CHAPTER 2

RECEIVABLES

Discussion Question

19. 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 sale
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

2-1. (Ginoo Company)

Gross Method
2019
Dec. 9 Accounts Receivable-First Lady 102,600
Sales 102,600
120,000 x 90% x 95%

10 Accounts Receivable-Men’s World 50,000

Sales 50,000

19 Cash 100,548
Sales Discounts 2,052
Accounts Receivable-First Lady 102,600

26 Accounts Receivable-Teens’ Kingdom 40,000

Sales 40,000

31 Sales Discounts 800

Allowance for Sales Discounts 800

2020
Jan. 5 Cash 39,200
Allowance for Sales Discounts 800
Accounts Receivable-Teens’ Kingdom 40,000

9 Cash 50,000
Accounts Receivable-Men’s World 50,000

Net Method
2019
Dec. 9 Accounts Receivable-First Lady 100,548
Sales 100,548
102,600 x .0.98
Chapter 2 – Receivables

Dec. 10 Accounts Receivable-Men’s World 49,000

Sales 49,000

19 Cash 100,548
Accounts Receivable-First Lady 100,548

Dec. 26 Accounts Receivable-Teens’ Kingdom 39,200

Sales 39,200

31 Accounts Receivable-Men’s World 1,000

Sales Discount Forfeited 1,000

2020
Jan. 5 Cash 39,200
Accounts Receivable – Teens’ Kingdom 39,200

9 Cash 50,000
Accounts Receivable-Men’s World 50,000

Allowance Method
2019
Dec. 9 Accounts Receivable-First Lady 102,600
Allowance for Sales Discount 2,052
Sales 100,548

10 Accounts Receivable-Men’s World 50,000

Allowance for Sales Discount 1,000
Sales 49,000

19 Cash 100,548
Allowance for Sales Discount 2,052
Accounts Receivable-First Lady 102,600

26 Accounts Receivable-Teens’ Kingdom 40,000

Allowance for Sales Discount 800
Sales 39,200

31 Allowance for Sales Discount 1,000

Sales Discount Forfeited 1,000

2020
Jan. 5 Cash 39,200
Allowance for Sales Discount 800
Accounts Receivable-Teens’ Kingdom 40,000

9 Cash 50,000
Accounts Receivable-Men’s World 50,000

2-2. (Colleco Supermarket)

June 1- Cash in Bank 1,764,000

30 Accounts Receivable – Citibank 2,450,000
Accounts Receivable – Metrobank 1,470,000
Credit Card Service Charges 116,000
Sales 5,800,000

Cash 3,234,000
Accounts Receivable - Citibank 2,156,000
Accounts Receivable - Metrobank 1,078,000

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Chapter 2 – Receivables

2-3. (Colayco Company)

(1)
Jul 14 Allowance for Doubtful Accounts 10,000
Accounts Receivable-Moret Co. 10,000

31 Notes Receivable 12,000

Sales 12,000

Aug. 15 Cash 20,000

Notes Receivable 15,000
Sales 35,000

Nov. 1 Cash 19,200

Credit Card Service Charge 800
Sales 20,000
4% x 20,000 = 800

4 Accounts Receivable-P. Noval 12,300

Notes Receivable 12,000
Interest Revenue 300
12,000 x .10 x 90/360 = 300

5 Accounts Receivable-Credit Card 9,000

Sales 9,000

9 Cash 8,550
Credit Card Service Charge 450
Accounts Receivable-Credit Card 9,000
5% x 9,000 = 450

15 Accounts Receivable-Moret Co. 10,000

Allowance for Doubtful Accounts 10,000

15 Cash 10,000
Accounts Receivable-Moret Co. 10,000

Dec. 13 Cash 15,600

Notes Receivable 15,000
Interest Revenue 600
15,000 x 12% x 120/360 = 600

2-4. (Format Company)

