revenue Notes Receivable

7,500,000

Cash Discount on Notes Receivable Interest Revenue Notes Receivable

2,750,000 216,927

Cash Discount on Notes Receivable Interest Revenue Notes Receivable

2,625,000 113,804

641,574 858,426 6,000,000 2,875,000 310,843 685,843 2,500,000

2017

Dec. 31

466,927 2,500,000

2018

Dec. 31

238,804 2,500,000

19

Chapter 3 – Receivables

3-8.

(Pinky Pip Company) The note is interest-bearing, but the rate of interest of the note (14%) is unreasonably higher than the prevailing rate (10%) for similar obligation. The present value of the note is determined as follows: 2.5 M + (14% x 7.5 M) = 3,550,000 x 0.9091 P3,227,305 2.5 M + (14% x 5.0 M) = 3,200,000 x 0.8264 2,644,480 2.5 M + (14% x 2.5 M) = 2,850,000 x 0.7513 2,141,205 Total P8,012,990 or

2.5 M x 2.48685 P6,217,125 (14% x 7.5 M) x 0.9091 954,555 (14% x 5.0 M) x 0.8264 578,480 (14% x 2.5 M) x 0.7513 262,955 Total P8,013,115 (Note that the difference in the computation is due to rounding off of present values)

(a)

Amortization Table Payment of Interest Date Principal Paid 01/01/16 12/31/16 2,500,000 1,050,000 12/31/17 2,500,000 700,000 12/31/18 2,500,000 350,000 *Difference is due to rounding off

(b)

Interest Revenue 801,299 526,429 259,282*

Amortization of Premium 248,701 173,571 90,718*

Carrying Value 8,012,990 5,264,289 2,590,718 ------------

Journal entries

2016

Jan. 1

Dec. 31

Notes Receivable Premium on Notes Receivable Gain on Sale of Land Land 8,012,990 – 7,500,000 = 512,990 Premium 8,247,955 – 6,000,000 = 2,247,955 Gain Cash Premium on Notes Receivable Interest Revenue Notes Receivable

7,500,000 512,990

Cash Premium on Notes Receivable Interest Revenue Notes Receivable

3,200,000

Cash Premium on Notes Receivable Interest Revenue Notes Receivable

2,850,000

2,012,990 6,000,000 3,550,000 248,701 801,299 2,500,000

2017

Dec. 31

173,571 526,429 2,500,000

2018

Dec. 31

3-9.

90,718 259,282 2,500,000

(Toyota Products, Inc.) a. b. c. d.

Accounts receivable Sales Cash Sales discounts Accounts receivable Sales returns Accounts receivable Allowance for uncollectible accounts Accounts receivable

4,800,000 4,800,000 3,920,000 80,000 4,000,000 60,000 60,000 20,000 20,000

20

Chapter 3 – Receivables

e.

f. g.

h.

i.

Accounts receivable Allowance for uncollectible accounts Cash Accounts receivable Notes receivable Accounts receivable Cash Notes payable-bank Cash Accounts receivable Notes payable-bank Cash Uncollectible accounts expense Allowance for uncollectible accounts 9,000 – 20,000 + 5,000 = 6,000 debit 59,000 + 6,000 = 65,000 Interest receivable Interest revenue 25,000 x 12% x 30/360

5,000 5,000 5,000 5,000 25,000 25,000 400,000 400,000 150,000 150,000 150,000 150,000 65,000 65,000 250 250

Accounts receivable (450,000+4,800,000–4,000,000–60,000 - 20,000–25,000–150,000) Less Allowance for uncollectible accounts Amortized cost of accounts receivable 3-10.

(Word Company) Amounts reported in 2016 financial statements: Uncollectible Accounts Expense Allowance for Uncollectible Accounts

P52,000 50,000

Required balance in allowance account: (2% x 500,000) + (10% x 200,000) + (20% x 100,000) Reported balance in allowance before adjustments (debit) Required adjustment charged to uncollectible accounts expense 3-11.

