PROBLEM 1

The adjusted trial balance of Rowell Company as of December 31, 2019 shows the following:

Debit Credit
Accounts receivable P1,000,000
Allowance for bad debts P40,000

Additional information:
 Cash sales of the company represents 10% of gross sales.
 90% of the credit sales customers do not take advantage of the 2/10, n/30 terms.
 It is expected that cash discount of P5,000 will be taken on accounts receivable outstanding at
December 31, 2019.
 Sales return in 2019 amounted to P400,000. All returns were from charge sales.
 During 2019, accounts totaling to P44,000 were written off as uncollectible, bad debts recoveries
during the year amounted to P3,000.
 The allowance for bad debts is adjusted so that it represents certain percentage of the outstanding
accounts receivable at year-end. The required percentage at December 31, 2019 is 150% of the rate
used on December 31, 2018.

QUESTIONS
Based on the above and the result of your audit, answer the following:
1. The accounts receivable as of December 31, 2019 is 2,500,000

2. The allowance for doubtful accounts as of December 31, 2019 is 150,000

3. The amortized cost of accounts receivable as of December 31, 2019 is 2,345,000
4. The doubtful account expense for the year 2010 is
151,000

PROBLEM 2

You were able to obtain the following information from your audit of Ortega Corporation’s Accounts
Receivable and allowance for doubtful accounts:

 From the general ledger you noted that the Accounts receivable has a balance of P848,000 as of
December 31, 2019. Below is the transcript of the Allowance for Doubtful Accounts:
Debit Credit Balance
January 1 – Balance P20,000
July 31 – write-off P16,000 4,000
December 31 – Provision P48,000 52,000
 The summary of the subsidiary ledger as of December 31, 2019 was totaled as follows:

Debit balances:
Under one-month P360,000
One to six months 368,000
Over six months 152,000
P880,000

Credit balances:
Allen P8,000 – OK; additional billing in Jan. 2020
T.Twister 14,000 – Should have been credited to Apol
Dee Lah 18,000 – Advances on sales contract
P40,000

Accounts are one to six months classification

The customers’ ledger is not in agreement with the accounts receivable control. The client requested
you to adjest the control account to the subsidiary ledger after the corrections are made.

 It is agreed that 1 percent is adequate for accounts under one month. Accounts one to six months
are expected to require a reserve of 2 percent. Accounts over six months are analyzed as follows:

Definitely bad P48,000

Doubtful (estimated to be 50% collectible) 24,000
Apparently good, but slow (estimated to be 90% collectible) 80,000
Total P152,000

QUESTIONS

Based on the above and the result of your audit, answer the following:

1. How much is the adjusted balance of Accounts Receivable as of December 31, 2019?

2. How much is the adjusted balance of the Allowance for Doubtful Accounts as of December 31,
2019?

3. How much is the Doubtful Accounts expense for the year 2019?

4. What is the net realizable value of Accounts Receivable?

PROBLEM 3

In connection with your examination of the financial statements of Nabugkel, Inc. for the year ended
December 31, 2019, you were able to obtain certain information during your audit of the accounts
receivable and related accounts.

The December 31, 2019 balance in the Accounts Receivable control accounts is P788,000.
The only entries in the Doubtful Accounts expense account were:
o A credit for P1,296 on December 2, 2019 because Company A remitted in full for the
accounts charged off on October 31, 2019; and
o A debit on December 31 for the amount of the credit to the Allowance for Doubtful
Accounts.
The Allowance for Doubtful Accounts schedule is presented below:
Debit Credit Balance
January 1, 2019 P14,632
October 31, 2019
Uncollectible accounts
Company A – P1,296
Company B – P3,280
Company C – P2,256 P6,032 8,600
December 31, 2019 P39,400 P48,000

An aging schedule of the accounts receivable as of December 31, 2019 is presented below:
Amount to which the Allowance
is to be adjusted after
adjustments and corrections
Age Net debit balance have been made
0 to 1 month P372,960 1 percent
1 to 3 months 307,280 2 percent
3 to 6 months 88,720 3 percent
Over 6 months 24,000 Definitely uncollectible, P4,000
P8,000 is considered 50%
uncollectible; the remainder is
estimated to be 80% collectible

There is a credit balance in one account receivable (0 to 1 month) of P8,000; it represents an

advance on a sales contract. Also, there is a credit balance in one of the 1 to 3 months accounts
receivable of P2,000 for which merchandise will be accepted by the customer.

