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Chapter 3 - Receivables Question No. 7
Chapter 3 - Receivables Question No. 7
Chapter 3 - Receivables Question No. 7
CHAPTER 3 - RECEIVABLES
Question no. 7
a. Accounts Receivable
b. Receivables from Employees (part of non-trade receivables) – current assets
c. Advances to Suppliers – Current assets
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
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
(Correction to the Text: Delete the second transaction on Dec. 10: Collected from
First Lady in full.)
Dec. Accounts Receivable-First Lady 68,400
9
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
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Chapter 3 – Receivables
Net Method
Dec. Accounts Receivable-First Lady 67,032
9
Sales 67,032
68,400 x .0.98
19 Cash 67,032
Accounts Receivable-First Lady 67,032
9
Cash 50,000
Accounts Receivable-Men’s World 50,000
Allowance Method
Dec. Accounts Receivable-First Lady 68,400
9
Allowance for Sales Discount 1,368
Sales 67,032
9 Cash 50,000
Accounts Receivable-Men’s World 50,000
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Chapter 3 – Receivables
15 Cash 10,000
Accounts Receivable-Moret Co. 10,000
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Chapter 3 – Receivables
a.
2009
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.
2009
Dec. 31 Discount on Notes Receivable 8,542
Interest Revenue 8,542
12% x 71,180
2010
Dec. 31 Discount on Notes Receivable 9,567
Interest Revenue 9,567
12% x (71,180 + 8,542)
2011
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:
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Chapter 3 – Receivables
a. Amortization Table
*rounded off
b. Journal entries
2009
Jan. 1 Notes Receivable 7,500,00
0
Discount on Notes Receivable 872,333
Gain on Sale of Land 627,667
Land 6,000,00
0
7,500,000 – 6,627,667 = 872,333 Discount
6,627,667 – 6,000,000 = 627,667 Gain
2009
Dec. 31 Cash 2,875,00
0
Discount on Notes Receivable 420,330
Interest Revenue 795,320
Notes Receivable 2,500,00
0
2010
Dec. 31 Cash 2,750,00
0
Discount on Notes Receivable 295,758
Interest Revenue 545,758
Notes Receivable 2,500,00
0
2011
Dec. 31 Cash 2,625,00
0
Discount on Notes Receivable 156,255
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Chapter 3 – Receivables
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
b. Journal entries
2009
Jan. 1 Notes Receivable 7,500,00
0
Premium on Notes Receivable 747,955
Gain on Sale of Land 2,247,95
5
Land 6,000,00
0
8,247,955 – 7,500,000 = 747,955 Premium
8,247,955 – 6,000,000 = 2,247,955 Gain
2009
Dec. 31 Cash 3,850,00
0
Premium on Notes Receivable 360,245
Interest Revenue 989,755
Notes Receivable 2,500,00
0
2010
Dec. 31 Cash 3,400,00
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Chapter 3 – Receivables
0
Premium on Notes Receivable 253,475
Interest Revenue 646,525
Notes Receivable 2,500,00
0
2011
Dec. 31 Cash 2,950,00
0
Premium on Notes Receivable 134,235
Interest Revenue 315,765
Notes Receivable 2,500,00
0
b. Cash 3,920,000
Sales Discounts 80,000
Accounts Receivable 4,000,000
Cash 5,000
Accounts Receivable 5,000
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Chapter 3 – Receivables
h. Cash 400,000
Notes Payable-Bank 400,000
Cash 150,000
Accounts Receivable 150,000
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
Net realizable value/Net amortized cost P
996,000
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
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Chapter 3 – Receivables
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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 12/31/11
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
Entry: Restructured Notes Receivable 8,391,672
Impairment Loss – Receivables 2,808,328
Notes Receivable 10,000,000
Interest Receivable 1,200,000
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 0.89292,500,120
2M + (8% x 8M) = 2,640,000 x 0.79722,104,608
2M + (8% x 6M) = 2,480,000 x 0.71181,765,264
2M + (8% x 4M) = 2,320,000 x 0.63551,474,360
2M + (8% x 2M) = 2,160,000 x 0.56741,225,584 9,069,936
Impairment loss 2,130,064
Alternative 3
Carrying value 10,000,000
Present value of future cash inflows:
Principal due on 12/31/09
10M x 0.7972 7,972,000
Interest due on 12/31/10 and 12/31/11
10M x 9% = 900,000; 720,000 x 1.6901 1,521,090 9,493,090
Impairment loss 506,910
Alternative 4
Carrying value 11,200,000
Present value of future cash inflows:
Principal due on 12/31/11
11.2M x 0.797193876 8,928,572
Interest due on 12/31/10 and 12/31/11
11.2M x 12% = 1,344,000;
1,344,000 x 1.6900510 2,271,428 11,200,000
Impairment loss ---------
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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
2009
Feb. 1 Notes Receivable 60,000
Accounts Receivable 60,000
1 Cash 61,320
Interest Expense 280
Liability on Discounted Notes 60,000
Interest Receivable 1,600
60,000 + (60,000 x .16 x 9/12) = 67,200
67,200 – (67,200 x .15 x 7/12) = 61,320
CV of Discounted Notes
61,600
Proceeds
61,320
Interest Expense
280
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Chapter 3 – Receivables
Cash 610,000
Finance Charges 15,000
Notes Payable – Pacific Bank 625,000
Cash 400,000
Accounts Receivable Assigned 400,000
Cash 1,615,000
Receivable from Factor 85,000
Loss on Factoring 300,000
Accounts Receivable 2,000,000
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Chapter 3 – Receivables
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
22
Chapter 3 – Receivables
3 – 23 (Fortune Company)
1 Cash 1,440,000
Finance Charges 90,000
Notes Payable 1,500,000
Theory
Problems
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Chapter 3 – Receivables
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