Problem 4-1

Dreamer Company reported the "Recievables" account with a debit balance of P2,000,000 at year-end.

The allowance for doubtful accounts had a credit balance of P50,000 on same date.

Subsidiary details revealed the following:

Trade accounts receivable

Trade notes receivable
Installment receivable (due 1 to 2 yrs)
Customers' accounts reporting credit balances arising from sales return
Advance payments for purchase of merchandise
Customers' accounts with credit balances
Cash advance to subsidiary
Claim from insurance entity
Subscription receivable due in 60 days
Accrued interest receivable
Total Receivables

a. Prepare one compound entry to reclassify the receivables account.

Accounts receivable 775,000.00

Notes receivables 100,000.00
Installments receivables 300,000.00
Advances to suppliers 150,000.00
Advances to subsidiary 400,000.00
Claims receivable 15,000.00
Subscriptions receivable 300,000.00
Accrued interest receivable 10,000.00
Customers' accounts with credit balances
Advances from customers
Recievables

b. Compute the amount to be presented as "Trade and Other Receivables" under current asset

Accounts receivable at gross amount

Less: Allowance for doubtful accounts
Accounts receivable at net realizable value
Notes receivable
Installment receivables
Installment receivables
Claims receivable
Subscriptions receivable
Accrued interest receivable
Trade and other receivables - current asset

c. Indicate the classification and presentation of the order items excluded from " trade and oth

1. The advances to subsidiary is classified as long term investment as non-current assets.

2. The customer's accounts with credit balances are reclassified as payables under current liabilities.

Problem 4-3

Affectionate Company sold merchandise on account for P500,000. The terms are 3/10, n/30. The
related freight charge amounted to P10,000. The account was collected within the discount period.

Required:
Prepare journal entries to record the transactions under the following freight terms:

1. FOB destination and freight collect

2. FOB destination and freight prepaid
3. FOB shipping point and freight collect
4. FOB shipping point and freight prepaid

1. FOB destination and freight collect

DEBIT
Accounts Receivable 500,000
Freight out 10,000
Sales
Allowance for Freight charge

Cash 475,000
Sales Discount (500,000 x 3%) 15,000
Allowance for freight charged 10,000
Accounts Receivable
2. FOB destination and freight prepaid
Accounts Receivable 500,000
Freight out 10,000
Sales
Cash

Cash 485,000
Sales Discount (500,000 x 3%) 15,000
Accounts Receivable

3. FOB shipping point and freight collect

Accounts Receivable 500,000
Sales

Cash 485,000
Sales Discount (500,000 x 3%) 15,000
Accounts Receivable

4. FOB shipping point and freight prepaid

Accounts Receivable 510,000
Sales
Cash

Cash 495,000
Sales Discount (500,000 x 3%) 15,000
Accounts Receivable

Problem 4-4

Fiancee Company records sales return during the year as a credit to accounts receivable.

However, at the end of the accounting period, the entity estimates the probable sales return and reco
the same by means of an allowance account.

The following transactions occurred in summary form:

1. Sale of merchandise on account, 2/10, n/30 4,000,000

2. Collection within the discount period 1,470,000
3. Collection beyond the discount period 1,000,000
4. Sales return granted 100,000
5. Sales return estimated at the end of the year 20,000

Required:
Prepare journal entries to record the transactions.

1. Sale of merchandise on account, 2/10, n/30

DEBIT
Accounts Receivable 4,000,000
Sales

2. Collection within the discount period

Cash 1,470,000
Sales Discount 30,000
Accounts Receivable

3. Collection beyond the discount period

Cash 1,000,000
Accounts Receivable

4. Sales return granted

Sales Return 100,000
Accounts Receivable

5. Sales return estimated at the end of the year

Sales Return 20,000
Allowance for Sales Return
00,000 at year-end.

775,000.00
100,000.00
300,000.00
- 30,000.00
150,000.00
-20,000
400,000.00
15,000.00
300,000.00
10,000.00
2,000,000.00

30,000.00
20,000.00
2,000,000.00

bles" under current assets.

775,000.00
- 50,000.00
725,000.00
100,000.00
 300,000.00
150,000.00
15,000.00
300,000.00
10,000.00
1,600,000.00

uded from " trade and other recievables".

urrent liabilities.

