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Chapter 3 - Receivables 3-1
Chapter 3 - Receivables 3-1
3-1.
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)
Gross Method
Dec. 9 Accounts Receivable-First Lady 68,400
Sales 68,400
80,000 x 90% x 95%
19 Cash 67,032
Sales Discounts 1,368
Accounts Receivable-First Lady 68,400
9 Cash 50,000
Accounts Receivable-Men’s 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
Chapter 3 – Receivables
9 Cash 50,000
Accounts Receivable-Men’s 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-Men’s World 50,000
Cash 3,234,000
Accounts Receivable - Citibank 2,156,000
Accounts Receivable - Metrobank 1,078,000
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Chapter 3 – Receivables
15 Cash 10,000
Accounts Receivable-Moret Co. 10,000
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Chapter 3 – Receivables
The note is interest-bearing, but the rate of interest of the note (5%) is unreasonably lower than
the prevailing rate (10%) for similar obligation. The present value of the note is determined as
follows:
2.5 M + (5% x 7.5 M) 2,875,000 x 0.9091 P2,613,663
2.5 M + (5% x 5.0 M) = 2,750,000 x 0.8264 2,272,600
2.5 M + (5% x 2.5 M) = 2,625,000 x 0.7513 1,972,163
Total P6,858,426
or 2.5 M x 2.4869 P6,217,250
(5% x 7.5 M) x 0.9091 340,913
(5% x 5.0 M) x 0.8264 206,600
(5% x 2.5 M) x 0.7513 93,913
Total P6,858,676
2015
Dec. 31 Cash 2,625,000
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Chapter 3 – Receivables
The note is interest-bearing, but the rate of interest of the note (14%) is unreasonably higher than
the prevailing rate (10%) for similar obligation. The present value of the note is determined as
follows:
2.5 M + (14% x 7.5 M) = 3,550,000 x 0.9091 P3,227,305
2.5 M + (14% x 5.0 M) = 3,200,000 x 0.8264 2,644,480
2.5 M + (14% x 2.5 M) = 2,850,000 x 0.7513 2,141,205
Total P8,012,990
a. Amortization Table
b. Journal entries
2013
Jan. 1 Notes Receivable 7,500,000
Premium on Notes Receivable 512,990
Gain on Sale of Land 2,012,990
Land 6,000,000
8,012,990 – 7,500,000 = 512,990 Premium
8,247,955 – 6,000,000 = 2,247,955 Gain
2014
Dec. 31 Cash 3,200,000
Premium on Notes Receivable 173,571
Interest Revenue 526,429
Notes Receivable 2,500,000
2015
Dec. 31 Cash 2,850,000
Premium on Notes Receivable 90,718
Interest Revenue 259,282
Notes Receivable 2,500,000
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Chapter 3 – Receivables
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+4,800,000–4,000,000–20,000–25,000–150,000) P1,055,000
Less Allowance for uncollectible accounts 59,000
Amortized cost of accounts receivable P 996,000
3-13. (Rav, Inc.)
Accounts Receivable
Balance, beg 337,000 Collections 1,600,000
Sales on account 1,500,000 Cash discounts 23,000
Recovery 3,000 Write off 11,000
Sales returns 6,000
Total 1,840,000 Total 1,640,000
Balance, end 200,000
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Chapter 3 – Receivables
Alternative 1
Carrying value (10 M + 1.2 M) 11,200,000
Present value of future cash inflows:
Principal due on 12/31/15 (9M x 0.7972) P7,174,800
Interest for 2 years
9M x 8% = 720,000; 720,000 x 1.6901 1,216,872 8,391,672
Impairment loss P2,808,328
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
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Chapter 3 – Receivables
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 12/31/13
11.2M x 0.797193876 8,928,572
Interest due on 12/31/13 and 12/31/14
11.2M x 12% = 1,344,000;
1,344,000 x 1.6900510 2,271,428 11,200,000
Impairment loss -0-
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
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Chapter 3 – Receivables
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
31 Cash 2,450,000
Sales Discounts 50,000
Accounts Receivable Assigned 2,500,000
2% x 2,500,000 = 50,000
31 Cash 1,000,000
Accounts Receivable Assigned 1,000,000
1 Cash 1,410,000
Finance Charges 90,000
Notes Payable 1,500,000
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Chapter 3 – Receivables
Cash 517,500
Loss on Sale of Notes Receivable 5,833
Notes Receivable 500,000
Interest Receivable 23,333
Cash 89,408
Liability on Discounted Notes 89,408
Cash 75,404
Liability on Discounted Notes 75,404
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Chapter 3 – Receivables
Cash 61,833
Liability on Discounted Notes 61,833
2013
Feb. 1 Notes Receivable 60,000
Accounts Receivable 60,000
(a)
Accounts receivable factored P2,000,000
Purchase price 85%
Purchase price of accounts receivable factored P 1,700,000
Less amount withheld (5% x 1,700,000) 85,000
Net cash received from the factored accounts P 1,615,000
(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
(a)
1/1/12 Interest Revenue 2,800
Interest Receivable 2,800
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Chapter 3 – Receivables
Cash 222,000
Finance Charges 18,000
Notes Payable 240,000
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Chapter 3 – Receivables
Theory
MC1 A MC11 C
MC2 B MC12 C
MC3 A MC13 A
MC4 A MC14 C
MC5 C MC15 A
MC6 A MC16 D
MC7 D MC17 A
MC8 A MC18 C
MC9 A
MC10 C
Problems
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Chapter 3 – Receivables
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