The ledger accounts have not been closed as of December 31, 2019. The Accounts Receivable
control account is not in agreement with the subsidiary ledger.

QUESTIONS:

Based on the above and the result of your audit, answer the following:

1. How much is the adjusted balance of Accounts Receivable as of December 31, 2019? 798,960
2. How much is the adjusted balance of the Allowance for Doubtful Accounts as of December 31,
2019? 19,056.80

3. How much is the net adjustment to the Allowance for Doubtful Accounts? 25,439.20

4. How much is the Doubtful Accounts expense for the year 2019? 13,960.80

5. How much is the net adjustment to the Doubtful Accounts expense account? 4,800

PROBLEM 4

Sigay Bank granted a loan to a borrower in the amount of P5,000,000 on January 1, 2019. The
interest rate on the loan is 10% payable annually starting December 31, 2019. The loan matures in
five years on December 31, 2023. Sigay Bank incurs P39,400 of direct loan origination cost and
P10,000 of indirect loan origination cost. In addition, Sigay Bank charges the borrower an 8-point
nonrefundable loan origination fee.

QUESTIONS:

1. The carrying amount of the loan as of January 1, 2019 is 4,,639,400

2. The effective interest rate of the loan is 12.33%

3. The interest income to be recognized in 2019 is 556,728

4. The carrying amount of the loan as of December 31, 2019 is 4,696,128

PROBLEM 5

On January 1, 2018, Sinait Company loaned P3,000,000 to Ilocos Company. The terms of the were
payment in full on January 1, 2023, plus annual interest payments at 11%. The interest payment was
made as scheduled on January 1, 2019; however, due to financial setbacks, Ilocos was unable to
make its 2020 interest payment. Sinait considers the loan impaired and projects the following cash
flows from the loan as of December 31, 2020 and 2021. Sinait accrues the interest at December 31,
2019, but did not continue to accrue interest due to the impairment of the loan.

Amount projected as of
Date of Flow Dec. 31, 2020 Dec. 31, 2021
December 31, 2021 P200,000 P200,000
December 31, 2022 400,000 600,000
December 31, 2023 800,000 1,200,000
December 31, 2024 1,200,000 1,000,000
December 31, 2025 400,000

QUESTIONS:

Your client requested you to determine the following: (Round-off present value factors to four
decimal places)

1. Loan impairment loss in 2020 1,212,380

2. Interest income for 2021 assuming the P200,000 was collected on December 31, 2021 as
scheduled 232,938

3. Allowance for loan impairment as of December 31, 2021 554,340

4. Interest income in 2022 assuming the P600,000 was collected December 31, 2022 as scheduled 247,023

5. Carrying amount of loan receivable as of December 31, 2022 1,892,683

 PROBLEM 6

The Vigan Company included the following in its notes receivable as of December 31, 2019:
Note receivable from sale of land P880,000
Note receivable from consultation 1,200,000
Note receivable from sale of equipment 1,600,000

In connection with your audit, you were able to gather the following transactions during 2019 and
other information pertaining to the company’s notes receivable:

o On January 1, 2019, Vigan Company sold a tract of land. The land purchased 10 years ago,
was carried on Vigan Company’s books at a value of P500,000. Vigan received a noninterest
bearing note for P880,000. The note is due on December 31, 2020. There is no readily
available market value for the land, but the current market rate of interest for comparable
notes is 10%.
o On January 1, 2019, Vigan Company finished consultation services and accepted in exchange
a promissory note with a face value of P1,200,000, a due date of December 31, 2021, and
stated rate of 5%, with interest receivable at the end of each year. The fair value of the
services is not readily determinable and the note is not readily marketable. Under the
circumstances, the notes is considered to have an appropriate imputed rate of interest of
10%.
o On January 1, 2019, Vigan Company sold equipment with a carrying amount of P1,600,000
to X Company. As payment, X give Vigan Company a P2,400,000 note. The note bears an
interest rate of 4% and is to be repaid in three annual installments of P800,000. The first
payment was received on December 31, 2019. The market price of the equipment is not
reliably determinable. The prevailing rate of interest for notes of this type is 14%.

QUESTIONS:

1. The consultation service fee revenue that should be recognized in 2019 is 1,050,774

2. The gain on sale of equipment that should be recognized in 2019 is 412,419

3. The noncurrent notes receivable as of December 31, 2019 is 1,825,751

4. The current portion of long-term notes receivable as of December 31, 2019 is 1,468,213Type text here

5. The interest income to be recognized in 2019 is 459,539