P50,000 2,000 P52,000

(Edit Company) Allowance for Uncollectible Accounts, beg Recovery of accounts previously written off Uncollectible accounts expense for 2016 Allowance for Uncollectible Accounts, end Accounts written off during 2016

3-12.

P995,000 59,000 P936,000

P 6,000 3,000 48,000 (12,000) P45,000

(Rav, Inc.) Accounts Receivable, December 31, 2015 Transactions during 2016 Sales on account Cash received from customers Cash discounts allowed: (882,000 ÷ 98%) x 2% (495,000 ÷ 99%) x 1% Recovery of accounts written off Accounts written off as worthless Credit memoranda for sales returns Accounts Receivable, December 31, 2016 Allowance for Uncollectible Accounts, December 31, 2015 Recovery of accounts written off Accounts written off as worthless Impairment loss on receivables Allowance for Uncollectible Accounts, December 31, 2016

21

P 337,000 1,500,000 (1,600,000) P18,000 5,000

(23,000) 3,000 (11,000) (6,000) P 200,000 P 12,000 3,000 (11,000) 15,000 P 19,000

Chapter 3 – Receivables

The computation may also be conveniently done through T-accounts, as follows: Accounts Receivable Balance, beg 337,000 Collections Sales on account 1,500,000 Cash discounts Recovery 3,000 Write off Sales returns Total 1,840,000 Total Balance, end 200,000 Allowance for Uncollectible Accounts 11,000 Balance, beg Recovery Impairment 11,000 Total Balance, end

Write off Total 3-13.

12,000 3,000 15,000 30,000 19,000

(Revo Company) (a)

Allowance for Uncollectible Accounts, January 1, 2016 Accounts written off Recovery of accounts previously written off Additional accounts written off Allowance for Uncollectible Accounts, December 31, 2016 before adjustments (debit balance) Required balance in Allowance account based on aging

(b)

P 34,000 (47,000) 7,000 (6,000) (P12,000)

Required adjustment/Uncollectible Accounts Expense for 2016

53,600 P65,600

Accounts Receivable, December 31, 2016 Less Allowance for Uncollectible Accounts Net amortized cost

P654,000 53,600 P600,400

(5% x 240,000) + (25% x 20,000) + (50% x 30,000) + (90% x 24,000)

3-14.

1,600,000 23,000 11,000 6,000 1,640,000

(Adventure Company) (a)

Accounts Receivable, January 1 Transactions during 2016 Sales Cash collected from customers Recovery of accounts previously written off Note received in settlement of an account Accounts written off as worthless Accounts Receivable, December 31

P 1,200,000

Accounts Receivable, December 31 Past due accounts Current accounts/Not yet past due

P 2,000,000 600,000 P 1,400,000

Adjusted balance of Allowance for Uncollectible Accounts 20% x 600,000 past due accounts 5% x 1,400,000 current accounts Total

P 120,000 70,000 P 190,000

(b)

Adjusted Allowance for Uncollectible Accounts, Dec. 31, 2016 Accounts written off during the year as worthless Recovery of accounts previously written off Allowance for Uncollectible Accounts, January 1, 2016 Uncollectible Accounts Expense for year 2016

(c)

Accounts Receivable Less Allowance for Uncollectible Accounts Amortized cost of accounts receivable, December 31, 2016

22

10,000,000 (8,720,000) 20,000 ( 400,000) ( 100,000) P 2,000,000

P190,000 100,000 (20,000) (60,000) P210,000 P2,000,000 190,000 P1,810,000

Chapter 3 – Receivables

3-15.

