Professional Documents
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Question no. 7
a. Accounts Receivable
b. Receivables from Employees (part of non-trade receivables) current assets
c. Advances to Suppliers Current assets or deduction from Accounts Payable to the same
supplier
d. Accounts Receivable
e. Customers Accounts with Credit Balances Current Liabilities
f. Cost of merchandise must be included in inventories
g. Accounts Receivable
h. Subscriptions Receivable current asset if collectible within 12 months; otherwise, non-
current asset or deduction from Shareholders Equity
i. Other Non-Trade Receivables Current asset or non-current asset depending on terms of
payment
j. Advances to Suppliers Current Assets
k. Suppliers Accounts with Debit Balances or Advances to Suppliers Current assets
l. Accounts Receivable
m. Claims for Income Tax Refund Current Assets
n. Accounts Receivable, amount of loan presented separately as part of liabilities
o. Accounts Receivable
p. Not recognized anymore (for write off)
PROBLEMS
Gross Method
19 Cash 67,032
Sales Discounts 1,368
Accounts Receivable-First Lady 68,400
9 Cash 50,000
Accounts Receivable-Mens World 50,000
Net Method
Dec. 9 Accounts Receivable-First Lady 67,032
Sales 67,032
68,400 x .0.98
19 Cash 67,032
Accounts Receivable-First Lady 67,032
2013
Jan. 5 Cash 39,200
Accounts Receivable Teens Kingdom 39,200
9 Cash 50,000
Accounts Receivable-Mens World 50,000
Allowance Method
Dec. 9 Accounts Receivable-First Lady 68,400
Allowance for Sales Discount 1,368
Sales 67,032
9 Cash 50,000
Accounts Receivable-Mens World 50,000
14
Chapter 3 Receivables
Cash 3,234,000
Accounts Receivable - Citibank 2,156,000
Accounts Receivable - Metrobank 1,078,000
15 Cash 10,000
Accounts Receivable-Moret Co. 10,000
15
Chapter 3 Receivables
a.
2012
Jan. 1 Notes Receivable 100,000
Accumulated Depreciation 420,000
Loss on Sale of Equipment 8,820
Equipment 500,000
Discount on Notes Receivable 28,820
100,000 x 0.7118 = 71,180
80,000 71,180 = 8,820 Loss on Sale
100,000 71,180 = 28,820 Discount
b.
2012
Dec. 31 Discount on Notes Receivable 8,542
Interest Revenue 8,542
12% x 71,180
2013
Dec. 31 Discount on Notes Receivable 9,567
Interest Revenue 9,567
12% x (71,180 + 8,542)
16
Chapter 3 Receivables
2014
Dec. 31 Discount on Notes Receivable 10,711
Interest Revenue 10,711
12% x (71,180 +8,542 + 9,567)
(or 28,820 8,542 9,567)
The note is interest-bearing, but the rate of interest of the note is unreasonably lower than the
prevailing rate for similar obligation. Thus, the present value of the note is determined as
follows:
2.5 M + (5% x 7.5 M) = 2,875,000 x 0.8929 P2,567,088
2.5 M + (5% x 5.0 M) = 2,750,000 x 0.7972 2,192,300
2.5 M + (5% x 2.5 M) = 2,625,000 x 0.7118 1,868,475
Total P6,627,863
or 2.5 M x 2.4018 P6,004,500
(5% x 7.5 M) x 0.8929 334,838
(5% x 5.0 M) x 0.7972 199,300
(5% x 2.5 M) x 0.7118 88,975
Total P6,627,613
a. Amortization Table
Payment of Interest Interest Amortization Carrying
Date Principal Paid Revenue of Discount Value
01/01/12 6,627,863
12/31/12 2,500,000 375,000 795,344 420,344 4,548,207
12/31/13 2,500,000 250,000 545,785 295,785 2,343,992
12/31/14 2,500,000 125,000 281,008* 156,008* ------------
*rounded off
b. Journal entries
2012
Jan. 1 Notes Receivable 7,500,000
Discount on Notes Receivable 872,137
Gain on Sale of Land 627,863
Land 6,000,000
7,500,000 6,627,863 = 872,137 Discount
6,627,863 6,000,000 = 627,863 Gain
2012
Dec. 31 Cash 2,875,000
Discount on Notes Receivable 420,344
Interest Revenue 795,344
Notes Receivable 2,500,000
2013
Dec. 31 Cash 2,750,000
Discount on Notes Receivable 295,785
Interest Revenue 545,785
Notes Receivable 2,500,000
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Chapter 3 Receivables
2014
Dec. 31 Cash 2,625,000
Discount on Notes Receivable 156,008
Interest Revenue 281,008
Notes Receivable 2,500,000
The note is interest-bearing, but the rate of interest of the note is unreasonably higher than the
prevailing rate for similar obligation. Thus, the present value of the note is determined as
follows:
2.5 M + (18% x 7.5 M) = 3,850,000 x 0.8929 P3,437,665
2.5 M + (18% x 5.0 M) = 3,400,000 x 0.7972 2,710,480
2.5 M + (18% x 2.5 M) = 2,950,000 x 0.7118 2,099,810
Total P8,247,955
b. Amortization Table
Payment of Interest Interest Amortization Carrying
Date Principal Paid Revenue of Premium Value
01/01/10 8,247,955
12/31/10 2,500,000 1,350,000 989,755 360,245 5,387,710
