Receivables

Chapter 4 Receivables and Related Revenues MULTIPLE CHOICE – THEORY 1. D 6. D

2. C 7. B

3. C 8. B

4. B 9. A

Problem 1 (Fontana Blue) a.

Cost of Sales Inventory

20,000

b.

Cost of Sales Inventory

18,000 18,000

c.

No adjustment

d.

Sales

20,000

40,000 Accounts Receivable

e.

40,000

Sales

60,000 Accounts Receivable

60,000

Inventory

33,600 Cost of Sales

f.

33,600

Sales

120,000 Accounts Receivable

g.

120,000

Accounts Receivable Sales

60,000 60,000

h.

No adjustment

i.

Accounts Receivable Sales

80,000

Cost of Sales Inventory

55,000

Accounts Receivable Sales

90,000

j.

80,000 55,000 90,000

Problem 2 (Magnolia Company) 1. 2.

Accounts Payable – B Accounts Receivable - B

74,000

Accounts Receivable – L Accounts Receivable – C

16,200

3.

No disposition yet (Customer D)

4.

Sales

74,000 16,200

24,000 Accounts Receivable – E

24,000

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5. D 10. D

Chapter 4 Receivables and Related Revenues 5.

Inventory

16,500 Cost of Sales

6.

16,500

Sales

60,000 Accounts Receivable - F Advances from Customers

7.

Sales

15,000 45,000 85,000

Accounts Receivable – G

Inventory

85,000

59,000 Cost of Sales

8.

Sales

9.

Sales

59,000 2,500

Accounts Receivable – H 10,000 / 200 x (200 – 150) = 2,500

180,000 Accounts Receivable – I

10.

180,000

Inventory

120,000 Cost of Sales

11.

2,500

120,000

Sales Returns and Allowances Sales

5,000

5,000

Problem 3 (Blooms Company) Account 1 2 3 4 5 6 Total

Per client 12,000 22,000 97,600 20,000 55,000 7,500 215,300

Adjustment

Per audit

(98,800)

(98,800)

Age Classification Not due 1-60 days past due 61-120 days past due Over 120 days past due Total Notes Receivable Interest Income Accounts Receivable

Not due

12,000 22,000 0 20,000 55,000 7,500 116,000

1-60 days Past due

3,000 22,000

8,000

2,220

52,780 7,500 68,280

27,220

Balance per audit 27,220 68,280 11,000 10,000

1% 2% 5% 50%

2,400 97,600

Interest Receivable Interest Income

500 500

39

Over 120 days past due

1,000

% Uncollectible

100,000 (customer 3)

61-120 days pastdue

10,000

10,000

11,000

10,000

Required Allowance 272.20 1,365.60 550.00 5,000.00 P7,187.80

Chapter 4 Receivables and Related Revenues Uncollectible Accounts Expense Allowance for Doubtful Accounts 7,188 – 5,000 = 2,188

2,188 2,188

Problem 4 (Balimbing, Inc.) Age Under 60 days 61- 90 days 91 – 120 days Over 120 days Total

Per Client 175,000 80,000 42,000 24,000 P321,000

Adjustment

Per Audit

% Uncollectible

175,000 84,800 39,260 19,800 318,860

4,800 (2,740) (4,200) (2,100)

1% 3% 6% 25%

Required Allowance Balance of allowance before final adjustment 22,060 – 4,200 Adjustment

P11,599 17,860 P 6,261

(a)

Adjusting entries:

1.

Uncollectible Accounts Expense Accounts Receivable – 91 – 120 days

2,740

2.

Allowance for Doubtful Accounts Accounts Receivable – Over 120 days

4,200

Accounts Receivable – 61-90 days Advances from Customers

4,800

Allowance for Uncollectible Accounts Uncollectible Accounts Expense

6,261

3. 4.

Required Allowance 1,750.00 2,544.00 2,355.60 4,950.00 11,599.00

2,740 4,200 4,800 6,261

(b)

Correct balance of Accounts Receivable

P318,860

(c)

Correct balance of Uncollectible Accounts Expense Per Client ( P16,050 – 2,740) Adjustment No. 1 No. 4 Per audit

P13,310 2,740 (6,261) P 9,789

Problem 5 (Esau Industries, Inc.) (a) Correct balance of Trade Accounts Receivable General Ledger P 10,536,500 (2,732,900) (3,260,700)

Balances per client Undelivered sales Goods consigned to Automatic, Trinoma, etc. Collections received from Cebu and Davao branches Write off Per audit

