Financial Accounting Solution Manual

SOLUTION MANUAL

Financial Accounting Valix and Peralta Volume One - 2008 Edition 1 CHAPTER 1 Problem 1-1

Problem 1-2

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

D C D D C C B C D A

A A D B D B D C C D

Problem 1-3 1. 2. 3. 4. 5.

C D D A D

Problem 1-4 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

A C A A D A D B D D

Problem 1-5

Problem 1-6

Problem 1-7

Problem 1-8

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

A A A D D D B D C D

Problem 1-9 1. 2. 3. 4. 5.

D D C B C

A A C A A A B C A B

D D C A A C D D B D

B B C C A B D D A B

Problem 1-10

Problem 1-11

Problem 1-12

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

A B D B A D C A D A

C B D A F E J G H I

E D B C G H I F J A

2 Problem 1-13 1. Systematic and rational allocation as a matching process 2. Comparability or consistency 3. Monetary unit 4. Income recognition principle 5. Time period 6. Going concern and cost principle 7. Accounting entity 8. Materiality 9. Completeness or standard of adequate disclosure 10. Conservatism or prudence

Problem 1-14 1. Materiality 2. Going concern 3. Income recognition principle 4. Accounting entity 5. Standard of adequate disclosure 6. Comparability 7. Matching principle 8. Cost principle 9. Reliability 10. Time period

Problem 1-15 1. The cost of leasehold improvement should not be recorded as outright expense, but should be amortized as expense over the life of the improvement or life of the lease, whichever is shorter. This is in conformity with the systematic and rational allocation principle of expense recognition. 2. The fact that the customer has not been seen for a year is not a controlling factor to write off the account. If the account is doubtful of collection, an allowance should be set up. It is only when there is proof of uncollectibility that the account should be written off. 3. Advertising cost should be treated as outright expense, by reason of the uncertainty of the benefit that may be derived therefrom in the future, in conformity with “immediate recognition principle”. 4. The balance of the cash surrender value should not be charged to loss. In reality, this is conceived as a prospective receivable if and when the policy is canceled because of excessive premium in the early stage of policy. The CSV should be classified as noncurrent investment. 5. The cost of obsolete merchandise should not be included as part of inventory but charged to expense, as a conservative approach. 6. The excess payment represents goodwill which should not be amortized but subject to impairment. Conservatism dictates that goodwill should be recognized when paid for. 7. The depreciation is not dependent on the amount of profit generated during the year. Depreciation is an allocation of cost and therefore should be provided regardless of the level of earnings.

3 8. An entry should be made to recognize the inventory fire loss, and such loss should be treated as component of income. 9. Revenues and expenses of the canteen should be separated from the revenues and cost of regular business operations in order to present fairly the financial position and performance of the regular operations. 10. The increase in value of land and building should not be taken up in the accounts. The use of revalued amount is permitted only when the revaluation is made by independent and expert appraiser. The expected sales price of P5,000,000 is not necessarily the revalued amount of the land and building. Moreover, increase in value is not an income until the asset is sold.

Problem 1-16 1. Accrual assumption 6. Income recognition principle 2. Going concern assumption 7. Expense recognition principle 3. Asset recognition principle 8. Cause and effect association principle 4. Cost principle 9. Systematic and rational allocation principle 5. Liability recognition principle 10. Immediate recognition principle

Problem 1-17 1. Monetary unit assumption 2. Cost principle 3. Materiality 4. Time period 5. Matching principle

6. Substance over form 7. Income recognition principle 8. Comparability or consistency 9. Conservatism or prudence 10. Adequate disclosure or completeness

Problem 1-18 1. The cost of the asset should be the amount of cash paid. No income should be recognized when an asset is purchased at an amount less than its market value. Revenue arises from the act of selling and not from the act of buying. 2. The entry should be reversed because the pending lawsuit is a mere contingency. The contingent loss is simply disclosed. To be recognized in accordance with conservatism, the contingent loss must be both probable and measurable. 3. The new car should be charged against the president and debited to receivable from officer, because the car is for personal use.

4 4. The entry is incorrect because no revenue shall be recognized until a sale has taken place. 5. Purchased goodwill should be recorded as an asset. Under the new standard, goodwill is not amortized anymore but on each balance sheet date it should be assessed for impairment.

Problem 1-19 1. 2. 3. 4. 6.

Accrual Going concern Accounting entity Monetary unit Time period

5 CHAPTER 2 Problem 2-1 Easy Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash and cash equivalents Accounts receivable Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Long-term investments Intangible asset Total noncurrent assets Total assets

Note 800,000 (1)

450,000 900,000 200,000 2,350,000

(2) (3)

4,400,000 950,000 800,000 6,150,000 8,500,000

LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Trade and other payables Note payable, short-term debt Total current liabilities Noncurrent liabilities: Mortgage payable, due in 5 years Note payable, long-term debt Total noncurrent liabilities Shareholders’ equity: Share capital, P100 par Share premium Retained earnings Total shareholders’ equity Total liabilities and stockholders’ equity

(4)

450,000 200,000 650,000 1,500,000 500,000 2,000,000 4,000,000 500,000 1,350,000 5,850,000 8,500,000

Note 1 - Prepaid expenses Office supplies

50,000

Prepaid rent Total prepaid expenses

150,000 200,000

6 Note 2 - Property, plant and equipment Property, plant and equipment Accumulated depreciation Net book value

5,600,000 (1,200,000) 4,400,000

Note 3 - Intangible asset Patent

800,000

Note 4 - Trade and other payables Accounts payable Accrued expenses Total

350,000 100,000 450,000

Problem 2-2 Simple Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash Trading securities Trade and other receivables Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Long-term investments Intangible assets Total noncurrent assets Total assets

Note 420,000 250,000 620,000

(2)

(1) 1,250,000 (3) 20,000

2,560,000 (4) (5) (6)

4,640,000 2,000,000 300,000 6,940,000 9,500,000

7 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Trade and other payables Serial bonds payable - current portion Total current liabilities

Note (7)

620,000 500,000 1,120,000

Noncurrent liabilities: Serial bonds payable - remaining portion Shareholders’ equity: Share capital Share premium Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity

2,000,000 5,000,000 500,000 880,000 6,380,000 9,500,000

Note 1 - Trade and other receivables Accounts receivable Allowance for doubtful accounts Notes receivable Claim receivable Total

500,000 ( 50,000) 150,000 20,000 620,000

Note 2 - Inventories Finished goods Goods in process Raw materials Factory supplies Total

400,000 600,000 200,000 50,000 1,250,000

Note 3 - Prepaid expenses Prepaid insurance

20,000

Note 4 - Property, plant and equipment

Land

Cost 1,500,000

Accum. depr. -

Book value 1,500,000

Building Machinery Tools Total

4,000,000 2,000,000 40,000 7,540,000

1,600,000 1,300,000 2,900,000

2,400,000 700,000 40,000 4,640,000

8 Note 5 - Long-term investments Investment in bonds Plant expansion fund Total

1,500,000 500,000 2,000,000

Note 6 - Intangible assets Franchise Goodwill Total

200,000 100,000 300,000

Note 7 - Trade and other payables Accounts payable Notes payable Income tax payable Advances from customers Accrued expenses Accrued interest on note payable Employees income tax payable Total

300,000 100,000 60,000 100,000 30,000 10,000 20,000 620,000

Problem 2-3 Exemplar Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash and cash equivalents Trading securities Trade and other receivables Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment

Note (1)

500,000 280,000 640,000 1,300,000 70,000 2,790,000

(2)

5,300,000

Long-term investments Intangible assets Other noncurrent assets Total noncurrent assets Total assets

(3) (4) (5)

1,310,000 3,350,000 150,000 10,110,000 12,900,000

9 LIABILITIES AND SHAREHOLDERS’ EQUITY Note Current liabilities: Trade and other payables Noncurrent liabilities: Bonds payable Premium on bonds payable Total noncurrent liabilities

(6)

1,000,000

5,000,000 1,000,000 6,000,000

Shareholders’ equity: Share capital Reserves Retained earnings (deficit) Total shareholders’ equity Total liabilities and shareholders’ equity

(7) (8)

7,000,000 700,000 (1,800,000) 5,900,000 12,900,000

Note 1 - Trade and other receivables Accounts receivable Allowance for doubtful accounts Notes receivable Accrued interest on notes receivable Total

400,000 ( 20,000) 250,000 10,000 640,000

Note 2 - Property, plant and equipment

Land Building Equipment Total Note 3 - Long-term investments

Cost 1,500,000 5,000,000 1,000,000 7,500,000

Accum. depr. 2,000,000 200,000 2,200,000

Book value 1,500,000 3,000,000 800,000 5,300,000

Land held for speculation Sinking fund Preference share redemption fund Cash surrender value Total

500,000 400,000 350,000 60,000 1,310,000

Note 4 - Intangible assets Computer software Lease rights Total

3,250,000 100,000 3,350,000

10 Note 5 - Other noncurrent assets Advances to officers, not collectible currently Long-term refundable deposit Total

100,000 50,000 150,000

Note 6 - Trade and other payables Accounts payable Notes payable Unearned rent income SSS payable Accrued salaries Dividends payable Withholding tax payable Total

400,000 300,000 40,000 10,000 100,000 120,000 30,000 1,000,000

Note 7 – Share capital Preference share capital Ordinary share capital Total

2,000,000 5,000,000 7,000,000

Note 8 - Reserves Share premium – preference Share premium – ordinary Total

500,000 200,000 700,000

Problem 2-4 Relax Company Statement of Financial Position December 31, 2008 ASSETS

Current assets: Cash Trade accounts receivable Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Investment in associate Intangible assets Total noncurrent assets Total assets

Note 400,000 750,000 1,000,000 100,000

(1)

2,250,000 (2) (3)

5,600,000 1,300,000 350,000 7,250,000 9,500,000

11 LIABILITIES AND SHAREHOLDERS’ EQUITY Note Current liabilities: Trade and other payables Mortgage note payable-current portion Total current liabilities

(4)