(a) Carrying value of the note on January 1, 2019 (4.5M x 0.7938) P3,572,100
Interest rate 8%
Interest revenue for 2019 P 285,768

Carrying value of the note on January 1, 2020 (3,572,100 + 285,768) P3,857,868

Interest rate 8%
Interest revenue for 2020 P 308,629

(b) Carrying value, December 31, 2019 (see above)

P3,857,868
Carrying value, December 31, 2020 (3,857,868 + 308,629) P4,166,497

(c) The notes receivable is classified as a non-current asset at December 31, 2019 and
current asset at December 31, 2020

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Chapter 2 – Receivables

2-5. (Formatted Company)

(a) Carrying value of the note on January 1, 2019 (1.5 M x 2.5771) P3,865,650
Interest rate 8%
Interest revenue for 2019 P 309,252

Carrying value, January 1, 2020 (3,865,650 + 309,252 – 1.5M) P2,674,902

Interest rate 8%
Interest revenue for 2020 P 213,992

(b) Carrying value, January 1, 2019 P3,865,650

Add amortization of discount during 2019 309,252
Less first payment of principal (1,500,000)
Carrying value, December 31, 2019 P2,674,902

(c) Current Non-current Total

Principal due P1,500,000 P1,500,000 P3,000,000
Unamortized discount 213,992 111,106 325,098
Carrying amount, December 31, 2019 P1,286,008 P1,388,894 P2,674,902

2-6. (CRV Company)

(a) September 30, 2019 (1,000,000)+(3,000,000 x 6%) P1,180,000

September 30, 2020 (1,000,000)+(2,000,000 x 6%) P1,120,000
September 30, 2021 (1,000,000)+(1,000,000 x 6%) P1,060,000

(b) January 1 – September 30, 2019 (180,000 x 9/12) P 135,000

October 1 – December 31, 2019 (120,000 x 3/12) 30,000
Total interest revenue for 2019 P 165,000

(c) As of December 31, 2019 Current Non-current

Notes receivable P1,000,000 P1,000,000
Interest receivable (120,000 x 3/12) 30,000

2- 7. (Pinky Pop Company)

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
(Note that the difference is due to the rounding off of present value factors)

(a) Amortization Table

Payment of Interest Interest Amortization Carrying
Date Principal Paid Revenue of Discount Value
01/01/19 6,858,426
12/31/19 2,500,000 375,000 685,843 310,843 4,669,269
12/31/20 2,500,000 250,000 466,927 216,927 2,386,196

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Chapter 2 – Receivables

12/31/21 2,500,000 125,000 238,804* 113,804* ------------

*difference is due to rounding off

(b) Journal entries

2019
Jan. 1 Notes Receivable 7,500,000
Discount on Notes Receivable 641,574
Gain on Sale of Land 858,426
Land 6,000,000
7,500,000 – 6,858,426 = 641,574 Discount
6,858,426 – 6,000,000 = 858,426 Gain

Dec. 31 Cash 2,875,000

Discount on Notes Receivable 310,843
Interest Revenue 685,843
Notes Receivable 2,500,000
2020
Dec. 31 Cash 2,750,000
Discount on Notes Receivable 216,927
Interest Revenue 466,927
Notes Receivable 2,500,000
2021
Dec. 31 Cash 2,625,000
Discount on Notes Receivable 113,804
Interest Revenue 238,804
Notes Receivable 2,500,000

2-8. (Pinky Pip Company)

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

or 2.5 M x 2.48685 P6,217,125

(14% x 7.5 M) x 0.9091 954,555
(14% x 5.0 M) x 0.8264 578,480
(14% x 2.5 M) x 0.7513 262,955
Total P8,013,115
(Note that the difference in the computation is due to rounding off of present values)

(a) Amortization Table

Payment of Interest Interest Amortization Carrying
Date Principal Paid Revenue of Premium Value
01/01/16 8,012,990
12/31/16 2,500,000 1,050,000 801,299 248,701 5,264,289
12/31/17 2,500,000 700,000 526,429 173,571 2,590,718
12/31/18 2,500,000 350,000 259,282* 90,718* ------------
*Difference is due to rounding off