(Maynilad Bank) Alternative 1 Carrying value (10 M + 1M) Present value of future cash inflows: Principal due on 12/31/18 (9M x 0.8264) Interest for 2 years 9M x 8% = 720,000; 720,000 x 1.7355 Impairment loss

11,000,000 P7,437,600 1,249,560

Entry: Restructured Notes Receivable Impairment Loss – Receivables Notes Receivable Interest Receivable Alternative 2 Carrying value (10 M + 1M) Present value of future cash inflows: 2M + (8% x 10M) = 2,800,000 x 0.9091 2M + (8% x 8M) = 2,640,000 x 0.8264 2M + (8% x 6M) = 2,480,000 x 0.7513 2M + (8% x 4M) = 2,320,000 x 0.6830 2M + (8% x 2M) = 2,160,000 x 0.6209 Impairment loss

8,687,160 2,312,840

Entry: Restructured Notes Receivable Impairment Loss – Receivables Notes Receivable Interest Receivable Alternative 3 Carrying value Present value of future cash inflows: Principal due on 12/31/18 (10M x 0.8264) Interest due on 12/31/17 and 12/31/18 10M x 7% = 700,000; 700,000 x 1.7355 Impairment loss

9,516,104 1,483,896

10,000,000 1,000,000 11,000,000 2,545,480 2,181,696 1,863,224 1,584,560 1,341,144

23

9,516,104 1,483,896

10,000,000 1,000,000 10,000,000 8,264,000 1,214,850

Entry: Restructured Notes Receivable 9,478,850 Impairment Loss – Receivables 521,150 Notes Receivable Cash 1,200,000 Interest Receivable Alternative 4 Carrying value Present value of future cash inflows: Principal due on 12/31/18 (11M x 0.82644628) 9,090,909 Interest due on 12/31/17 and 12/31/18 11M x 10% = 1,100,000; 1,100,000 x 1.73553719 1,909,091 No impairment loss No entry is required for the restructuring.

8,687,160 P2,312,840

9,478,850 521,150

10,000,000 1,200,000 11,000,000

11,000,000 -0-

Chapter 3 – Receivables

3-16.

(Kate Company) (a)

Cash Notes Payable – National Bank

(b)

3-17.

750,000

Current assets: Trade and other receivables (including P900,000 of accounts pledged as collateral for a loan with National Bank)

P3,000,000

Current liabilities: Notes Payable – National Bank Interest Payable

P 750,000 7,500

(Lexus Company) Sept. 1

Accounts Receivable Assigned Accounts Receivable Cash Finance Charges Notes Payable – Pacific Bank Amount of the loan Less service charge (2% x 800,000) Net proceeds from the assignment of accounts receivable

Sept 1-30 Sept. 30

Oct. 1-31

Oct.

31

31 3-18.

750,000

Cash

800,000 800,000 634,000 16,000 650,000 P650,000 16,000 P634,000 300,000

Accounts Receivable Assigned Notes Payable – Pacific Bank Interest Expense Cash 650,000 x 12% x 1/12 = 6,500 Allowance for Uncollectible Accounts Accounts Receivable Assigned Cash Accounts Receivable Assigned Notes Payable – Pacific Bank Interest Expense Cash 350,000 x 12% x 1/12 = 3,500 Accounts Receivable Accounts Receivable Assigned

300,000 300,000 6,500 306,500 10,000 10,000 400,000 400,000 350,000 3,500 353,500 90,000 90,000

Accord Company) July 1 1

21 31

Aug. 1

Accounts Receivable Assigned Accounts Receivable Cash Finance Charges Notes Payable – Bank 5% x 4,000,000 = 200,000 Sales Returns and Allowances Accounts Receivable Assigned Cash Sales Discounts Accounts Receivable Assigned 2% x 2,500,000 = 50,000 Notes Payable – Bank Interest Expense Cash 4M x .12 x 1/12 = 40,000

24

5,000,000 5,000,000 3,800,000 200,000 4,000,000 200,000 200,000 2,450,000 50,000 2,500,000 2,500,000 40,000 2,540,000

Chapter 3 – Receivables

Aug. 15 31 Sept. 1

1 3–19.

