APPLIED AUDITING – Notes of Receivable Quiz

G.Q. CARPIZO, CPA, MBA

NAME: Date:
Section: Score:

PROBLEM SOLVING: Solve for what is being required. (1 point each)

PROBLEM #1
Boogey Company accepted a P200,000, 90-day, 12% interest bearing note dated November
15, 2018 from a customer. On December 15, 2018, Boogey discounted the note at Finance
Company at 15% discount rate. Boogey Company informed the maker of the note regarding
the discounting arrangement. On maturity date, the maker of the note did not pay the
note and as a result Finance Company charged Boogey Company for the total amount due
plus P2,000 protest fee.
Required:
1. How much should Boogey Company pay to Finance Company, when the maker fails to
pay the note upon its maturity?
2. What amount of interest income should Boogey Company recognize related to the
notes receivable in its December 31, 2018 statement of financial position?

PROBLEM #2
On January 2, 2015, Durant Company sold equipment with a carrying amount of P480,000
in exchange for a P600,000 non-interest-bearing note due January 2, 2018. There was no
established exchange price for the equipment. The prevailing rate of interest for a
note of this type at January 2, 2015 was 10%. The present value of 1 at 10% for three
periods if 0.7513.
Required:
1. How much should Durant Company report as interest income in its 2015 profit or
loss?
2. How much should Durant Company report as gain or loss on sale of equipment in
its 2015 profit or loss?
3. What is the carrying value of the note receivable as of December 31, 2015
statement of financial position?

PROBLEM #3
Curry Finance granted a 10%, 2-year P5,000,000 loan to Green Company on January 1,
2014. The interest is payable every December 31 for each year during the term of the
contract. Curry Finance incurred an origination cost of P328,326 but charge Green
Company P150,000 as origination fee. The effective rate is now 8% after considering
the origination cost and origination fee. Due to financial difficulty, Green was
unable to pay the interest on December 31, 2014, Curry Finance has now considered that
the loan to Green Company is now impaired. Reliable estimate shows that the projected
cash flows from the loan are as follows:

P2,000,000 on December 31, 2015 and P 3,000,000 on December 31, 2016.

Required:
1. What amount of impairment loss on the loan should Curry Finance recognize on
December 31, 2014?

PROBLEM #4
Thompson Company has a financial asset with an amortized cost P5,126,565 as of
December 31, 2014. The financial asset with a face value of P5,000,000 and a nominal
rate of 10% was issued when prevailing market rate was 9%. The financial asset has a
remaining term of 3 years

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APPLIED AUDITING – Notes of Receivable Quiz
G.Q. CARPIZO, CPA, MBA
On January 1, 2015, Thompson Company transferred the financial asset to a third party
in return for consideration of P4,500,000. At the time of transfer, the prevailing
market rate of interest is 8.5%. The asset is subject to a call option whereby the
Thompson Company can compel the transferee to sell the asset back to Thompson Company
for P5,000,000 on December 31, 2015.

Required:
1. What amount of gain or loss should Thompson Company recognize on January 1,
2015?
2. If the option was exercise on December 31, 2015, what amount of gain or loss
should Thompson Company recognize as a result of the settlement or exercise?

PROBLEM #5
The Notes receivable account of Shaun Co. has a debit balance of P239,200 on December
31, 2018. There was no balance at the beginning of the year. Your analysis of the
account reveals the following:

1. The notes receivable amounting to P845,000 were received from customers during
the year

2. Notes of P416,000 were collected on due dates and notes amounting to P221,000
were discounted at the Aggressive Bank. The notes receivable account was
credited for the notes discounted.

3. Of the P221,000 notes discounted, P104,000 was paid on maturity date while a
note for P31,200 was dishonored and was charged back to Note Receivable
account.

4. Cash of P33,000 was received as partial payment on notes not yet due. The
amount received was credited to liability on partial payments accounts.

5. A note for P50,000 was pledged as collateral for a bank loan.

6. Included in the company’s cash account balance is a three-month note from an

officer amounting to P8,000 which is over a month past due.

If Shaun Co. will use a Notes Receivable Discounted account, the adjusted balance of
the Notes Receivable account on December 31, 2018 is how much?

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APPLIED AUDITING – Notes of Receivable Quiz
G.Q. CARPIZO, CPA, MBA
PROBLEM #1
1. 208,000
2. 3,000

PROBLEM #2
1. 45,078
2. 29,220
3. 495,858

PROBLEM #3
1. 1,168,723

PROBLEM #4
1. None
2. 117,500

PROBLEM #5
1. 260,800

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