1,750,000

Noncurrent liabilities: Mortgage note payable, remaining position Bank loan payable, due June 30, 2010 Total noncurrent liabilities Shareholders’ equity: Share capital Reserves Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity

1,350,000 400,000

1,600,000 500,000 2,100,000

(5)

3,000,000 1,400,000 1,250,000 5,650,000 9,500,000

Note 1 - Trade accounts receivable Accounts receivable Allowance for doubtful accounts Net realizable value

800,000 ( 50,000) 750,000

Note 2 - Property, plant and equipment

Land Building Machinery Equipment Total

Cost 500,000 5,000,000 3,000,000 400,000 8,900,000

Accum. depr. 2,000,000 1,200,000 100,000 3,300,000

Book value 500,000 3,000,000 1,800,000 300,000 5,600,000

Note 3 - Intangible assets Trademark Secret processes and formulas Total

150,000 200,000 350,000

Note 4 - Trade and other payables Notes payable Accounts payable Income tax payable Accrued expenses Estimated liability for damages Total

750,000 350,000 50,000 60,000 140,000 1,350,000

12 Note 5 - Reserves Additional paid in capital Retained earnings appropriated for plant expansion Retained earnings appropriated for contingencies Total

300,000 1,000,000 100,000 1,400,000

Problem 2-5 Summa Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash Bond sinking fund Trade and other receivables Inventory Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Investment property Intangible asset Total noncurrent assets Total assets

Note (1) (2)

700,000 2,000,000 830,000 1,200,000 100,000 4,830,000

(3) (4)

5,500,000 700,000 370,000 6,570,000 11,400,000

LIABILITIES AND EQUITY Note Current liabilities: Trade and other payables

(5)

2,050,000

Bonds payable due June 30, 2009 Total current liabilities

2,000,000 4,050,000

Noncurrent liability: Deferred tax liability

650,000

Equity: Share capital Reserves Retained earnings Total equity Total liabilities and equity

(6) (7)

3,500,000 500,000 2,700,000 6,700,000 11,400,000

13 Note 1 - Cash Cash on hand Cash in bank

50,000 650,000 700,000

Note 2 - Trade and other receivables Accounts receivable Allowance for doubtful accounts Notes receivable Accrued interest receivable Total

650,000 ( 50,000) 200,000 30,000 830,000

Note 3 - Property, plant and equipment

Land Building Furniture and equipment Total

Cost 1,000,000 5,500,000 2,400,000 8,900,000

Accum. depr. 2,500,000 900,000 3,400,000

Book value 1,000,000 3,000,000 1,500,000 5,500,000

Note 4 - Intangible asset Patent

370,000

Note 5 - Trade and other payables Accounts payable Notes payable Accrued taxes Other accrued liabilities Total

1,000,000 850,000 50,000 150,000 2,050,000

Note 6 – Share capital Authorized share capital, 50,000 shares, P100 par Unissued share capital Issued share capital Subscribed share capital, 10,000 shares Subscription receivable Paid in capital

5,000,000 (2,000,000) 3,000,000 1,000,000 ( 500,000) 500,000 3,500,000

Note 7 - Reserves Share premium Retained earnings appropriated for contingencies Total

300,000 200,000 500,000

14 Problem 2-6 (Functional method) Karla Company Income Statement Year ended December 31, 2008

Note Net sales revenue Cost of sales Gross income Other income Total income Expenses: Selling expenses Administrative expenses Other expenses Income before tax Income tax Net income

(1) (2)

7,700,000 (5,000,000) 2,700,000 400,000 3,100,000

(3) (4) (5) (6)

950,000 800,000 100,000

1,850,000 1,250,000 ( 250,000) 1,000,000

Note 1 – Net sales revenue Gross sales Sales returns and allowances Sales discounts Net sales revenue

7,850,000 ( 140,000) ( 10,000) 7,700,000

Note 2 – Cost of sales Inventory, January 1

1,000,000

Purchases Freight in Purchase returns and allowances Purchase discounts Net purchases Goods available for sale Inventory, December 31 Cost of sales

5,250,000 500,000 ( 150,000) ( 100,000) 5,500,000 6,500,000 (1,500,000) 5,000,000

Note 3 – Other income Rental income Dividend revenue Total other income

250,000 150,000 400,000

15 Note 4 – Selling expenses Freight out Salesmen’s commission Depreciation – store equipment Total selling expenses

175,000 650,000 125,000 950,000

Note 5 – Administrative expenses Officers’ salaries Depreciation – office equipment Total administrative expenses

500,000 300,000 800,000

Note 6 – Other expenses Loss on sale of equipment Loss on sale of investment Total other expenses

50,000 50,000 100,000

Natural method Karla Company Income Statement Year ended December 31, 2008 Net sales revenue

Note (1)

7,700,000

Other income Total Expenses: Increase in inventory Net purchases Freight out Salesmen’s commission Depreciation Officers’ salaries Other expenses Income before tax Income tax Net income

(2) (3) (4) (5) (6)

400,000 8,100,000 ( 500,000) 5,500,000 175,000 650,000 425,000 500,000 100,000

6,850,000 1,250,000 ( 250,000) 1,000,000

16 Note 1 – Net sales revenue Gross sales Sales returns and allowances Sales discounts Net sales revenue

7,850,000 ( 140,000) ( 10,000) 7,700,000

Note 2 – Other income Rental income Dividend revenue Total other income

250,000 150,000 400,000

Note 3 – Increase in inventory Inventory, December 31 Inventory, January 1 Increase in inventory

1,500,000 1,000,000 500,000

Note 4 – Net purchases Purchases Freight in Purchase returns and allowances Purchase discounts Net purchases

5,250,000 500,000 ( 150,000) ( 100,000) 5,500,000

Note 5 – Depreciation Depreciation – store equipment Depreciation – office equipment Total

125,000 300,000 425,000

Note 6 – Other expenses Loss on sale of equipment Loss on sale of investment Total

50,000 50,000 100,000

17 Problem 2-7 Masay Company Statement of Cost of Goods Manufactured Year Ended December 31, 2008 Raw materials – January 1 Purchases Raw materials available for use Less: Raw materials – December 31 Raw materials used Direct labor Factory overhead: Indirect labor Superintendence Light, heat and power Rent – factory building Repair and maintenance – machinery Factory supplies used Depreciation – machinery Total manufacturing cost Goods in process – January 1 Total Cost of goods in process Less: Goods in process – December 31 Cost of goods manufactured

Cost of sales method Masay Company

200,000 3,000,000 3,200,000 280,000 2,920,000 950,000 250,000 210,000 320,000 120,000 50,000 110,000 60,000

1,120,000 4,990,000 240,000 5,230,000 170,000 5,060,000

Income Statement Year ended December 31, 2008 Net sales revenue Cost of goods sold Gross income Other income Total income Expenses: Selling expenses Administrative expenses Other expense Income before tax Income tax expense Net income

Note (1) (2)

7,450,000 (5,120,000) 2,330,000 210,000 2,540,000

(3) (4) (5) (6)

830,000 590,000 300,000

1,720,000 820,000 ( 320,000) 500,000

18 Note 1 – Net sales revenue Sales Sales returns and allowances Net sales revenue

(

7,500,000 50,000) 7,450,000

Note 2 – Cost of goods sold Finished goods – January 1 Cost of goods manufactured Goods available for sale Finished goods – December 31 Cost of goods sold

360,000 5,060,000 5,420,000 ( 300,000) 5,120,000

Note 3 – Other income Gain from expropriation Interest income Gain on sale of equipment

100,000 10,000 100,000 210,000

Note 4 – Selling expenses Sales salaries Advertising Depreciation – store equipment

400,000 160,000 70,000

Delivery expenses Total

200,000 830,000

Note 5 – Administrative expenses Office salaries Depreciation – office equipment Accounting and legal fees Office expenses Total

150,000 40,000 150,000 250,000 590,000

Note 6 – Other expense Earthquake loss

300,000

19 Nature of expense method Masay Company Income Statement Year Ended December 31, 2008 Net sales revenue Other income Total income Expenses: Decrease in finished goods and goods in process Raw materials used Direct labor Factory overhead Salaries Advertising Depreciation Delivery expenses Accounting and legal fees Office expenses Other expense Income before tax Income tax expense Net income

Note (1) (2)

(4)

(3) 130,000 2,920,000 950,000 (5) 1,120,000 (6) 550,000 160,000 (7) 110,000 200,000 150,000 250,000 (8) 300,000

7,450,000 210,000 7,660,000

6,840,000 820,000 ( _320,000) 500,000

Note 1 – Net sales revenue Sales Sales returns and allowances Net sales revenue

(

7,500,000 50,000) 7,450,000

Note 2 – Other income Gain from expropriation Interest income Gain on sale of equipment

100,000 10,000 100,000 210,000

Note 3 – Decrease in finished goods and goods in process Finished goods Goods in process Total

January 1 360,000 240,000 600,000

December 31 300,000 170,000 470,000

Decrease 60,000 70,000 130,000

20 Note 4 – Raw materials used Raw materials – January 1 Purchases Raw materials available for use Raw materials – December 31 Raw materials used

200,000 3,000,000 3,200,000 280,000 2,920,000

Note 5 – Factory overhead Indirect labor Superintendence Light, heat and power Rent – factory building Repair and maintenance – machinery Factory supplies used Depreciation – machinery Total

250,000 210,000 320,000 120,000 50,000 110,000 60,000 1,120,000

Note 6 – Salaries Sales salaries Office salaries Total

Note 7 – Depreciation

400,000 150,000 550,000

Depreciation – store equipment Depreciation – office equipment Total

70,000 40,000 110,000

Note 8 – Other expense Earthquake loss

300,000

Problem 2-8 Youth Company Income Statement Year ended December 31, 2008 Net sales revenue Cost of goods sold Gross income Expenses: Selling expenses Administrative expenses Other expense Income before tax Income tax expense Net income

Note (1) (2) (3) (4) (5)