(b) Journal entries

2019
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

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Chapter 2 – Receivables

8,012,990 – 7,500,000 = 512,990 Premium

8,247,955 – 6,000,000 = 2,247,955 Gain

Dec. 31 Cash 3,550,000

Premium on Notes Receivable 248,701
Interest Revenue 801,299
Notes Receivable 2,500,000
2020
Dec. 31 Cash 3,200,000
Premium on Notes Receivable 173,571
Interest Revenue 526,429
Notes Receivable 2,500,000
2021
Dec. 31 Cash 2,850,000
Premium on Notes Receivable 90,718
Interest Revenue 259,282
Notes Receivable 2,500,000

2-9. (Toyota Products, Inc.)

a. Accounts Receivable 4,800,000

Sales 4,800,000

b. Cash 3,920,000
Sales Discounts 80,000
Accounts Receivable 4,000,000

c. Sales Returns 60,000

Accounts Receivable 60,000

d. Allowance for Uncollectible Accounts 20,000

Accounts Receivable 20,000

e. Accounts Receivable 5,000

Allowance for Uncollectible Accounts 5,000

Cash 5,000
Accounts Receivable 5,000

f. Notes Receivable 25,000

Accounts Receivable 25,000

g. Cash 400,000
Notes Payable-Bank 400,000

Cash 150,000
Accounts Receivable 150,000

Notes Payable-Bank 150,000

Cash 150,000

h. Uncollectible Accounts Expense 65,000

Allowance for Uncollectible Accounts 65,000
9,000 – 20,000 + 5,000 = 6,000 debit
59,000 + 6,000 = 65,000

i. Interest Receivable 250

Interest Revenue 250
25,000 x 12% x 30/360

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Chapter 2 – Receivables

Accounts receivable
(450,000+4,800,000–4,000,000–60,000 - 20,000–25,000–150,000) P995,000

Less Allowance for uncollectible accounts 59,000

Amortized cost of accounts receivable P936,000
2-10. (Word Company)

Amounts reported in 2019 financial statements:

Uncollectible Accounts Expense P52,000
Allowance for Uncollectible Accounts 50,000

Required balance in allowance account:

(2% x 500,000) + (10% x 200,000) + (20% x 100,000) P50,000
Reported balance in allowance before adjustments (debit)
2,000
Required adjustment charged to uncollectible accounts expense
P52,000

2-11. (Edit Company)

Allowance for Uncollectible Accounts, beg P 6,000

Recovery of accounts previously written off 3,000
Uncollectible accounts expense for 2019
48,000
Allowance for Uncollectible Accounts, end (12,000)
Accounts written off during 2019 P45,000

2-12. (Rav, Inc.)

Accounts Receivable, December 31, 2018 P 337,000

Transactions during 2019
Sales on account 1,500,000
Cash received from customers (1,600,000)
Cash discounts allowed: (882,000 ÷ 98%) x 2% P18,000
(495,000 ÷ 99%) x 1% 5,000 (23,000)
Recovery of accounts written off 3,000
Accounts written off as worthless (11,000)
Credit memoranda for sales returns (6,000)
Accounts Receivable, December 31, 2019 P 200,000

Allowance for Uncollectible Accounts, December 31, 2018 P 12,000

Recovery of accounts written off
3,000
Accounts written off as worthless (11,000)
Impairment loss on receivables 15,000
Allowance for Uncollectible Accounts, December 31, 2019 P 19,000

The computation may also be conveniently done through T-accounts, as follows:

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

Allowance for Uncollectible Accounts

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Chapter 2 – Receivables

Write off 11,000 Balance, beg 12,000

Recovery 3,000
Impairment 15,000
Total 11,000 Total 30,000
Balance, end 19,000

2-13. (Revo Company)