10, n/30. The

iscount period.

CREDIT

500,000
10,000

500,000
 500,000
10,000

500,000

500,000

500,000

500,000
10,000

510,000

unts receivable.

bable sales return and records

CREDIT

4,000,000

1,500,000

1,000,000

100,000

20,000
Problem 5-2

At the beginning of current year, Template Company showed

the following acount balances:

Accounts recievable 1,000,000.00

Allowance for doubtful accounts 40,000.00

The following summary transactions occurred during the current year:

1 Sales on account 2/30, n/30

2 Colletions from customers within the discount period
3 Colletions from customers beyond the discount period
4 Accounts recievable written off as worthless
5 Recovery of accounts previously written off not included in the above collections
6 Credit memo for sales return

Required:

a. Prepare journal entries pertaining to accounts recievable.

b. Prepare the adjustment for doubtful accounts at year-end if the entity uses
percentage of accountss recievable method consistently.
c. What is the net realizable value of accounts recievable at year-end

a. PREPARE JOURNAL ENTRIES PERTAINING TO ACCOUNTS RECEIVABLE

1. Sales on account, 2/30, n/30
DEBIT
Accounts Receivable 7,000,000
Sales

2. Collections from customer's within the discount period

Cash 2,450,000
Sales Discount (2,450,000 x 2%) 50,000
Sales

3. Collection beyond the discount period

Cash 3,900,000
Accounts Receivable

4. Accounts receivable written off as worthless

Allowance for Doubtful Accounts 30,000
 Accounts Receivable

5. Recovery of accounts previously written off not included in the above collections
Accounts Receivable 10,000
Allowance for Doubtful Accounts

6. Credit memo for sales return

Sales Return 70,000
Accounts Receivable

b. PREPARE THE ADJUSTMENTS FOR DOUBTFUL ACCOUNTS AT YEAR-END IF

THE ENTITY USES THE PERCENTAGE OF ACCOUNTS RECEIVABLE METHOD
CONSISTENTLY
Doubtful Account Expense 40,000
Allowance for Doubtful Accounts

c. DETERMINE THE NET REALIZABLE VALUE OF ACCOUNTS RECEIVABLE AT

END OF THE YEAR

ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL

Beg. 1,000,000 3,900,000 ACCOUNTS
7,000,000 30,000 30,000 40,000 Beg.
10,000 70,000 10,000

4,010,000 20,000

Accounts Receivable 4,010,000

Less: Allowance for Doubtful Accounts 20,000
NET REALIZABLE VALUE OF ACCOUNTS RECEIVABLE 3,990,000
 7,000,000.00
2,450,000.00
3,900,000.00
30,000.00
10,000.00
70,000.00

CREDIT

7,000,000

2,500,000

3,900,000
 30,000

10,000

70,000

ND IF
OD

40,000

AT
Problem 6-1

Feasible Company sold to another entity of land costing P5,000,000 for P7,000,000 on January 1, 202

The buyer paid P1,000,000 down and signed a two-year promissory note for the remainder of the
purchase price plus 12% interest compounded annually. The note matures on January 1,2023.

Required:
Prepare journal entries for 2021, 2022 and 2023.

2021
1-Jan Cash 1,000,000
Notes Receivable 6,000,000
Land 5,000,000
Gain on sale of land 2,000,000

31-Dec Accrued interest receivable 720,000

Interest income 720,000

2022
31-Dec Accrued interest receivable 806,400
Interest income 806,400

2023
Cash 7,526,400
Notes Receivable 6,000,000
Accrued interest receivable 1,526,400

Problem 6-2

Bygone Company manufactures and sells computers. On January 1, 2021, the entity
sold a computer costing P 400,000 for P600,000.

The buyer signed a noninterest bearing note for P600,000 payable in three equal
installments every December 31.

The cash selling price of the computer is P540,000

Required:
Prepare journal entries for the current year.
 1-Jan Notes Receivable 600,000
Sales 540,000
Unearned interest income 60,000

31-Dec Cash 200,000

Notes Receivable 200,000

Unearned interest income 30,000

Interest income 30,000

Problem 6-3

Innovative Company manufactures and sells electrical generators. On January 1, 2021, the entity
sold an electrical generator costing P700,000 for P1,000,000.