8,870,000 (5,900,000) 2,970,000 690,000 580,000 340,000

1,610,000 1,360,000 ( 360,000) 1,000,000

21 Note 1 – Net sales revenue Sales Sales returns and allowances Net sales revenue

9,070,000 ( 200,000) 8,870,000

Note 2 – Cost of goods sold Beginning inventory Purchases Transportation in Purchase discounts Goods available for sale Ending inventory Cost of goods sold

1,500,000 5,750,000 150,000 ( 100,000)

5,800,000 7,300,000 (1,400,000) 5,900,000

Note 3 – Selling expenses Depreciation – store equipment Store supplies Sales salaries Total

110,000 80,000 500,000 690,000

Note 4 – Administrative expenses Officers’ salaries Depreciation – building Office supplies Total

400,000 120,000 60,000 580,000

Note 5 – Other expense Uninsured flood loss

340,000

22 Problem 2-9 Christian Company Statement of Cost of Goods Manufactured Year Ended December 31, 2008 Purchases Freight in Total Increase in raw materials Raw materials used Direct labor Factory overhead: Indirect labor Depreciation – machinery Factory taxes Factory supplies expense Factory superintendence Factory maintenance Factory heat, light and power Total manufacturing cost Decrease in goods in process Cost of goods manufactured

1,600,000 80,000 1,680,000 ( 100,000) 1,580,000 1,480,000 600,000 50,000 130,000 120,000 480,000 150,000 220,000

1,750,000 4,810,000 90,000 4,900,000

Christian Company Income Statement Year Ended December 31, 2008 Note Sales revenue Cost of goods sold Gross income Expenses: Selling expenses Administrative expenses Income before tax Income tax expense Net income

8,000,000 (5,100,000) 2,900,000

(1) (2) (3)

800,000 930,000

1,730,000 1,170,000 ( 170,000) 1,000,000

Note 1 – Cost of goods sold Cost of goods manufactured Decrease in finished goods Cost of goods sold

4,900,000 200,000 5,100,000

23

Note 2 – Selling expenses Sales salaries 520,000 Advertising 120,000 Delivery expense 160,000 Total 800,000

Note 3 – Administrative expenses Office supplies expense 30,000 Office salaries 800,000 Doubtful accounts 100,000 Total 930,000

Problem 2-10 Ronald Company Statement of Cost of Goods Manufactured Year Ended December 31, 2008 Materials – January 1 Purchases Freight on purchases Purchase discounts Materials available for use Less: Materials – December 31 Materials used Direct labor Factory overhead: Heat, light and power Repairs and maintenance Indirect labor Other factory overhead Factory supplies used (300,000 + 660,000 – 540,000) Depreciation – factory building Total manufacturing cost Goods in process – January 1 Total cost of goods in process Less: Goods in process – December 31 Cost of goods manufactured

1,120,000 1,600,000 220,000 ( 20,000)

1,800,000 2,920,000 1,560,000 1,360,000 2,000,000

600,000 100,000 360,000 340,000 420,000 280,000

2,100,000 5,460,000 360,000 5,820,000 320,000 5,500,000

24

Ronald Company Income Statement Year Ended December 31, 2008 Note Net sales revenue Cost of goods sold Gross income Other income

(1) (2) (3)

6,980,000 (5,400,000) 1,580,000 160,000

Total income Expenses: Selling expenses Administrative expenses Income before tax Income tax expense Net income

1,740,000 200,000 340,000

540,000 1,200,000 ( 200,000) 1,000,000

Note 1 – Net sales revenue Sales Sales returns and allowances Net sales revenue

7,120,000 ( 140,000) 6,980,000

Note 2 – Cost of goods sold Finished goods – January 1 Cost of goods manufactured Goods available for sale Finished goods – December 31 Cost of goods sold

420,000 5,500,000 5,920,000 ( 520,000) 5,400,000

Note 3 – Other income Interest revenue

160,000

25 Problem 2-11 Reliable Company Statement of Retained Earnings Year Ended December 31, 2008 Retained earnings – January 1 Prior period error – overdepreciation in 2007 Change in accounting policy from FIFO to weighted average method – credit adjustment Corrected beginning balance

200,000 100,000 150,000 450,000

Net income Decrease in appropriation for treasury share Total Cash dividends paid to shareholders Current appropriation for contingencies Retained earnings – December 31

1,300,000 200,000 1,950,000 ( 500,000) ( 100,000) 1,350,000

Problem 2-12 Net income Loss from fire Goodwill impairment Loss on sale of equipment Gain on retirement of bonds payable Gain on life insurance settlement Adjusted net income

3,000,000 ( 50,000) ( 250,000) ( 200,000) 100,000 450,000 3,050,000

Gondola Company Statement of Retained Earnings Year ended December 31, 2008 Balance – January 1 Compensation of prior period not accrued Correction of prior period error – credit Adjusted beginning balance Net income – adjusted Stock dividend Loss on retirement of preference share Appropriated for treasury share Balance – December 31

2,600,000 ( 500,000) 400,000 2,500,000 3,050,000 ( 700,000) ( 350,000) (1,000,000) 3,500,000

26 CHAPTER 3 Problem 3-1 1. 2. 3. 4. 5.

D A A C B

6. 7. 8. 9. 10.

Problem 3-2 D B C C A

1. 2. 3. 4. 5.

D D C A C

6. 7. 8. 9. 10.

D D B D B

Problem 3-3 a. Undeposited collections Cash in bank – PCIB Cash in bank – PCIB (for payroll) Cash in bank - PCIB (savings deposit) Money market instrument – 90 days Total cash and cash equivalents b. Accounts receivable (15,000 + 25,000) Cash in foreign bank Advances to officers Sinking fund cash Trading securities Bank overdraft Cash

60,000 500,000 150,000 100,000 2,000,000 2,810,000 40,000 100,000 30,000 450,000 120,000 50,000 690,000

Problem 3-4 Adjusting entries on December 31, 2008 a. Cash Accounts payable

100,000

b. Cash Accounts payable

50,000

c. Accounts receivable Cash

100,000 50,000 200,000

d. Accounts receivable (20,000 + 60,000 + 30,000) 110,000 Money market placement 1,000,000 Cash in closed bank 50,000 Advances to employee 30,000 Pension fund 400,000 Cash

200,000

1,590,000

27 Cash and cash equivalents: Demand deposit (see below) Time deposit – 30 days Petty cash fund Total Demand deposit per book Undelivered check Postdated check delivered

1,450,000 500,000 10,000 1,960,000 1,500,000 100,000 50,000

Window dressing of collection Adjusted balance

( 200,000) 1,450,000

Problem 3-5 1. Cash on hand Postdated check Adjusted cash on hand

500,000 (100,000) 400,000

2. Petty cash fund Unreplenished petty cash expenses Postdated employee check Adjusted petty cash

20,000 ( 2,000) ( 3,000) 15,000

3. Security Bank current account Postdated company check delivered Adjusted balance

1,000,000 200,000 1,200,000

4. Cash on hand Petty cash fund Security Bank current account PNB current account No. 1 PNB current account No. 2 BSP Treasury bill – 60 days Total cash and cash equivalents

(

400,000 15,000 1,200,000 400,000 50,000) 3,000,000 4,965,000

*The BPI Time deposit of P2,000,000 is shown as noncurrent investment because it is restricted for land acquisition. 5. Accounts receivable Cash on hand Expenses Receivable from employee Petty cash fund Security Bank current account Accounts payable

100,000 100,000 2,000 3,000 5,000 200,000 200,000

28 Problem 3-6 1. Cash on hand NSF customer check Postdated customer check Adjusted on hand 2. Currency and coins Check drawn payable to petty cashier

500,000 ( 40,000) ( 60,000) 400,000 1,000 14,000

Adjusted petty cash

15,000

3. Cash in bank Undelivered company check Postdated company check delivered Adjusted cash in bank 4. Accounts receivable (40,000 + 60,000) Cash on hand Advances to employees Cash short or over Petty cash fund Cash in bank (100,000 + 150,000) Accounts payable

2,000,000 100,000 150,000 2,250,000 100,000 100,000 3,000 2,000 5,000 250,000 250,000

Problem 3-7 1. Cash on hand NSF customer check Postdated customer check Adjusted cash on hand

200,000 ( 35,000) ( 15,000) 150,000

2. Petty cash fund: Currency and coins

5,000

3. Philippine Bank current account Undelivered company check Postdated company check delivered Adjusted balance

5,000,000 25,000 45,000 5,070,000

4. Cash on hand Petty cash fund Philippine Bank current Manila Bank current Asia Bank time deposit Total cash and cash equivalent

150,000 5,000 5,070,000 4,000,000 2,000,000 11,225,000

29 5. Accounts receivable Cash on hand Receivable from officer Expenses Cash short or over Petty cash

50,000 50,000 2,000 12,000 1,000 15,000

Philippine Bank current Accounts payable

70,000 70,000

City Bank current Bank overdraft

100,000 100,000

Problem 3-8 Fluctuating Fund System 1. Petty cash fund Cash in bank

10,000

2. Postage Supplies Transportation Miscellaneous expense Petty cash fund

1,500 5,500 1,200 800

3. Petty cash fund Cash in bank

10,000

Imprest Fund System 1. Petty cash fund Cash in bank

10,000 10,000

2. No entry

9,000 14,000 14,000

3. Petty cash fund Postage Supplies Transportation Miscellaneous expense Cash in bank

5,000 1,500 5,500 1,200 800 14,000

Problem 3-9 Fluctuating Fund System 1. Petty cash fund Cash in bank

10,000

2. Postage Supplies Petty cash fund

1,500 2,000

3. Transportation Miscellaneous expense Cash in bank

1,000 500

Imprest Fund System 10,000

1. Petty cash fund Cash in bank

10,000 10,000

2. No entry 3,500 3. No entry 1,500

4. No entry

30 Fluctuating Fund System 4. Supplies Accounts payable Petty cash fund

1,000 3,000

5. Petty cash fund

9,000

Imprest Fund System

4,000

5. Postage 1,500 Supplies 3,000 Transportation 1,000 Miscellaneous expense 500

Cash in bank

9,000

6. Postage Supplies Transportation Petty cash fund 7. Petty cash fund Cash in bank

2,000 3,000 4,000

Accounts payable Cash in bank

3,000 9,000

6. No entry 9,000

19,000 19,000

7. Petty cash fund Postage Supplies Transportation Cash in bank

10,000 2,000 3,000 4,000 19,000

Problem 3-10 Fluctuating Fund System May 2 Petty cash fund Cash in bank 29 Postage Supplies Transportation Miscellaneous expense Petty cash fund