(a) Allowance for Uncollectible Accounts, January 1, 2019 P 34,000

Accounts written off (47,000)
Recovery of accounts previously written off 7,000
Additional accounts written off (6,000)
Allowance for Uncollectible Accounts, December 31, 2019
before adjustments (debit balance) (P12,000)
Required balance in Allowance account based on aging
(5% x 240,000) + (25% x 20,000) + (50% x 30,000) + (90% x 24,000)
53,600
Required adjustment/Uncollectible Accounts Expense for 2019 P65,600

(b) Accounts Receivable, December 31, 2019 P654,000

Less Allowance for Uncollectible Accounts 53,600

Net amortized cost P600,400

2-14. (Adventure Company)

(a) Accounts Receivable, January 1 P 1,200,000

Transactions during 2019
Sales 10,000,000
Cash collected from customers (8,720,000)
Recovery of accounts previously written off 20,000
Note received in settlement of an account ( 400,000)
Accounts written off as worthless ( 100,000)
Accounts Receivable, December 31 P 2,000,000

Accounts Receivable, December 31 P 2,000,000

Past due accounts 600,000
Current accounts/Not yet past due P 1,400,000

Adjusted balance of Allowance for Uncollectible Accounts

20% x 600,000 past due accounts P 120,000
5% x 1,400,000 current accounts 70,000
Total P 190,000

(b) Adjusted Allowance for Uncollectible Accounts, Dec. 31, 2019 P190,000
Accounts written off during the year as worthless 100,000
Recovery of accounts previously written off (20,000)
Allowance for Uncollectible Accounts, January 1, 2019 (60,000)
Uncollectible Accounts Expense for year 2019 P210,000

(c) Accounts Receivable P2,000,000

Less Allowance for Uncollectible Accounts 190,000
Amortized cost of accounts receivable, December 31, 2019 P1,810,000

2-15. (Maynilad Bank)

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Chapter 2 – Receivables

Alternative 1
Carrying value (10 M + 1M) 11,000,000
Present value of future cash inflows:
Principal due on 12/31/21 (9M x 0.8264) P7,437,600
Interest for 2 years
9M x 8% = 720,000; 720,000 x 1.7355 1,249,560 8,687,160
Impairment loss P2,312,840

Entry: Restructured Notes Receivable 8,687,160

Impairment Loss – Receivables 2,312,840
Notes Receivable 10,000,000
Interest Receivable 1,000,000
Alternative 2
Carrying value (10 M + 1M) 11,000,000
Present value of future cash inflows:
2M + (8% x 10M) = 2,800,000 x 0.9091 2,545,480
2M + (8% x 8M) = 2,640,000 x 0.8264 2,181,696
2M + (8% x 6M) = 2,480,000 x 0.7513 1,863,224
2M + (8% x 4M) = 2,320,000 x 0.6830 1,584,560
2M + (8% x 2M) = 2,160,000 x 0.6209 1,341,144 9,516,104
Impairment loss 1,483,896

Entry: Restructured Notes Receivable 9,516,104

Impairment Loss – Receivables 1,483,896
Notes Receivable 10,000,000
Interest Receivable 1,000,000

Alternative 3
Carrying value 10,000,000
Present value of future cash inflows:
Principal due on 12/31/21 (10M x 0.8264) 8,264,000
Interest due on 12/31/20 and 12/31/21
10M x 7% = 700,000; 700,000 x 1.7355 1,214,850 9,478,850
Impairment loss 521,150

Entry: Restructured Notes Receivable 9,478,850

Impairment Loss – Receivables 521,150
Notes Receivable 10,000,000

Cash 1,200,000
Interest Receivable 1,200,000
Alternative 4
Carrying value 11,000,000
Present value of future cash inflows:
Principal due on 12/31/18 (11M x 0.82644628) 9,090,909
Interest due on 12/31/17 and 12/31/18
11M x 10% = 1,100,000;
1,100,000 x 1.73553719 1,909,091 11,000,000
No impairment loss -0-

No entry is required for the restructuring.