(168,000) P4,374,900

40

Subsidiary Ledger P 5,635,700

(1,092,800) (168,000) P4,374,900

Chapter 4 Receivables and Related Revenues (b) Correct balance of Allowance for Uncollectible Accounts Age Before Adjustment Adjustments Current P 4,067,320 (1,092,800) 31-60 days 402,440 61-90 days 267,320 898,620 (168,000) > 90 days

Per Audit

% Uncollectible

2,974,520 402,440 267,320 730,620

2% 5% 10% 30%

Allowance for Uncollectible Accounts, Per Client Additional write off Additional provision Balance per audit

P281,255 ( 168,000) 212,275* P325,530

(c) Correct balance of Uncollectible Accounts Expense: Per client Additional provisions as a result of audit Per Audit

P3,425,625 212,275 P3,637,900

Required Allowance P 59,490 20,122 26,732 219,186 P 325,530

Audit Adjustments: Sales

2,732,900 Accounts Receivable

Sales

2,732,900 3,260,700

Accounts Receivable

Allowance for Uncollectible Accounts Accounts Receivable

168,000

Uncollectible Accounts Expense Allowance for Uncollectible Accounts

212,275

3,260,700 168,000 212,275

Problem 6 (Smith, Inc.) Maker

Due Date

Avon Co. Sara Lee Triumph President Mondragon Elizabeth Total

3/30/13 1/30/13 7/2//12 4/04/12 1/12/13 8/31/13

(b)

(a) Schedule of Trade Notes Receivable Adjustment Per Audit # of Days Accrued P100,000 (100,000) -250,000 (250,000) -60 30,000 (30,000) -60 800,000 (80,000) -60,000 -60,000 108 200,000 (200,000) --P770,000 (710,000) P60,000

Per Client

Adjusting Entries: Liability on Discounted Notes Trade Notes Receivable Gain on Sale of Notes Receivable

Interest Rate 8% 6%

P 3,333. 300

9^

1,620 P5,253

100,577 100,000 577

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Accrued Interest

Chapter 4 Receivables and Related Revenues Principal Interest for the entire term Discount (103,333 x 8% x 4/12) Proceeds from discounting Carrying value, date of discounting Gain on sale of notes

P100,000 3,333 ( 2,756) P 100,577 100,000 P 577

Subscription Receivable – Preference Share Trade Notes Receivable

250,000

Accounts Receivable Trade Notes Receivable Interest Income

30,000 30,000 300

Receivable from Officers Compensation Expense Trade Notes Receivable Discount on Notes Receivable from Officers

800,000 66,055 800,000 66,055

Discount on Notes Receivable from Officers (66,055 x 11/12) Interest Income

60,550

Depreciation Expense – Equipment Accumulated Depreciation – Equipment 10% x P400,000 x 8/12

26,667

Accumulated Depreciation – Equipment Notes Receivable – Non-current Loss on Sale of Equipment Discount on Notes Receivable Equipment (400,000 – 250,000) Trade Notes Receivable

186,667 200,000 53,893

Face PV = 200,000 x .7972 Discount

250,000

60,550 26,667

40,560 200,000 200,000 P200,000 159,440 P 40,560

Discount on Notes Receivable Interest Income (159,440 x 12% x 4/12)

6,378 6,378

Interest Receivable 4,953 Interest Income (5,253 – 300 interest income recorded in audit adj. no. 3)

4,953

Problem 7 (Glowing Candles) (a)

Non-current Portion of Long-Term Receivables Notes Receivable from Sale of Division Notes Receivable from Officer Notes Receivable from Sale of Patents Face Less: Discount on Notes Receivable (202,810 – 23,916) Notes Receivable from Sale of Land Total

42

P 500,000 4,000,000 P1,000,000 178,894

821,106 11,236,748 P16,557,854

Chapter 4 Receivables and Related Revenues (b)

(c)

Current Portion of Long-term Receivables: Notes Receivable from Sale of Division, including interest Receivable of P60,000 Notes Receivable from Sale of Land, including interest Receivable of P746,667 (2763,252 + 746,667) Total

P560,000 3,509,919 P4,069,919

Interest Income from Long-term Receivables On NR from Sale of Division January 1, 2012 – April 30, 2012 P1,500,000 x 9% x 8/12 May 1, 2010 – December 31, 2010 P1,000,000 x 9% x 4/12 Total

P90,000 30,000 P120,000

On NR from Officer P4,000,000 x 9%

P360,000

On NR from Sale of Patents P797,190 x 12% x 3/12 On NR from Sale of Land P2,240,000 x 4/12 Total interest income (d)

P 23,916 P746,667 P1,250,583

Gain on Sale of land (P20,000,000 – P15,000,000)