10,000 10,000 1,000 3,000 2,500 1,500 8,000

Imprest Fund System May 2 Petty cash fund Cash in bank

2,000 1,000 1,000

July

4,000

1 Petty cash fund Supplies Postage Transportation

4,000

10,000

29 Postage Supplies Transportation Miscellaneous expense Petty cash fund Petty cash fund Cash in bank

June 30 Supplies Accounts payable Transportation Petty cash fund

10,000

June 30 Supplies Accounts payable Transportation Petty cash fund

1,000 3,000 2,500 1,500 8,000 8,000 8,000 2,000 1,000 1,000 4,000

2,000 1,000 1,000

To reverse the adjustment made on June 30. 15 Petty cash fund Supplies Postage Transportation Miscellaneous expense Cash in bank

5,000 3,500 1,500 1,500 500

July 15 Supplies 1,500 Postage 500 Transportation 500 Miscellaneous expense 500 Petty cash fund

3,000

12,000 Petty cash fund Cash in bank

12,000 12,000

31 Problem 3-11 2008 Nov. 2

Petty cash fund Cash in bank

10,000 10,000

30

Dec. 31

2009 Jan. 1

2 31

Postage Supplies Petty cash fund Cash in bank

2,000 5,000 10,000

Postage Supplies Special deposit Petty cash fund

3,000 4,000 2,000

Petty cash fund Postage Supplies Special deposit

9,000

17,000

9,000

3,000 4,000 2,000

No entry Postage Supplies Accounts payable Cash short or over Cash in bank

5,000 6,000 7,000 1,000 19,000

Problem 3-12 Requirement 1 2008 Dec. 1 Petty cash fund Cash in bank

10,000 10,000

20 Selling expenses Miscellaneous expenses Equipment Cash in bank

5,000 2,000 2,000

31 Receivable from employee Selling expenses Transportation Petty cash fund

2,000 1,500 500

2009 Jan. 1 Petty cash fund Receivable from employee Selling expenses Transportation

9,000

4,000 4,000 2,000 1,500 500

32 2009 Jan. 15 No entry 31 Selling expenses Administrative expenses

2,000 2,000

Transportation Purchases Cash in bank

1,500 1,200 6,700

Requirement 2 Petty cash Less: Petty cash expenses from December 21, 2008 to January 31, 2009: Selling expenses (1,500 + 500) 2,000 Administrative expenses 2,000 Transportation (500 + 1,000) 1,500 Purchases 1,200 Petty cash before replenishment

Problem 3-13 Answer B

Problem 3-14 Answer C

Problem 3-15 Answer A

Problem 3-16 Answer A

Petty cash fund Undeposited collections Cash in bank Total

50,000 1,100,000 2,500,000 3,650,000

Payroll account Value added tax account Traveler’s check Money order Petty cash fund Total

10,000

6,700 3,300

2,500,000 1,000,000 300,000 700,000 40,000 4,540,000

Problem 3-17 Answer C Checking account #101 Checking account #201 Time deposit account 90-day Treasury bill Total cash and cash equivalent

1,750,000 ( 100,000) 250,000 500,000 2,400,000

Problem 3-18 Answer B Cash in First Bank Change fund Petty cash fund Total

5,000,000 50,000 15,000 5,065,000

Problem 3-19 Answer B Cash balance per book Credit adjustment Adjusted cash balance

6,000,000 (1,600,000) 4,400,000

33 Note receivable Accounts receivable (400,000 + 200,000) Cash

1,000,000 600,000 1,600,000

Problem 3-20 Answer A Checkbook balance Postdated customer check NSF check Undelivered company check Adjusted balance

8,000,000 (2,000,000) ( 500,000) 1,500,000 7,000,000

Problem 3-21 Answer A Cash on hand Cash in bank Petty cash Saving deposit Total deposit

Problem 3-22 Answer B

2,400,000 3,500,000 40,000 2,000,000 7,940,000

Problem 3-23 Answer A

Problem 3-24 Answer A

Problem 3-25 Answer A Cash on hand and in bank Time deposit Saving deposit Total

5,000,000 6,000,000 1,000,000 12,000,000

Problem 3-26 Answer B Currencies Coins Accommodation check Total

4,000 1,000 6,000 11,000

Problem 3-27 Answer C Coins and currency Replenishment check Total

2,000 4,000 6,000

Problem 3-28 Answer C Total petty cash Currency and coins Amount of replenishment

10,000 ( 3,000) 7,000

34 CHAPTER 4

Problem 4-1 1. 2. 3. 4. 5.

D A B C C

6. 7. 8. 9. 10.

C D C A B

11. 12. 13. 14. 15.

C B A C C

Problem 4-2 Balance per book Add: CM for note collected Total Less: DM for service charge Adjusted book balance

65,000 30,000 95,000 2,000 93,000

Balance per bank Add: Deposit in transit Total Less: Outstanding checks: No. 102 105 107 Adjusted bank balance

108,000 80,000 188,000 15,000 30,000 50,000

95,000 93,000

Adjusting entries: 1. Cash in bank Note receivable

30,000

2. Bank service charge Cash in bank

2,000

30,000 2,000

Problem 4-3 Balance per book Add: CM for note collected Total Less: DM for service charge NSF check Book error (52,000 – 25,000) Adjusted book balance

110,000 45,000 155,000 5,000 10,000 27,000

42,000 113,000

35 Balance per bank Add: Deposit in transit

135,000 60,000

Erroneous bank debit Total Less: Outstanding checks: No. 770 775 777 Adjusted bank balance

8,000

68,000 203,000

20,000 30,000 40,000

90,000 113,000

Adjusting entries: 1. Cash in bank Bank service charge Note receivable

45,000 5,000 50,000

2. Bank service charge Accounts receivable Accounts payable Cash in bank

5,000 10,000 27,000 42,000

Problem 4-4 Balance per book Add: CM for note collected Total Less: DM for service charge Adjusted book balance

2,840,000 270,000 3,110,000 5,000 3,105,000

Balance per bank Add: Deposit in transit Total Less: Outstanding checks: No. 116 122 124 125 Adjusted bank balance

3,265,000 450,000 3,715,000 60,000 180,000 120,000 250,000

610,000 3,105,000

Adjusting entries: 1. Cash in bank Bank service charge Note receivable Interest income 2. Bank service charge Cash in bank

270,000 10,000 250,000 30,000 5,000 5,000

36

Problem 4-5 Balance per book Add: Note collected by bank Total Less: Bank service charge NSF check Adjusted book balance

5,000,000 2,150,000 7,150,000 50,000 500,000 550,000 6,600,000

Balance per bank Deposit in transit Total Less: Outstanding checks Adjusted bank balance

4,450,000 3,000,000 7,450,000 850,000 6,600,000

Adjusting entries: 1. Cash in bank Bank service charge Note receivable Interest income

2,150,000 50,000

2. Bank service charge Accounts receivable Cash in bank

50,000 500,000

2,000,000 200,000

550,000

Problem 4-6 Book balance Add: Collection of note Interest on note Book error on check no. 175 Total Less: Bank service charge Payment for light and water NSF check Adjusted book balance Bank balance Add: Deposit in transit Total Less: Bank error Outstanding checks Adjusted bank balance

1,405,000 2,500,000 150,000 45,000 5,000 245,000 220,000

2,695,000 4,100,000 470,000 3,630,000 5,630,000 750,000 6,380,000

1,100,000 1,650,000

2,750,000 3,630,000

37

Adjusting entries: 1. Cash in bank Note receivable Interest income Accounts payable

2,695,000 2,500,000 150,000 45,000

2. Bank service charge Light and water Accounts receivable Cash in bank

5,000 245,000 220,000 470,000

Problem 4-7 a. Balance per book – April 30 Credit memo for note collected Outstanding checks: No. 1331 1332 1334 1335 Total Less: Bank service charge NSF check Undeposited collections Balance per bank – April 30

1,100,000 60,000 40,000 30,000 60,000 10,000

140,000 1,300,000 5,000 25,000 270,000 300,000 1,000,000

b. Adjusting entries: 1. Cash in bank Note receivable

60,000

2. Bank service charge Accounts receivable Cash in bank

5,000 25,000

c. Balance per book – April 30 CM for note collected Bank service charge NSF check Adjusted cash in bank

60,000

30,000 1,100,000 60,000 ( 5,000) ( 25,000) 1,130,000

38 Problem 4-8 a. Balance per bank Add: Undeposited collections NSF check DM for safety deposit Unrecorded check Total Less: Checks outstanding Overstatement of creditor’s check Understatement of customer’s check Balance per book

3,500,000 550,000 50,000 5,000 125,000

730,000 4,230,000

650,000 270,000 180,000 1,100,000 3,130,000

b. Adjusting entries: 1. Cash in bank Accounts payable Accounts receivable

450,000

2. Accounts receivable Bank service charge Accounts payable Cash in bank

50,000 5,000 125,000

c. Balance per book Overstatement of creditor’s check Understatement of customer’s check Total Less: NSF check DM for safety box Unrecorded check Adjusted book balance

270,000 180,000

180,000 3,130,000 270,000 180,000 3,580,000 50,000 5,000 125,000 180,000 3,400,000

Problem 4-9 Balance per book Add: Proceeds of bank loan Note collected by bank Total Less: Service charge Customer’s check charged back Adjusted book balance