2-16. (Kate Company)

(a) Cash 750,000

Notes Payable – National Bank 750,000

(b) Current assets:

Trade and other receivables (including P900,000 of accounts
pledged as collateral for a loan with National Bank) P3,000,000

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Chapter 2 – Receivables

Current liabilities:
Notes Payable – National Bank P 750,000
Interest Payable 7,500

2-17. (Lexus Company)

Sept. 1 Accounts Receivable Assigned 800,000

Accounts Receivable 800,000
Cash 634,000
Finance Charges 16,000
Notes Payable – Pacific Bank 650,000
Amount of the loan P650,000
Less service charge (2% x 800,000) 16,000
Net proceeds from the assignment
of accounts receivable P634,000

Sept 1-30 Cash 300,000

Accounts Receivable Assigned 300,000

Sept. 30 Notes Payable – Pacific Bank 300,000

Interest Expense 6,500
Cash 306,500
650,000 x 12% x 1/12 = 6,500

Oct. 1-31 Allowance for Uncollectible Accounts 10,000

Accounts Receivable Assigned 10,000

Cash 400,000
Accounts Receivable Assigned 400,000

Oct. 31 Notes Payable – Pacific Bank 350,000

Interest Expense 3,500
Cash 353,500
350,000 x 12% x 1/12 = 3,500

31 Accounts Receivable 90,000

Accounts Receivable Assigned 90,000

2-18. (Accord Company)

July 1 Accounts Receivable Assigned 5,000,000

Accounts Receivable 5,000,000

1 Cash 3,800,000
Finance Charges 200,000
Notes Payable – Bank 4,000,000
5% x 4,000,000 = 200,000

21 Sales Returns and Allowances 200,000

Accounts Receivable Assigned 200,000

31 Cash 2,450,000
Sales Discounts 50,000
Accounts Receivable Assigned 2,500,000
2% x 2,500,000 = 50,000

Aug. 1 Notes Payable – Bank 2,500,000

Interest Expense 40,000
Cash 2,540,000

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Chapter 2 – Receivables

4M x .12 x 1/12 = 40,000

Aug. 15 Allowance for Uncollectible Accounts 50,000

Accounts Receivable Assigned 50,000

31 Cash 2,000,000
Accounts Receivable Assigned 2,000,000

Sept. 1 Notes Payable – Bank 1,500,000

Interest Expense 15,000
Cash 1,515,000
1.5M x .12 x 1/12 = 15,000
Sept. 1 Accounts Receivable 250,000
Accounts Receivable Assigned 250,000

2–19. (Fortune Company)

Oct. 1 Accounts Receivable Assigned 2,000,000

Accounts Receivable 2,000,000

1 Cash 1,410,000
Finance Charges 90,000
Notes Payable 1,500,000

31 Interest Expense 15,000

Notes Payable 985,000
Accounts Receivable Assigned 1,000,000
1.5M x .12 x 1/12 = 15,000

Nov. 30 Notes Payable 515,000

Interest Expense 5,150
Cash 279,850
Accounts Receivable Assigned 800,000
515,000 x 0.12 x 1/12 = 5,150

30 Accounts Receivable 200,000

Accounts Receivable Assigned 200,000

2-20. (Highlander Company)

(a)
Sept. 1 Cash 684,000
Receivable from Factor 36,000
Loss from Factoring 80,000
Accounts Receivable 800,000
800,000 x 10% =80,000 Loss;
720,000 x 5% = 36,000 withheld

Nov. 1 Cash 582,000

Finance Charges 18,000
Notes Payable-Bank 600,000
3% x 600,000 = 18,000
(b)
Dec. 31 Uncollectible Accounts Expense 11,600
Allowance for Uncollectible Accounts 11,600
(250,000 + 1,000,000) x 2% = 25,000 – 13,400