1 31

Nov. 30

30

50,000 2,000,000 2,000,000 1,500,000 15,000 1,515,000 250,000 250,000

Accounts Receivable Assigned Accounts Receivable Cash Finance Charges Notes Payable Interest Expense Notes Payable Accounts Receivable Assigned 1.5M x .12 x 1/12 = 15,000 Notes Payable Interest Expense Cash Accounts Receivable Assigned 515,000 x 0.12 x 1/12 = 5,150 Accounts Receivable Accounts Receivable Assigned

2,000,000 2,000,000 1,410,000 90,000 1,500,000 15,000 985,000 1,000,000 515,000 5,150 279,850 800,000 200,000 200,000

(Highlander Company) (a) Sept. 1

Nov. 1

(b) Dec. 31

3-21.

50,000

(Fortune Company) Oct. 1

3-20.

Allowance for Uncollectible Accounts Accounts Receivable Assigned Cash Accounts Receivable Assigned Notes Payable – Bank Interest Expense Cash 1.5M x .12 x 1/12 = 15,000 Accounts Receivable Accounts Receivable Assigned

Cash Receivable from Factor Loss from Factoring Accounts Receivable 800,000 x 10% =80,000 Loss; 720,000 x 5% = 36,000 withheld Cash Finance Charges Notes Payable-Bank 3% x 600,000 = 18,000

684,000 36,000 80,000 800,000 582,000 18,000 600,000

Uncollectible Accounts Expense Allowance for Uncollectible Accounts (250,000 + 1,000,000) x 2% = 25,000 – 13,400

11,600 11,600

(Hiku Company) (a)

Selling price of Accounts Receivable (90% x P1,200,000) Factor’s holdback (6% x 1,080,000) Cash received from factoring

P1,080,000 (64,800) P1,015,200

(b)

Accounts receivable assigned balance (500,000 – 350,000) Balance of notes payable to the bank 400,000 – (350,000 – 4,000) Equity on assigned accounts

P 150,000

25

P

(54,000) 96,000

Chapter 3 – Receivables

(c)

3-22.

Face value of note discounted Interest for the full term April 30 – August 28 (50,000 x 9% x 120/360) Maturity value Discount (51,500 x 10% x 88/360) Proceeds

P P

Maturity value = 500,000 + (500,000 x .08) = 540,000 Proceeds = 540,000 – (540,000 x 0.10 x 5/12)

(b)

Interest Receivable Interest Revenue 500,000 x 8% x 7/12 Cash Loss on Sale of Notes Receivable Notes Receivable Interest Receivable Cash Liability on Discounted Notes

(c) a.

1,500 51,500 (1,259) 50,241

= 517,500 23,333 23,333 517,500 5,833 500,000 23,333 517,500 517,500

Proceeds 90,000 – (90,000 x 0.10 x 20/365) Cash

= P89,507 89,507

Liability on Discounted Notes b.

89,507

Maturity value 75,000 + (75,000 x 0.09 x 90/365)= P76,664 Proceeds 76,664 – (76,664 x 0.10 x 50/365) Cash

= P75,614

75,614 Liability on Discounted Notes

c.

75,614

Maturity value 60,000 + (60,000 x 0.12 x 120/365)= P62,367 Proceeds 62,367 – (62,367 x 0.10 x 45/365) Cash

= P61,598

61,598 Liability on Discounted Notes

3-24.

50,000

(Edsamail Company) (a)

3-23.

P

61,598

(Crosswind Corporation) 2016

Feb. 1 Apr. 1

Nov. 2

2

Notes Receivable Accounts Receivable Cash Liability on Discounted Notes 360,000 + (360,000 x .10 x 9/12) = 387,000 387,000 – (387,000 x .12 x 7/12) = 359,910 Liability on Discounted Notes Interest Expense Notes Receivable Interest Revenue 387,000 x .12 x 7/12 = 27,090 360,000 X .10 X 9/12 = 27,000 Accounts Receivable Cash 387,000 + 20,000

26

360,000 360,000 359,910 359,910 359,910 27,090 360,000 27,000 407,000 407,000

Chapter 3 – Receivables

3-25.