2,700,000 940,000 435,000 1,375,000 4,075,000 10,000 50,000 60,000 4,015,000

39 Balance per bank Add: Deposit in transit Incorrect deposit Erroneous bank charge Erroneous debit memo Total Less: Outstanding checks Erroneous bank credit Adjusted bank balance

4,000,000 475,000 90,000 150,000 200,000 600,000 300,000

915,000 4,915,000 900,000 4,015,000

Adjusting entries: 1. Cash in bank Bank service charge Interest expense (60,000 x 1/6) Prepaid interest expense Loan payable (940,000/94%) Note receivable Interest income

1,375,000 5,000 10,000 50,000 1,000,000 400,000 40,000

2. Bank service charge Accounts receivable Cash in bank

10,000 50,000 60,000

Problem 4-10 Balance per book (squeeze) Add: Proceeds of bank loan Proceeds of note collected Total Less: Bank service charge NSF check Adjusted book balance Balance per bank (squeeze) Add: Deposit in transit Bank error (200,000 – 20,000) Total Less: Outstanding checks (750,000 – 50,000) Adjusted bank balance

2,120,000 500,000 435,000 5,000 50,000

935,000 3,055,000 55,000 3,000,000 3,070,000

450,000 180,000

630,000 3,700,000 700,000 3,000,000

Adjusting entries: Cash in bank Bank service charge (5,000 + 15,000) Accounts receivable Loan payable Notes receivable Interest income

880,000 20,000 50,000 500,000 400,000 50,000

40 Problem 4-11 Balance per book Add: Proceeds of bank loan Total Less: Understatement of check in payment of account (200,000 – 20,000) Petty cash fund Adjusted book balance Balance per bank Add: Undeposited collections Erroneous bank charge Deposit omitted from bank statement Total Less: Erroneous bank credit Outstanding checks Adjusted bank balance

5,000,000 516,000 5,516,000 180,000 10,000

190,000 5,326,000 5,500,000

300,000 50,000 150,000 130,000 544,000

500,000 6,000,000 674,000 5,326,000

Adjusting entries: Cash in bank Interest expense (84,000 x 2/12) Prepaid interest expense Accounts payable Petty cash fund Supplies Transportation Postage Loan payable (516,000/86%)

326,000 14,000 70,000 180,000 4,000 2,000 3,000 1,000 600,000

Problem 4-12 Balance per book Add: Overstatement of check number 765 Check number 555 stopped for payment Total Less: Service charge NSF check Adjusted book balance Balance per bank Add: Undeposited collections Total Less: Outstanding checks: Number 761 762 763 764

1,300,000 20,000 10,000 5,000 85,000

30,000 1,330,000 90,000 1,240,000

1,200,000 275,000 1,475,000 55,000 40,000 25,000 65,000

765 Adjusted bank balance

50,000

235,000 1,240,000

41 Adjusting entries: 1. Cash in bank Accounts payable Miscellaneous income

30,000

2. Bank service charge Accounts receivable Cash in bank

5,000 85,000

3. Receivable from cashier Accounts receivable Sales discounts

40,000

20,000 10,000

90,000 30,000 10,000

Problem 4-13 a. Bank reconciliation – June 30 Book balance Add: Credit memo for note collected Total Less: NSF check Service charge Adjusted book balance

1,000,000 300,000 1,300,000 100,000 4,000

Bank balance Add: Deposit in transit Total Less: Outstanding checks Adjusted bank balance

104,000 1,196,000 1,650,000 400,000 2,050,000 854,000 1,196,000

Bank reconciliation – July 31 Book balance Add: Credit memo for bank loan Total Less: Service charge Adjusted book balance

1,400,000 500,000 1,900,000 1,000 1,899,000

Bank balance Add: Deposit in transit Total Less: Outstanding checks Adjusted bank balance

2,650,000 1,100,000 3,750,000 1,851,000 1,899,000

b. Adjusting entries, July 31 1. Cash in bank

500,000

Bank loan payable

500,000

42 2. Bank service charge Cash in bank

1,000 1,000

Computation of deposit in transit – July 31 Deposit in transit – June 30 Add: Deposits during July: Book debits Less: June credit memo for note collected Total Less: Deposits credited by bank during July: Bank credits Less: July credit memo for bank loan Deposit in transit – July 31

400,000 4,000,000 300,000

3,700,000 4,100,000

3,500,000 500,000

3,000,000 1,100,000

Computation of outstanding checks – July 31 Outstanding checks, June 30 Add: Checks drawn by company during July: Book credits Less: June debit memos for NSF check Service charge Total Less: Checks paid by bank during July: Bank debits Less: July service charge Outstanding checks, July 31

854,000 3,600,000 100,000 4,000

104,000 2,500,000 1,000

3,496,000 4,350,000 2,499,000 1,851,000

Problem 4-14 a. Reconciliation – October 31 Adjusted book balance

600,000

Bank balance Add: Deposit in transit Total Less: Outstanding checks Adjusted bank balance

400,000 300,000 700,000 100,000 600,000

Reconciliation – November 30 Book balance Add: Understatement of collection from customer Total

1,000,000 90,000 1,090,000

Less: Understatement of check disbursement Adjusted book balance

270,000 820,000

43 Bank balance Add: Deposit in transit Check of Susan Company charged in error Total Less: Outstanding checks Deposit of Susan Company erroneously credited Adjusted bank balance

930,000 190,000 200,000 390,000 1,320,000 400,000 100,000 500,000 820,000

b. Adjusting entries – November 30 1. Cash in bank Accounts receivable 2. Accounts payable Cash in bank

90,000 90,000 270,000 270,000

Computation of outstanding checks – October 31 Outstanding checks – October 31 (squeeze) Add: Checks issued by depositor: Book disbursements Understatement of check paid Total Less: Checks paid by bank: Bank disbursements Check of Susan Company charged in error Outstanding checks – November 30

100,000 1,800,000 270,000

2,070,000 2,170,000

1,970,000 ( 200,000) 1,770,000 400,000

Computation of deposit in transit – November 30 Deposit in transit – October 31 Add: Cash receipts deposited during November: Book receipts 2,200,000 Understatement of collection from customer 90,000 Total Less: Deposits credited by bank during November: Bank receipts 2,500,000 Deposit of Susan Company erroneously credited ( 100,000) Deposit in transit – November 30

Problem 4-15 a. Reconciliation on July 1

300,000 2,290,000 2,590,000 2,400,000 190,000

Adjusted book balance

1,270,000

44 Bank balance Add: Deposit in transit Total Less: Outstanding checks Adjusted bank balance

1,720,000 500,000 2,220,000 950,000 1,270,000

Reconciliation on July 31 Book balance Add: Note collected by bank Total Less: Bank service charge Adjusted book balance

470,000 1,500,000 1,970,000 20,000 1,950,000

Bank balance Add: Deposit in transit Total Less: Outstanding checks: Check # 107 108 Adjusted bank balance

2,700,000 400,000 3,100,000 650,000 500,000

1,150,000 1,950,000

b. Adjusting entries on July 31 1. Cash in bank Note receivable 2. Bank service charge Cash in bank

1,500,000 1,500,000 20,000 20,000

Computation of deposit in transit – July 1 Deposit in transit – July 1 (squeeze) Cash receipts per book Total Less: Deposits credited by bank Deposit in transit – July 31

500,000 3,400,000 3,900,000 3,500,000 400,000

Computation of outstanding checks – July 1 Outstanding checks – July 1 (squeeze) Checks drawn by depositor Total

950,000 4,200,000 5,150,000

Less: Checks paid by bank Outstanding checks – July 31

4,000,000 1,150,000

45 Problem 4-16 Balance per book – November 30 Less: Service charge NSF check Customer’s note erroneously recorded as cash receipt Adjusted book balance

500,000 10,000 50,000 100,000

Balance per bank – November 30 Add: Deposit in transit Total Less: Outstanding checks Adjusted bank balance

600,000 120,000 720,000 380,000 340,000

Deposit in transit – October 31 Cash receipts deposited: Book debits October collections recorded in November Customer’s note recorded as cash receipt Total Less: Deposits credited by bank: Bank credits Correction of bank error Deposit in transit – November 30 Outstanding checks – October 31 Checks issued by depositor: Book credits October bank service charge Total Checks paid by bank: Bank debits November bank service charge November NSF check Outstanding checks – November 30

45,000 710,000 ( 45,000) (100,000)

565,000 610,000

500,000 ( 10,000)

490,000 120,000 125,000

1,200,000 ( 5,000)

( (

1,195,000 1,320,000

1,000,000 10,000) 50,000)

940,000 380,000

Adjusting entry: Bank service charge Accounts receivable Note receivable

160,000 340,000

10,000 50,000 100,000

Cash in bank

160,000

46 Problem 4-17 Book balance Note collected by bank March April Service charge March April NSF check March April Deposit in transit March 31 April 30 Outstanding checks March 31 April 30 Bank balance

March 31 200,000 60,000 (

Receipts 800,000 ( 60,000) 100,000

8,000)

330,000

8,000) 2,000

( 20,000) 30,000 80,000 (220,000)

178,000 700,000

April 30 280,000 100,000

(

( 20,000) ( 80,000)

Disbursements 720,000

(

2,000)

( 30,000) (220,000)

178,000 (372,000) 530,000

372,000 500,000

Problem 4-18 July 31 Receipts Disbursements Bank balance 800,000 5,000,000 3,940,000 Book error on collection ( 180,000) Book error on payment ( 540,000) Bank error on deposit ( 200,000) Bank error on payment ( 400,000) NSF check: July 100,000 100,000 August ( 50,000) Note collected by bank: July ( 200,000) 200,000 August ( 300,000) Deposit in transit: July 600,000 ( 600,000) August 480,000 Outstanding checks: July ( 100,000) ( 100,000) August 650,000

August 31 1,860,000 ( 180,000) 540,000 ( 200,000) 400,000 50,000 ( 300,000) 480,000 ( 650,000)

Book balance

1,200,000

4,400,000

3,600,000

2,000,000

47 Problem 4-19

Book balance Bank service charge November 30 December 31 Collection of note November 30 December 31 Adjusted book balance