P 5,000,000

Gain on Sale of Patents Selling Price P1,000,000 x .79719 Carrying value of the patents on 10/01/12 Carrying value 1/01/12 Amortization up to 10/01/12 160,000 x 9/12 Gain on sale of patents Date

Periodic Payment 09/01/12 09/01/13 09/01/14

P797,190 P800,000 (90,000)

Note Receivable from Sale of Land Payment Applied to Interest Principal

P5,003,252 5,003,252

P 2,240,000 1,797,880

710,000 P 87,190 Balance of Principal, end

P 2,763,252 3,205,372

Problem (Goliath Company) Notes Receivable from Company B Initial amortized cost = 3,000,000 x .7513 =

P2,253,900

Face Less: Discount on Notes Receivable Initial discount P3,000,000 – P2,253,900 = Interest earned P2,253,900 x 10% x 8/12 Carrying value, 12/31/12

P3,000,000 P746,100 = 150,260

Notes Receivable from Company C Face Interest Receivable 1,000,000 x 10% x 3/12 Carrying value of the note

595,840 P2,404,160 P1,000,000 25,000 P1,025,000

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P 14,000,000 11,236,748 8,031,376

Chapter 4 Receivables and Related Revenues (a)

Audit Adjustments: Interest Receivable Interest Income

200,000 200,000

Impairment Loss ( Bad Debts) Restructured Notes Receivable Interest Receivable Notes Receivable – Company A

456,555 1,743,445 200,000 2,000,000

Gain on Sale of Land (400,000 -346,100) Loss on Sale of Land Discount on Notes Receivable

400,000 346,100 746,100

Discount on Notes Receivable Interest Income 2,253,900 x 10% x 8/12

150,260

Interest Receivable Interest Income (b)

150,260

25,000 25,000

Carrying value of notes: Current Assets: Note Receivable from Company A P550,000 – (P1,743,445 x 10%) Note Receivable from Company C, including Accrued interest of P25,000 Total

P119,345 325,000 P444,345

Non-current Assets: Note Receivable from Company A (P1,743,445 – P119,345) Note Receivable from Company B Total Non-current Receivables (d) Impairment Loss Notes Receivable from Company A Face Interest Receivable (still unrecorded) P2,000,000 x 10% Carrying value of note PV of future cash flows P550,000 x 3.1699 Impairment loss

P1,624,100 2,404,160 P4,028,260

P2,000,000 200,000 P2,200,000 1,743,445 P 456,555

Interest Income: From Company A From Company B From Company C Total

P200,000 150,260 25,000 P375,260 MULTIPLE CHOICE - PROBLEMS

1. 2. 3. 4.

C B B A

5. 6. 7. 8.

C A C A

9. D 10. B 11. A 12. A

13. D 14. B 15. B 16. B

44

17. 18. 19. 20.

C A A D

21. 22. 23. 24.

P780,800 P13,600 B P23,680

Chapter 4 Receivables and Related Revenues Computations 1. 2-5

P523,000 + P224,000 + P75,000 + P27,000 = P849,000 2. Accounts Receivable 3. Inventories Per Client P276,500 P425,000 Adjustments : ( 8,680) 7,240 (14,200) 12,500 (10,000) (6,100) (14,000) 21,000 (18,200) Per Audit P250,620 P420,440

4. Sales P1,320,000 (8,680) (14,200) (10,000)

5. Cost of Sales P842,000 (7,240) (12,500) 6,100

(14,000) 21,000 P1,294,120

18,200 P846,560

6. Classification Balance per audit Nov-Dec 2012 P1,080,000 July – October 2012 650,000 January – June 2012 420,000 Prior to 1/01/12 90,000* Total P2,240,000 Existing allowance = 154,000 – 95,000 + 15,000 + 180,000 – 60,000 Additional uncollectible accounts expense

% Uncollectible 2% 10% 25% 70%

Required Allowance P21,600 65,000 105,000 63,000 P254,600 194,000 P 60,600

7.

Total uncollectible accounts expense = P 180,000 + 60,600 =

P240,600

8.

Accounts receivable, net = P2,240,000 – 254,600 =

9.

Carrying value of the receivable Present value of future cash inflow = 1,120,000 x 3.0373 = Impairment loss

10.

No impairment loss shall be recognized, the loss évent is a non-adjusting évent, which présents condition different from that as of the end of the reporting period.

11.

No impairment loss shall be recognized on Company Y’s note. The interest to be collected during the extended term equals the original interest rate of the loan ; the présent value of future cash inflow shall be equal to the loan’s carrying value.

12.

Carrying value of the receivable PV of future cash inflow = 120,000 + (1,100,000 X .8929) Impairment loss

13.

The non-adjusting évent requires disclosure, because even when taken alone, the loss would have a material effect on the financial condition of 5-6.