The buyer paid P100,000 down and signed a P900,000 noninterest, bearing note payable
in three equal installments every December 31.

The prevailing interest rate for a note of this type is 12%. The present value of an ordinary
annuity of 1 for three periods is 2.4018.

Required:
Prepare journal entries for the current year.

Face value 900,000

Present value -720,540 1,000,000 - 700,000 = 30
Unearned interest income 179,460

Present value 720,540

Cash received 100,000
Sales price 820,540
Cost of generator -700,000
Gross income 120,540

1-Jan Cash 100,000

Notes receivable 900,000
Sales 820,540
 Unearned interest income 179,460

31-Dec Cash 300,000

Notes receivable 300,000

Unearned interest income 86,465

Interest income 86,465

Problem 6-4

Gullible Company is a dealer in equipment. On December 31, 2021, the entity sold an equipment in ex
for a noninterest bearing note requiring five annual payments of P500,000. The foirst payment was m
December 31, 2022.

The market interest for similar notes was 8%. The relevant present value factors are:

PV of 1 at 8% for 5 periods 0.68

PV of an ordinary annuity of 1at 8% for 5 periods 3.99

Required:
1. Prepare journal entries for 2021 and 2022.
2. Determine the carrying amount of the note receivable on December 31, 2022.
3. Determine the interest income for 2023.

1. Prepare journal entries for 2021 and 2022.

12/31/2021 Notes receivable 2,500,000

Sales 1,995,000
Unearned interest income 505,000

12/31/2022 Cash 500,000

Notes receivable 500,000

Unearned interest income 159,600

Interest income 159,600

2. Determine the carrying amount of the note receivable on December 31, 2022.

Notes receivable 2,000,000

Unearned interest income -345,400
Carrying amount 1,654,600
 3. Determine the interest income for 2023.

Interest income (2023) 132,368

Problem 6-5

On January 1, 2021, Enigma Company sold an equipment costing P500,000 which had a carrying
amount of P350,000 receiving a P125,000 down payment and, as additional consideration a
P400,000 noninterest bearing note due on January 1, 2024.

There was no established exchnage price for the equipment and the note had no ready
market.

The prevailing rate of interest for a note of this type at January 1, 2021 was 12%, The
present value of 1 at 12% for three periods is 0.7118.

Required:
Prepare journal entries for 2021, 2022, 2023 and 2024.

Face value 400,000

Present value -284,720
Unearned interest income 115,280

Present value 284,720

Cash received 125,000
Sales price 409,720
Cost of generator -350,000
Gross income 59,720

2021
1-Jan Cash 125,000
Notes Receivable 400,000
Accumulated depreciation 150,000
Equipment 500,000
Gain on sales 59,720
Unearned interest income 115,280

31-Dec Unearned interest income 34,166

Interest income 34,166
2022
31-Dec Unearned interest income 38,266
Interest income 38,266

2023
31-Dec Unearned interest income 42,848
Interest income 42,848

2024
1-Jan Cash 400,000
Notes Receivable 400,000
0,000 on January 1, 2021.

he remainder of the
January 1,2023.

6,000,000 x 12% = 720,000

6,000,000 + 720,000
6,720,000 x 12% = 806,400

6,000,000 + 720,000 + 806,400

7,526,400
 Year Notes Receivable
2021 600,000
2022 400,000
2023 200,000

1, 2021, the entity

ote payable

f an ordinary

1,000,000 - 700,000 = 300,000

Down payment
sold an equipment in exhange
he foirst payment was made on

er 31, 2022.

1,995,000 x 8%
159,600

ember 31, 2022.

 1,654,600 x 8%

hich had a carrying

onsideration a

DATE INTEREST INCOME UNEARNED INTEREST

1-Jan-21 115,280
12/31/2021 34,166 81,114
12/31/2022 38,266 42,848
12/31/2023 42,847 -
Notes Receivable Fraction Interest income
600,000 30,000
400,000 20,000
200,000 10,000
PRESENT VALUE
284,720
318,886
357,152
400,000