(

Nov. 30

Receipts

Disbursements

Dec. 31

2,032,000

2,568,000

1,440,000

3,160,000

2,000)

( 200,000) 1,830,000

Bank balance 1,890,000 Outstanding checks November 30 ( 180,000) December 31 Deposit in transit November 30 80,000 December 31 498,000 Check erroneously charged by bank November 30 40,000 December 31 Adjusted bank balance 1,830,000

(

2,000) 4,000

(

4,000)

200,000 ( 300,000) 2,468,000

1,442,000

( 300,000) 2,856,000

2,090,000

1,080,000

2,900,000

( 180,000) 592,000

( 592,000)

(

80,000) 498,000

(

40,000) (

2,468,000

50,000) 1,442,000

50,000 2,856,000

Adjusting entry: Bank service charge Note receivable Cash in bank

4,000 300,000 304,000

48 Problem 4-20 Sept. 30

Receipts

Disbursements

Oct. 31

Book balance 1,900,000 1,400,000 2,400,000 900,000 NSF check: September 30 ( 60,000) ( 60,000) October 31 40,000 ( 40,000) Collection of accounts receivable September 30 30,000 ( 30,000) October 31 50,000 50,000 Overstatement of check September 30 90,000 ( 90,000) October 31 ________ ( 120,000) 120,000 Adjusted balance 1,960,000 1,330,000 2,260,000 1,030,000 Bank balance Deposit in transit September 30 October 31 Outstanding checks September 30 October 31 Adjusted balance

2,100,000

1,200,000

130,000

( 130,000) 260,000

( 270,000) 1,960,000

2,500,000

800,000

260,000

(

270,000) 30,000 (30,000) 1,330,000 2,260,000 1,030,000

Adjusting entries on October 31 1. Accounts receivable Cash in bank 2. Cash in bank Accounts receivable Salaries

40,000 40,000 170,000 50,000 120,000

49 Problem 4-21 Balance per book Bank service charge: May 31 June 30 NSF check: June 30 Interest collected: June 30 Book error: June 30 Adjusted balance Balance per bank Deposit in transit May 31 June 30 Outstanding checks May 31 June 30 Adjusted balance

(

May 31

Receipts

Disbursements

June 30

2,500,000

5,300,000

5,400,000

2,400,000

20,000)

(

20,000) 25,000

(

200,000

( 200,000)

75,000 2,480,000

_________ 5,375,000

2,700,000

5,500,000

625,000

( 625,000) 500,000

( 845,000) 2,480,000

75,000 (

300,000) 5,305,000

300,000 2,550,000

5,600,000

2,600,000 500,000

( 5,375,000

25,000)

845,000) 550,000 5,305,000

(

550,000) 2,550,000

Adjusting entries on June 30: 1. Cash in bank Interest income Equipment

375,000

2. Bank service charge Accounts receivable Cash in bank

25,000 200,000

75,000 300,000

225,000

Problem 4-22 Answer A Balance per book Bank charges Customer note collected by bank

(

4,000,000 10,000) 1,500,000

Interest on customer note NSF customer check Depositor’s note charged to account Adjusted book balance

60,000 ( 250,000) (1,000,000) 4,300,000

50 Problem 4-23 Answer B Balance per bank Add: Deposit in transit Total Less: Outstanding checks Erroneous bank credit Adjusted bank balance

2,000,000 200,000 2,200,000 400,000 300,000

700,000 1,500,000

The adjusted cash in bank can also be computed by starting with the balance per book. Balance per book Add: Proceeds of note collected Total Less: NSF checks (150,000 – 50,000) Adjusted book balance

850,000 750,000 1,600,000 100,000 1,500,000

Problem 4-24 Answer C Balance per book Note collected by bank Book error (200,000 – 20,000) NSF check Bank service charge Adjusted book balance

8,500,000 950,000 ( 180,000) ( 250,000) ( 20,000) 9,000,000

Problem 4-25 Answer A Problem 4-26 Answer B Problem 4-27 Answer B Problem 4-28 Answer D Balance per ledger Service charges Collection of note Book error Unrecorded check for traveling expenses

3,750,000 50,000) 1,500,000 ( 100,000) ( 500,000) (

Adjusted book balance

4,600,000

Balance per bank Deposit in transit Total Outstanding checks (squeeze) Adjusted bank balance

6,200,000 1,400,000 7,600,000 3,000,000 4,600,000

51 Problem 4-29 Answer B Problem 4-30 Answer A Problem 4-31 Answer C Outstanding checks – May 31 Checks issued by depositor in June: Total credits to cash in June Service charge in May recorded in June Total Checks paid by bank in June: Checks and charges by bank in June Service charge in June NSF check in June Outstanding checks – June 30

3,000,000 9,000,000 ( 100,000)

8,900,000 11,900,000

8,000,000 ( 50,000) (1,000,000)

6,950,000 4,950,000

Problem 4-32 Answer A Balance per book – June 30 Service charges Collection by bank NSF check Adjusted book balance Balance per bank – June 30 Deposits outstanding – June 30 Checks outstanding – June 30 Adjusted bank balance Outstanding checks – May 31 Checks recorded by book in June Total Less: Checks recorded by bank in June Outstanding checks – June 30 Deposits outstanding – May 31 Deposits recorded by book in June Total Less: Deposits recorded by bank in June Deposits outstanding – June 30

2,100,000 50,000) 550,000 ( 100,000) 2,500,000 (

2,400,000 500,000 ( 400,000) 2,500,000 100,000 2,500,000 2,600,000 2,200,000 400,000 300,000 1,800,000 2,100,000 1,600,000 500,000

Problem 4-33 Answer A Note collected Book error (1,930,000 – 1,390,000) NSF check Service charge Net debt to cash

1,936,000 ( 540,000) ( 840,000) ( 47,000) 509,000

52 Problem 4-34 Answer A

Problem 4-35 Answer A Problem 4-36 Answer D Balance per bank – November 30 December deposits Total December disbursements Balance per bank – December 31 Deposit in transit – December Outstanding checks – December Adjusted bank balance – December 31 Balance per book – December 31 (squeeze) Note collected by bank NSF check Service charge Adjusted book balance

3,600,000 5,500,000 9,100,000 (4,400,000) 4,700,000 700,000 ( 500,000) 4,900,000 4,300,000 1,000,000 ( 350,000) ( 50,000) 4,900,000

Problem 4-37 Answer A Bank disbursements for July Outstanding checks – June 30 Outstanding checks – July 31 Book disbursements for July

9,000,000 (1,400,000) 1,000,000 8,600,000

Problem 4-38 Answer B Bank receipts for April Deposits in transit – March 31 Deposits in transit – April 30 Book receipts for April

6,000,000 (1,000,000) 1,500,000 6,500,000

53 CHAPTER 5 Problem 5-1 1. 2. 3. 4. 5.

D D D B A

6. 7. 8. 9. 10.

Problem 5-2 A B C A C

1. 2. 3. 4. 5.

A C A A A

6. 7. 8. 9. 10.

Problem 5-3 A D C C D

1. 2. 3. 4. 5.

D B C D A

Problem 5-4 a. Accounts receivable Notes receivable Installments receivable Advances to suppliers Advances to subsidiary Claim receivable Subscriptions receivable Accrued interest receivable Customer’s credit balances Advances from customers Receivables b. Accounts receivable Allowance for doubtful accounts Notes receivable Installments receivable Advances to suppliers Claim receivable Subscription receivable Accrued interest receivable Total trade and other receivables

775,000 100,000 300,000 150,000 400,000 15,000 300,000 10,000 30,000 20,000 2,000,000 (

775,000 50,000) 100,000 300,000 150,000 15,000 300,000 10,000 1,600,000

c. The advances to subsidiary should be classified as noncurrent and presented as long-term investment. The customers’ credit balances and advances from customers should be classified as current liabilities and included as part of “trade and other payables”.

Problem 5-5 a. Accounts receivable – January 1 Charge sales Total Less: Collections from customers Writeoff Merchandise returns Allowances to customers Accounts receivable – December 31

600,000 6,000,000 6,600,000 5,300,000 35,000 40,000 25,000 5,400,000 1,200,000

54 b. Subscription receivable Deposit on contract Claim receivable Advances to employees Advances to affiliated Advances to supplier Accounts receivable 490,000

150,000 120,000 60,000 10,000 100,000 50,000

c. Accounts receivable Claim receivable 60,000 Advances to employees 10,000 Advances to supplier Total trade and other receivables

1,200,000

50,000 1,320,000

d. The subscriptions receivable should be deducted from subscribed share capital. The deposit on contract should be classified as noncurrent and presented as other noncurrent asset. The advances to affiliates should be classified as noncurrent and presented as longterm investment.