14.

Sales = (1,900,000 – 350,000) x 150% = Collections from customers Write off (15,000 – 8,000) Gross accounts receivable

P2,325,000 (1,830,000) ( 7,000) P 488,000

15.

Past due after write off 400,000 – 80,000 Allowance after write off 250,000 – 80,000 Additional uncollectible accounts expense

P 320,000 170,000 P 150,000

16.

Current assets = P506,370 – 30,000 selling price of unsold goods

P1,985,400

45

P4,480,000 3,401,776 P1,078,224

P1,120,000 1,102,190 P 17,810

Chapter 4 Receivables and Related Revenues + 20,000 cost of unsold goods =

P496,370

17.

Additional allowance required : 120,000 – (65,000 +120,000 – 80,000) = 15,000 Total uncollectible accounts expense = 120,000 + 15,000 = P135,000

18.

Accounts receivable = P1,300,000 + 50,000 + 15,000 =

19.

Required allowance = 1,365,000 x .015 =

P 20,475

20.

Uncollectible accounts expense = 20,475 + 8,000 =

P 28,475

21.

Accounts receivable = 735,000 + 4,500,000 – 4,200,000 + 16,000 – 20,200 - 250,000 =

P780,800

22.

(780,800 – 100,800) x 2% =

P13, 600

23.

16,200 + 16,000 – 20,200 =

P12,000

24.

(100,800 x 10%) + (680,000 x 2%) =

P 23,680

P1,365,000

MEEMEE, Inc. Adjusting Entries: 1.

Miscellaneous Expenses Receivables from Officers and Employees Cash – Petty Cash Fund

1,260 500 1,760

2.

Other Non-Current Financial Assets Cash in Bank Interest Income Reclassified Security Bank SA

3.

Cash in Bank – BPI SA Interest Income

4.

Accounts Receivable – 31 – 60 days overdue Cash in Bank – BPI SA

12,800

Accounts Receivable – Dishonored Notes Cash in Bank – BPI SA

5,500

Notes Receivable Discounted Notes Receivable

5,000

5.

6.

400,625

394

Miscellaneous Expenses Cash in Bank – BPI CA

8.

Cash in Bank – BPI CA General Accounts Payable

394 12,800 5,500 5,000

Cash in Bank – BPI CA Payroll Accrued Payroll 5,200 + 10,400

7.

400,000 625

15,600 15,600 150

Payroll

150

45,200 45,200

46

Chapter 4 Receivables and Related Revenues 9.

10.

Accounts Payable Miscellaneous Expenses Cash in Bank _ BPI CA General

900 150 1,050

Accounts Receivable – Current Accounts Receivable – 31- 60 days overdue Customers’ Credit Balances

9,000 4,800

Receivables from Officers and Employees Accounts Receivable – Current

2,000

Allowance for Bad Debts Accounts Receivable – over 90 days

5,000

Accounts Receivable – Overdue Notes Notes Receivable Interest Income

15,250

14.

Receivable from Officers and Employees Notes Receivable

6,800

15.

Interest Receivable Interest Income Creative: P10,000 x 24% x 64/360 = 427 President: P 6,800 x 25% x 19/360 = 90 Total 517

517

Allowance for Bad Debts Bad Debts Expense

4,543

11. 12. 13.

16.

Age Class

Per Client

Current

P362,412

1-30 days past due 31 – 60 days past due 61 – 90 days past due Over 90 days past due Dishonored notes Total required allowance Balance of allowance Adjustment Answers: (a) Petty Cash (b) BPI SA depository (c) BPI CA Payroll (d) BPI CA Gen Disb. (e) Security Bank SA

13,800 2,000 5,000 15,000 250 6,800 517

4,543 ANALYSIS OF ACCOUNTS RECEIVABLE Adjustment Per Audit % Uncollectible 9,000 (2,000) 4,550

369,412

½%

Required Allowance 1,847

207.445

1%

2,074

148,080

3%

4,442

17,500

12,800 4,800 --

17,500

10%

1,750

11,387

(5,000)

6,387

50%

3,194

--

5,500 15,250

20,750

20%

4,150

202,895 130,480

P17,457 22,000 (4,543)

P8,240 257,794 76,250 214,150 400,625

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Chapter 4 Receivables and Related Revenues (f) (g) (h) (i) (j) (k) (l) (m) (n) (o)

Cash Accounts Receivable (Gross) Allowance for Bad Debts Bad Debts Expense Notes Receivable Liability on Discounted Notes Interest Receivable Interest Income Receivables from Officers and Employees Customer Credit Balances

556,434 769,574 17,457 19,457 18,000 8,000 517 4,586 9,700 13,800

48