(Explorer Company) (a) Accounts receivable factored Purchase price Purchase price of accounts receivable factored Less amount withheld (5% x 1,700,000) Net cash received from the factored accounts (b) Cash Receivable from Factor Loss on Factoring Accounts Receivable Sales Returns Receivable from Factor Cash Receivable from Factor

3-26.

P2,000,000 85% P 1,700,000 85,000 P 1,615,000 1,615,000 85,000 300,000 2,000,000 30,000 30,000 55,000 55,000

(Nature Company) (a) 1/1/16 Interest Revenue Interest Receivable (1) Accounts Receivable Sales (2) Cash Sales Discounts Accounts Receivable (2,218,000 – 180,000)* Accounts Receivable Assigned * *See Item (9) (3) Notes Receivable Accounts Receivable (4) Cash Notes Receivable Interest Revenue (5) Cash Liability on Discounted Notes Liability on Discounted Notes Interest expense Notes Receivable Interest revenue (6) Accounts Receivable Assigned Accounts Receivable Cash Finance Charges Notes Payable (7) Accounts Receivable Notes Receivable Interest Revenue (8) Allowance for Uncollectible Accounts Accounts Receivable (9) Notes Payable Interest Expense Cash (10) Uncollectible Accounts Expense Allowance for Uncollectible Accounts 30,000 – (12,000 – 12,000 ) (11) Interest Receivable Interest Revenue

27

2,800 2,800 3,000,000 3,000,000 2,250,000 18,000 2,088,000 180,000 250,000 250,000 216,000 200,000 16,000 41,400 41,400 41,400 4,600 40,000 6,000 300,000 300,000 222,000 18,000 240,000 15,900 15,000 900 12,000 12,000 180,000 3,000 183,000 30,000 30,000 3,200 3,200

Chapter 3 – Receivables

(b)

Trade and Other Receivables include the following: Notes Receivable Accounts Receivable – Unassigned Accounts Receivable - Assigned Interest Receivable Allowance for Uncollectible Accounts Total

P

95,000 977,900 120,000 3,200 (30,000) P1,166,100

MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5 MC6 MC7 MC8 MC9 MC10

A B A A C A D A C C

MC11 MC12 MC13 MC14 MC15 MC16 MC17 MC18

C A C D A D A C

Problems MC19

B

Sales on account (450,000 x 1.4) Cash received from credit customers Accounts receivable balance, end

P630,000 585,000 P 45,000

MC20

D

Invoice price (105,000 x .90) Cash discount (2% x 94,500) Net price

MC21

C

Invoice price (200,000 x .90 x .95) Cash discount (3% x 171,000) Net price

MC22

B

Accounts receivable, beginning Credit sales for the year Collections from customers, including recoveries of P25,000 Recoveries of accounts previously written off Accounts written off Accounts receivable, ending

MC23

B

Accounts receivable balance, beginning Sales for the year Cost of goods available for sale Merchandise inventory, end Cost of goods sold Sales (360,000 ÷ 80%) Collections on accounts receivable Accounts receivable, ending

P94,500 (1,890) P92,610 P171,000 (5,130) P165,870

P80,000 P460,000 (100,000) P360,000

MC24

D

Allowance for uncollectible accounts balance before adjustment (debit) Required allowance balance based on aging analysis Uncollectible accounts expense for the year

MC25

D

Allowance for bad debts balance after adjustment (3% x 1,000,000)

28

P1,300,000 5,400,000 (4,750,000) 25,000 (125,000) P1,850,000

450,000 (430,000) P100,000 P45,000 75,000 P120,000 P30,000

Chapter 3 – Receivables

MC26

C

Allowance for bad debts balance before adjustment (debit) Required allowance balance (see MC 25) Uncollectible accounts expense

P8,000 30,000 P38,000

MC27

D

Allowance balance, end (270,000 – 250,000) Accounts written off Uncollectible accounts recovery during the year Allowance balance, beginning Bad debts expense for the year