12/31/11 2,500,000 900,000 646,525 253,475 2,634,235
12/31/12 2,500,000 450,000 315,765* 134,235* ------------
*Difference is due to rounding off
b. Journal entries
2012
Jan. 1 Notes Receivable 7,500,000
Premium on Notes Receivable 747,955
Gain on Sale of Land 2,247,955
Land 6,000,000
8,247,955 7,500,000 = 747,955 Premium
8,247,955 6,000,000 = 2,247,955 Gain
2012
Dec. 31 Cash 3,850,000
Premium on Notes Receivable 360,245
Interest Revenue 989,755
Notes Receivable 2,500,000
2013
Dec. 31 Cash 3,400,000
Premium on Notes Receivable 253,475
Interest Revenue 646,525
Notes Receivable 2,500,000
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Chapter 3 Receivables
2014
Dec. 31 Cash 2,950,000
Premium on Notes Receivable 134,235
Interest Revenue 315,765
Notes Receivable 2,500,000
b. Cash 3,920,000
Sales discounts 80,000
Accounts receivable 4,000,000
Cash 5,000
Accounts receivable 5,000
f. Cash 400,000
Notes payable-bank 400,000
Cash 150,000
Accounts receivable 150,000
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Chapter 3 Receivables
Accounts receivable
(450,000+4,800,0004,000,00020,00025,000150,000) P1,055,000
Less Allowance for uncollectible accounts 59,000
Net realizable value/Net amortized cost P 996,000
20
Chapter 3 Receivables
21
Chapter 3 Receivables
Alternative 2
Carrying value (10 M + 1.2 M) 11,200,000
Present value of future cash inflows:
2M + (8% x 10M) = 2,800,000 x 0.8929 2,500,120
2M + (8% x 8M) = 2,640,000 x 0.7972 2,104,608
2M + (8% x 6M) = 2,480,000 x 0.7118 1,765,264
2M + (8% x 4M) = 2,320,000 x 0.6355 1,474,360
2M + (8% x 2M) = 2,160,000 x 0.5674 1,225,584 9,069,936
Impairment loss 2,130,064
Alternative 3
Carrying value 10,000,000
Present value of future cash inflows:
Principal due on 12/31/14
10M x 0.7972 7,972,000
Interest due on 12/31/13 and 12/31/14
10M x 9% = 900,000; 720,000 x 1.6901 1,521,090 9,493,090
Impairment loss 506,910
Cash 1,200,000
Interest Receivable 1,200,000
Alternative 4
Carrying value 11,200,000
Present value of future cash inflows:
Principal due on 12/31/12
11.2M x 0.797193876 8,928,572
Interest due on 12/31/11 and 12/31/12
11.2M x 12% = 1,344,000;
1,344,000 x 1.6900510 2,271,428 11,200,000
Impairment loss ---------
22
Chapter 3 Receivables
Current liabilities:
Notes Payable National Bank P 750,000
Interest Payable 7,500
Cash 634,000
Finance Charges 16,000
Notes Payable Pacific Bank 650,000
Cash 400,000
Accounts Receivable Assigned 400,000
1 Cash 3,040,000
Finance Charges 160,000
Notes Payable Bank 3,200,000
5% x 3,200,000 = 160,000
23
Chapter 3 Receivables
3 20 (Fortune Company)
1 Cash 1,440,000
Finance Charges 90,000
Notes Payable 1,500,000
24
Chapter 3 Receivables
3% x 600,000 = 18,000
b.
Dec. 31 Uncollectible Accounts Expense 10,400
Allowance for Uncollectible Accounts 10,400
(190,000 + 1,000,000) x 2% = 23,800 13,400
Cash 517,500
Loss on Sale of Notes Receivable 5,833
Notes Receivable 500,000
Interest Receivable 23,333
Cash 89,260
Liability on Discounted Notes Receivable 89,260
Cash 76,176
Liability on Discounted Notes Receivable 76,176
25
Chapter 3 Receivables
Cash 61,988
Liability on Discounted Notes Receivable 61,988
2012
Feb. 1 Notes Receivable 60,000
Accounts Receivable 60,000
1 Cash 61,320
Liability on Discounted Notes Receivable 61,320
60,000 + (60,000 x .16 x 9/12) = 67,200
67,200 (67,200 x .15 x 7/12) = 61,320
(b)
Cash 1,615,000
Receivable from Factor 85,000
Loss on Factoring 300,000
Accounts Receivable 2,000,000
Cash 55,000
Receivable from Factor 30,000
26
Chapter 3 Receivables
(a)
1/1/12 Interest Revenue 2,800
Interest Receivable 2,800
Cash 216,000
Notes Receivable 200,000
Interest Revenue 16,000
Cash 41,400
Liability on Discounted Notes Receivable 41,400
Cash 222,000
Finance Charges 18,000
Notes Payable 240,000
27
Chapter 3 Receivables
Theory
Problems
28
Chapter 3 Receivables
MC34 B 2,000,000 x 12% x 1/12 = 20,000 (Note: The difference between interest income of
P21,333 and interest receivable of 20,000 is debited to Discount on Notes Receivable).
MC35 B 500,000 x 8% x 4/12 = 13,333
MC36 B 1,250,000 - (2% x 1,250,000)} = 1,225,000
1,225,000 + 695,000 = 1,920,000
MC37 D (500,000 + 2,200,000) x 3% = 81,000; 81,000 32,000 = 49,000
MC38 C 550,000 [(500,000 x 0.8265) + (40,000 x 1.7355)] = 67,380
MC39 A 5,500,000 [(4,000,000 X .83) + (320,000 X 1.74)] = 1,623,200
MC40 D (4,000,000 X .83) + (320,000 X 1.74) = 3,876,800
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