Problem 5-6 Requirement 1 1. Accounts receivable Sales

3,600,000 3,600,000

2. Notes receivable Accounts receivable 3. Doubtful accounts Allowance for doubtful accounts

400,000 400,000 90,000 90,000

4. Allowance for doubtful accounts Accounts receivable

20,000

5. Sales return Accounts receivable

15,000

6. Cash Accounts receivable

2,450,000

7. Sales discount Accounts receivable

45,000

8. Cash Notes receivable

20,000 15,000 2,450,000 45,000 150,000 150,000

55 Requirement 2 Notes receivable

250,000

Requirement 3 Accounts receivable Less: Allowance for doubtful accounts Net realizable value

670,000 70,000 600,000

Problem 5-7 FOB destination and freight collect 1. Accounts receivable Freight out Sales Allowance for freight charge

500,000 10,000

2. Cash Sales discount Allowance for freight charge Accounts receivable

475,000 15,000 10,000

500,000 10,000

500,000

FOB destination and freight prepaid 1. Accounts receivable Freight out Sales Cash

500,000 10,000

2. Cash Sales discount

485,000 15,000

500,000 10,000

Accounts receivable

500,000

FOB shipping point and freight collect 1. Accounts receivable Sales

500,000

2. Cash Sales discount Accounts receivable

485,000 15,000

500,000

500,000

FOB shipping point and freight prepaid 1. Accounts receivable Sales Cash

510,000 500,000 10,000

56 2. Cash Sales discount Accounts receivable

495,000 15,000 510,000

Problem 5-8 1. Accounts receivable Sales

4,000,000

2. Cash Sales discount Accounts receivable

1,470,000 30,000

3. Cash Accounts receivable

1,000,000

4. Sales return Accounts receivable

100,000

5. Sales return Allowance for sales return

40,000

4,000,000

1,500,000 1,000,000 100,000 40,000

Problem 5-9 Gross method

Net method

July 1 Accounts receivable Sales 49,000

50,000

2 Accounts receivable

200,000

50,000

July 1 Accounts receivable Sales

49,000

2 Accounts receivable

196,000

Sales

200,000

Sales

196,000 12 Cash 196,000 Sales discount 4,000 196,000 Accounts receivable

12 Cash 196,000 Accounts receivable 200,000

30 Cash 50,000 Accounts receivable 49,000 1,000

50,000

30 Cash 50,000 Accounts receivable Sales discount forfeited

Problem 5-10 a. Credit sales (75% x 5,000,000)

3,750,000

Doubtful accounts (2% x 3,750,000) Doubtful accounts Allowance for doubtful accounts

75,000 75,000 75,000

b. Doubtful accounts (1% x 5,000,000) Allowance for doubtful accounts

50,000 50,000

57 c. Required allowance Less: Credit balance of allowance Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts

80,000 20,000 60,000 60,000 60,000

d. Required allowance (10% x 500,000) Less: Credit balance of allowance Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts

50,000 20,000 30,000 30,000 30,000

Problem 5-11 a. Required allowance (5% x 600,000) Add: Debit balance in allowance account Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts b. Required allowance Add: Debit balance in allowance account Doubtful accounts expense

30,000 10,000 40,000 40,000 40,000 50,000 10,000 60,000

Doubtful accounts Allowance for doubtful accounts

60,000 60,000

c. Doubtful accounts (2% x 1,900,000) Allowance for doubtful accounts

38,000 38,000

Problem 5-12 a. Doubtful accounts (3% x 8,000,000) Allowance for doubtful accounts

240,000

b. Doubtful accounts Allowance for doubtful accounts

170,000

240,000 170,000

Allowance – January 1 Doubtful accounts (squeeze) Recovery Total Accounts written off Allowance – December 31 (8% x 2,000,000) c. Doubtful accounts Allowance for doubtful accounts

100,000 170,000 20,000 290,000 130,000 160,000 210,000 210,000

58 Allowance – January 1 Doubtful accounts (squeeze) Recovery Total Accounts written off Allowance – December 31

100,000 210,000 20,000 330,000 130,000 200,000

Problem 5-13 Requirement a 1. Accounts receivable Sales

7,000,000

2. Cash Sales discount Accounts receivable(2,450,000/98%)

2,450,000 50,000

3. Cash Accounts receivable

3,900,000

7,000,000

2,500,000 3,900,000

4. Allowance for doubtful accounts Accounts receivable

30,000

5. Accounts receivable

10,000

30,000

Allowance for doubtful accounts

10,000

Cash Accounts receivable

10,000

6. Sales return Accounts receivable

70,000

10,000 70,000

Requirement b Doubtful accounts Allowance for doubtful accounts

40,000 40,000

Rate = 40,000/1,000,000 = 4% Allowance for doubtful accounts – December 31 (4% x 1,500,000) Less: Allowance before adjustment Doubtful accounts expense

60,000 20,000 40,000

Requirement c Accounts receivable – December 31 Allowance for doubtful accounts Net realizable value

1,500,000 ( 60,000) 1,440,000

59 Problem 5-14 Requirement a 1. Cash Accounts receivable Sales (800,000/10%) 2. Cash Sales discount (5% x 720,000) Accounts receivable(10% x 7,200,000) 3. Cash Accounts receivable

800,000 7,200,000 8,000,000 684,000 36,000 720,000 5,940,000 5,940,000

4. Sales discount Allowance for sales discount

10,000

5. Sales return Accounts receivable

80,000

6. Allowance for doubtful accounts Accounts receivable

60,000

10,000 80,000 60,000

Accounts receivable Allowance for doubtful accounts

10,000 10,000

Cash Accounts receivable 7. Doubtful accounts Allowance for doubtful accounts

10,000 10,000 70,000 70,000

Required allowance – December 31 (5% x 2,400,000) Less: Allowance before adjustment Doubtful accounts

120,000 50,000 70,000

Rate = 100,000/2,000,000 = 5% Requirement b Accounts receivable Less: Allowance for doubtful accounts Allowance for sales discount Net realizable value

2,400,000 120,000 10,000

130,000 2,270,000

60 Problem 5-15 Requirement a 1. Accounts receivable Sales (3,070,000 – 470,000)

2,600,000

2. Cash (2,455,000 – 1,455,000) Accounts receivable

1,000,000

3. Cash Sales discount Accounts receivable (1,455,000/97%)

1,455,000 45,000 1,500,000

4. Allowance for doubtful accounts Accounts receivable

2,600,000 1,000,000

20,000 20,000

5. Cash Sales

470,000

6. Sales return and allowances Accounts receivable

55,000

7. Sales return and allowances Cash

10,000

470,000 55,000 10,000

8. Accounts receivable Allowance for doubtful accounts

5,000 5,000

Cash Accounts receivable

5,000 5,000

7. Doubtful accounts Allowance for doubtful accounts

50,000 50,000

Credit sales Less: Sales discount Sales return and allowances Net credit sales

2,600,000 45,000 55,000

100,000 2,500,000

Doubtful accounts (2,500,000 x 2%)

50,000

Requirement b Accounts receivable Less: Allowance for doubtful accounts Net realizable value

625,000 60,000 565,000

61 Problem 5-16 1. Accounts receivable – Jan. 1 1,500,000 Sales 7,935,000 Recovery 15,000 Collections (8,000,000) Sales discount ( 115,000) Writeoff ( 55,000) Sales return ( 30,000) Accounts receivable – Dec. 31 1,250,000

4,410,000/98%

4,500,000

2,475,000/99%

2,500,000

Sales discount: 2% x 4,500,000 90,000 1% x 2,500,000 25,000 115,000

Problem 5-17 1. Not yet due 1 – 30 days past due 31 – 60 days past due 61 – 90 days past due Over 90 days past due

Amount 1,700,000 1,200,000 100,000 150,000 1,200,000 3,270,000

2. Allowance – January 1 Receivables Doubtful accounts expense (squeeze)

Percent of Uncollectible 5% 25% 50% 100%

Required allowance 60,000 25,000 75,000 120,000 280,000 170,000 30,000 345,000

Total Less: Writeoff (235,000 + 30,000) Required allowance – December 31

545,000 265,000 280,000

3. Accounts receivable Less: Allowance for doubtful accounts Net realizable value

3,270,000 280,000 2,990,000

Problem 5-18 1. 1,000,000 x 1% 400,000 x 5% 300,000 x 10% 200,000 x 25% 60,000 x 100% 1,960,000

10,000 20,000 30,000 50,000 60,000 170,000

2. Allowance – January 1 Recoveries Doubtful accounts (squeeze) Total Less: Writeoff (100,000 + 40,000) Allowance – December 31

3. Doubtful accounts Allowance for doubtful accounts

90,000 20,000 200,000 310,000 140,000 170,000

20,000 20,000

Correct amount Recorded (2% x 9,000,000) Understatement

200,000 180,000 20,000

4. Accounts receivable – December 31 Less: Allowance for doubtful accounts Net realizable value

1,960,000 170,000 1,790,000

62 Problem 5-19 2005 2006 2007 Total 26,000 29,000 30,000 85,000 2,000 3,000 4,000 9,000 24,000 26,000 26,000 76,000 76,000 Percentage to be used in computing the allowance = ------------------- = 2% 3,800,000

1. Writeoff Less: Recoveries Net writeoff

2. Credit sales for 2008 Multiply by bad debt percentage Provision for doubtful accounts 3. Accounts receivable – January 1, 2008 Add: Credit sales for 2008 Recoveries Total Less: Collections in 2008 Writeoff Accounts receivable – December 31, 2008 4. Allowance for doubtful accounts – January 1

3,000,000 2% 60,000 250,000 3,000,000 5,000 2,615,000 40,000

3,005,000 3,255,000 2,655,000 600,000 20,000

Add: Doubtful accounts for 2008 Recoveries Total Less: Writeoff Allowance for doubtful accounts – December 31

60,000 5,000

65,000 85,000 40,000 45,000

Problem 5-20 1. Accounts receivable – December 31, 2007 Add: Sales for 2008 Recovery of accounts written off Total Less: Collection from customers Accounts written off Accounts settled by issuance of note Accounts receivable – December 31, 2008

600,000 5,000,000 10,000 4,360,000 50,000 200,000

2. Allowance for doubtful accounts – December 31, 2007 Add: Recovery of accounts written off Total Less: Accounts written off Allowance before adjustment – December 31, 2008 (debit balance)

5,010,000 5,610,000 4,610,000 1,000,000 30,000 10,000 40,000 50,000 (10,000)

63 3. Required allowance – December 31, 2008 On current accounts (700,000 x 5%) On past due accounts (300,000 x 20%) Total

35,000 60,000 95,000

4. Required allowance – December 31, 2008 Add: Debit balance before adjustment Increase in allowance

95,000 10,000 105,000

5. Doubtful accounts Allowance for doubtful accounts

105,000 105,000

Problem 5-21 170,000 – 10,000 Rate in 2007 = ------------------------ = .016 10,000,000 1. Retained earnings (.016 x 1,250,000) Allowance for doubtful accounts 2. Allowance – January 1 Recoveries – 2008 Doubtful accounts – 2008 (squeeze)

258,000 – 20,000 Rate in 2008 = -------------------------- = .017 14,000,000 20,000 20,000 20,000 10,000 92,000