P20,000 23,000 (5,000) (28,000) P10,000

MC28

B

Allowance for uncollectible accounts, beginning Write off of uncollectible accounts Recoveries of uncollectible accounts written off in prior years Provision for uncollectible accounts during the year Allowance for uncollectible accounts, ending

P17,500 (30,500) 8,050 20,000 P15,050

MC29

B

Accounts receivable, beginning Sales on account Cash received from customers Accounts written off Cash discounts granted (1,411,200 ÷ .98 = 1,440,000 x 2%) + (792,000 ÷ .99 = 800,000 x 1%) Recovery of accounts written off Accounts receivable, end

P480,000 2,400,000 (2,560,000) (17,600) (36,800) 4,800 P270,400

MC30

A

Allowance for bad debts, January 1 Recovery of accounts written off Accounts written off Allowance for bad debts, December 31, before adjustment (credit) Required balance of allowance for bad debts (5% of 270,400) Bad debts expense for the year

P19,200 4,800 (17,600 P6,400 13,520 P 7,120

MC31

A

0-30 days (5% x 600,000) 31-60 days (10% x 40,000) Over 60 days Allowance for uncollectible accounts, March 31

P30,000 4,000 14,000 P48,000

MC32

B

Allowance for uncollectible accounts, ending (500,000 – 480,000) Uncollectible accounts written off Recoveries of accounts previously written off Allowance for uncollectible accounts, beginning (375,000 – 362,500) Uncollectible accounts expense for the year

P20,000 7,500 (3,700) (12,500) P11,300

MC33

D

Maturity value (50,000 x 10%) + 50,000 Discount (55,000 x 12% x 6/12) Proceed from discounting

P55,000 3,300 P51,700

MC34

C

Present value of note (400,000 x 0.75) = 300,000 Interest income (300,000 x 10%)

P30,000

MC35

C

Carrying amount, January 1 Amortization of discount Carrying amount, December 31

P300,000 30,000 P330,000

MC36

C

Interest revenue (1,940,000 x 13.4% x 1/12)

P21,663

MC37

B

Interest receivable (2,000,000 x 12% x 1/12)

P20,000

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Chapter 3 – Receivables

MC38

C

MC39

C

Date July 1, July 1, July 1, July 1, July 1,

Amount of reduction in principal in 2018 Accrued interest at December 31, 2017 (242,605 x 6/12) Total current receivable at December 31, 2017 (See complete amortization table below) January 1 – June 30 (308,000 x 6/12) July 1 – December 31(242,605 x 6/12) Annual payment

2016 2017 2018 2019 2020

902,500 902,500 902,500 902,500

Interest income

11% x 2,800,000=308,000 11% x 2,205,500=242,605 11% x 1,545,605=170,017 902,500-813,122=89,378

Reduction in principal 902,500-308,000=594,500 902,500-242,605=659,895 902,500-170,017=732,483 813,122

MC40

B

Maturity value 500,000 + (500,000 x 8%) Discount (540,000 x 10% x 8/12) Proceeds from discounting

MC41

B

Proceeds from factoring Proceeds from assignment 1,250,000 – (2% x 1,250,000) Proceeds from factoring and assignment of accounts receivable

MC42

D

Required balance in allowance account (500,000 + 2.2M) x 3% Allowance balance before adjustment Bad debt expense for the year

MC43

C

Carrying value of the note (500,000 + 50,000) Present value of restructured notes receivable 500,000 x 0.8265 500,000 x 8% = 40,000; 40,000 x 1.7355 Impairment loss

MC44

MC45

A

D

Carrying value of the note Present value of restructured notes receivable 4,000,000 x .83 4.0M x 8% = 320,000; 320,000 x 1.74 Impairment loss See MC45

P659,895 121,303 P781,198 P275,303 Balance 2,800,000 2,205,500 1,545,605 813,122 -0P540,000 (36,000) P504,000 P695,000 1,225,000 P1,920,000 P81,000 (32,000) P49,000 P550,000

413,250 69,420

482,670 P 67,330 P5,500,000

3,320,000 556,800

3,876,800 P1,623,200 P3,876,800

30