Total Less: Writeoff – 2008 Allowance – December 31 (.017 x 2,000,000)

122,000 88,000 34,000

3. Accounts receivable Less: Allowance for doubtful accounts Net realizable value

2,000,000 34,000 1,966,000

Problem 5-22 1. Allowance – January 1, 2008 Doubtful accounts recorded (2% x 20,000,000) Recovery Total Less: Writeoff (300,000 + 100,000) Allowance balance before adjustment

500,000 400,000 50,000 950,000 400,000 550,000

2. 5,000,000 x 5% 2,000,000 x 10% 1,000,000 x 25% 500,000 – 100,000 x 75% Required allowance – December 31, 2008

250,000 200,000 250,000 300,000 1,000,000

3. Doubtful accounts 450,000 Allowance for doubtful accounts (1,000,000 – 550,000)

450,000

64 Problem 5-23 1. Allowance – 1/1/2008 (1% x 2,800,000)

28,000

2. Allowance – 1/1/2008 Doubtful accounts recorded in 2008 (1% x 3,000,000) Recovery Total Writeoff Allowance before adjustment

28,000 30,000 7,000 65,000 (27,000) 38,000

3. 300,000 x 1% 80,000 x 5% 60,000 x 20% 25,000 x 80% Required allowance – 12/31/2008 4. Doubtful accounts Allowance for doubtful accounts (39,000 – 38,000)

Problem 5-24 2008

3,000 4,000 12,000 20,000 39,000 1,000 1,000

Jan. 1

Loan receivable Cash

Dec. 31

4,000,000 4,000,000

Cash Unearned interest income

342,100

Unearned interest income Cash

150,000

Cash Interest income

400,000

342,100 150,000 400,000

Unearned interest income Interest income Date 01/01/2008 12/31/2008 12/31/2009 12/31/2010

(10%) Interest received 400,000 400,000 400,000

56,948 56,948 (12%) Interest income 456,948 463,782 471,370*

Amortization 56,948 63,782 71,370

Carrying value 3,807,900 3,864,848 3,928,630 4,000,000

*12% x 3,928,630 equals 471,435, or a difference of P65 due to rounding. 2009 Dec. 31

Cash Interest income

400,000 400,000

65 2009 Dec. 31 2010 Dec. 31

Unearned interest income Interest income

63,782 63,782

Cash Interest income Unearned interest income Interest income Cash Loan receivable

400,000 400,000 71,370 71,370 4,000,000 4,000,000

Problem 5-25 2008 Jan. 1

Loan receivable Cash

3,000,000 3,000,000

Direct origination cost Cash

260,300

Cash

100,000

260,300

Direct origination cost Dec. 31

100,000

Cash Interest income

240,000 240,000

Interest income Direct origination cost Date 01/01/2008 12/31/2008 12/31/2009 12/31/2010 2009 Dec. 31

50,382

(8%) Interest received

(6%) Interest income

Amortization

240,000 240,000 240,000

189,618 186,595 183,487

50,382 53,405 56,513

Cash Interest income Interest income Direct origination cost

2010 Dec. 31

50,382

Cash Interest income

Carrying value 3,160,300 3,109,918 3,056,513 3,000,000

240,000 240,000 53,405 53,405

240,000 240,000

66 2010 Dec. 31

Interest income Direct origination cost Cash Loan receivable

56,513 56,513 3,000,000 3,000,000

Problem 5-26 Requirement 1 December 31, 2009 (1,000,000 x .93) December 31, 2010 (2,000,000 x .86) December 31, 2011 (3,000,000 x .79) Total present value of loan

900,000 1,720,000 2,370,000 5,020,000

Requirement 2 Loan receivable – 12/31/2008 Accrued interest (6,000,000 x 8%) Total carrying value Present value of loan

6,000,000 480,000 6,480,000 5,020,000

Impairment loss

1,460,000

Requirement 3 2008

2009

Impairment loss Accrued interest receivable Allowance for loan impairment

1,460,000

Cash Loan receivable

1,000,000

Allowance for loan impairment Interest income (8% x 5,020,000) 2010

Cash Loan receivable Allowance for loan impairment Interest income Loan receivable – 12/31/2009 Allowance for loan impairment (980,000 – 401,600) Carrying value – 12/31/2009

480,000 980,000 1,000,000 401,600 401,600 2,000,000 2,000,000 353,728 353,728 5,000,000 ( 578,400) 4,421,600

Interest income for 2010 (8% x 4,421,600)

353,728

67 2011

Cash Loan receivable Allowance for loan impairment Interest income Loan receivable – 12/31/2010 Allowance for loan impairment (578,400 – 353,672) Carrying value – 12/31/2010 Interest income for 2011 (8% x 2,775,328) Allowance per book Difference due to rounding

3,000,000 3,000,000 224,672 224,672 3,000,000 ( 224,672) 2,775,328 222,026 224,672 2,646

Problem 5-27 Requirement 1 December 31, 2009 ( 500,000 x .89) December 31, 2010 (1,000,000 x .80) December 31, 2011 (2,000,000 x .71) December 31, 2012 (4,000,000 x .64)

445,000 800,000 1,420,000 2,560,000

Total present value of loan

5,225,000

Requirement 2 Loan receivable Accrued interest receivable (12% x 7,500,000) Total carrying value Present value of loan Impairment loss

7,500,000 900,000 8,400,000 5,225,000 3,175,000

Requirement 3 2008

2009

2010

Impairment loss Accrued interest receivable Allowance for loan impairment

3,175,000 900,000 2,275,000

Cash Loan receivable

500,000

Allowance for loan impairment Interest income (12& x 5,225,000)

627,000 627,000

500,000

Cash Loan receivable

1,000,000 1,000,000

Allowance for loan impairment Interest income

642,240 642,240

68 Loan receivable – 12/31/2009 Allowance for loan impairment (2,275,000 – 627,000) Carrying value – 12/31/2009

7,000,000 (1,648,000) 5,352,000

Interest income for 2010 (12% x 5,352,000)

642,240

Problem 5-28 December 31, 2011 ( 360,000 x .772) 277,920 December 31, 2012 ( 360,000 x .708) 254,880 December 31, 2013 ( 360,000 x .650) 234,000 December 31, 2014 (4,360,000 x .596) 2,598,560 Total present value of loan 3,365,360 2008

Face value of loan Present value of loan Impairment loss

Cash Interest income

360,000

Impairment loss Allowance for loan impairment

634,640

4,000,000 3,365,360 634,640

360,000 634,640

2009 2010 2011 2012 2013

2014

Allowance for loan impairment Interest income (9% x 3,365,360)

302,882

Allowance for loan impairment Interest income (634,640 – 302,882)

331,758

Cash Interest income

360,000

Cash Interest income

360,000

Cash Interest income

360,000

Cash Interest income Loan receivable

302,882 331,758 360,000 360,000 360,000 4,360,000 360,000 4,000,000

Problem 5-29 12/31/2008

Impairment loss Allowance for loan impairment

338,500 338,500

The remaining term of the loan is 4 years. Accordingly, the present value factor for 4 periods is used.

69 Present value of principal (500,000 x .735) Present value of interest (80,000 x 5 = 400,000 x .735) Total present value of loan

367,500 294,000 661,500

Loan receivable Present value of loan Loan impairment loss 12/31/2009

Allowance for loan impairment Interest income (8% x 661,500)

1,000,000 661,500 338,500 52,920 52,920

Problem 5-30 Answer B Accounts receivable-January 1 Credit sales Collections from customers Sales return Accounts written off Accounts receivable-December 31

1,300,000 5,500,000 (5,000,000) ( 150,000) ( 100,000) 1,550,000

Allowance for doubtful accounts Allowance for sales return Net realizable value

( 250,000) ( 50,000) 1,250,000

Problem 5-31 Answer A Trade accounts receivable Allowance for doubtful accounts Claim receivable Total trade and other receivables

2,000,000 ( 100,000) 300,000 2,200,000

Problem 5-32 Answer C Accounts receivable (squeeze) Allowance for doubtful accounts (900,000 – 200,000) Net realizable value

6,700,000 ( 700,000) 6,000,000

Problem 5-33 Answer B Allowance – January 1 Doubtful accounts expense Recovery of accounts written off Total Accounts written off Allowance – December 31

300,000 650,000 100,000 1,050,000 450,000 600,000

70 Problem 5-34 Answer D Allowance – January 1 Uncollectible accounts expense (squeeze) Recovery of accounts written off Total Accounts written off Allowance – December 31 (2,700,000 – 2,500,000)

280,000 100,000 50,000 430,000 (230,000) 200,000

Problem 5-35 Answer A Allowance – December 2007 Doubtful accounts expense Total Accounts written off (squeeze) Allowance – December 2008

Problem 5-36 Answer B

180,000 50,000 230,000 30,000 200,000

0 –60 days (1,200,000 x 1%) 61 – 120 days (900,000 x 2%) Over 120 days (1,000,000 x 6%) Allowance – December 31, 2008

12,000 18,000 60,000 90,000

Allowance – December 31, 2007 Uncollectible accounts expense (squeeze) Recovery Total Accounts written off Allowance – December 31, 2008

60,000 80,000 20,000 160,000 ( 70,000) 90,000

Problem 5-37 Answer D Allowance for sales discount (5,000,000 x 2% x 50%)

50,000

Problem 5-38 Answer A Problem 5-39 Answer B Doubtful accounts expense (3% x 3,000,000 + 10,000)

100,000

Problem 5-40 Answer A Doubtful accounts expense (2% x 7,000,000)

140,000

71 Problem 5-41 Answer A Allowance – January 1 Doubtful accounts expense (4% x 5,000,000) Collection of accounts written off Total Accounts written off Allowance – December 31

40,000 200,000 10,000 250,000 30,000 220,000

Problem 5-42 Answer D Allowance – January 1 Doubtful accounts expense (squeeze) Total Accounts written off Allowance – December 31

250,000 175,000 425,000 205,000 220,000

Problem 5-43 Answer A Problem 5-44 Answer A