2-21. (Hiku Company)

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Chapter 2 – Receivables

(a) Selling price of Accounts Receivable (90% x P1,200,000) P1,080,000

Factor’s holdback (6% x 1,080,000) (64,800)
Cash received from factoring P1,015,200

(b) Accounts receivable assigned balance (500,000 – 350,000) P 150,000

Balance of notes payable to the bank
400,000 – (350,000 – 4,000) (54,000)
Equity on assigned accounts P 96,000

(c) Face value of note discounted P 50,000

Interest for the full term April 30 – August 28
(50,000 x 9% x 120/360) 1,500
Maturity value P 51,500
Discount (51,500 x 10% x 88/360) (1,259)
Proceeds P 50,241

2-22. (Edsamail Company)

(a) Maturity value = 500,000 + (500,000 x .08) = 540,000

Proceeds = 540,000 – (540,000 x 0.10 x 5/12) = 517,500

(b) Interest Receivable 23,333

Interest Revenue 23,333
500,000 x 8% x 7/12

Cash 517,500
Loss on Sale of Notes Receivable 5,833
Notes Receivable 500,000
Interest Receivable 23,333

(c) Cash 517,500

Liability on Discounted Notes 517,500

2-23. a. Proceeds 90,000 – (90,000 x 0.10 x 20/365) = P89,507

Cash 89,507
Liability on Discounted Notes 89,507

b. Maturity value 75,000 + (75,000 x 0.09 x 90/365)= P76,664

Proceeds 76,664 – (76,664 x 0.10 x 50/365) = P75,614

Cash 75,614
Liability on Discounted Notes 75,614

c. Maturity value 60,000 + (60,000 x 0.12 x 120/365)= P62,367

Proceeds 62,367 – (62,367 x 0.10 x 45/365) = P61,598

Cash 61,598
Liability on Discounted Notes 61,598

2-24. (Crosswind Corporation)

2019
Feb. 1 Notes Receivable 360,000
Accounts Receivable 360,000

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Chapter 2 – Receivables

Apr. 1 Cash 359,910

Liability on Discounted Notes 359,910
360,000 + (360,000 x .10 x 9/12) = 387,000
387,000 – (387,000 x .12 x 7/12) = 359,910

Nov. 2 Liability on Discounted Notes 359,910

Interest Expense 27,090
Notes Receivable 360,000
Interest Revenue 27,000
387,000 x .12 x 7/12 = 27,090
360,000 X .10 X 9/12 = 27,000
Nov. 2 Accounts Receivable 407,000
Cash 407,000
387,000 + 20,000

2-25. (Explorer Company)

(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

Sales Returns 30,000

Receivable from Factor 30,000

Cash 55,000
Receivable from Factor 55,000

2-26. (Nature Company)

(a)
1/1/16 Interest Revenue 2,800
Interest Receivable 2,800

(1) Accounts Receivable 3,000,000

Sales 3,000,000

(2) Cash 2,250,000

Sales Discounts 18,000
Accounts Receivable (2,218,000 – 180,000)* 2,088,000
Accounts Receivable Assigned * 180,000
*See Item (9)

(3) Notes Receivable 250,000

Accounts Receivable 250,000

(4) Cash 216,000

Notes Receivable 200,000
Interest Revenue 16,000

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Chapter 2 – Receivables

(5) Cash 41,400

Liability on Discounted Notes 41,400

Liability on Discounted Notes 41,400

Interest expense 4,600
Notes Receivable 40,000
Interest revenue 6,000

(6) Accounts Receivable Assigned 300,000

Accounts Receivable 300,000

Cash 222,000
Finance Charges 18,000
Notes Payable 240,000

(7) Accounts Receivable 15,900

Notes Receivable 15,000
Interest Revenue 900

(8) Allowance for Uncollectible Accounts 12,000

Accounts Receivable 12,000

(9) Notes Payable 180,000

Interest Expense 3,000
Cash 183,000

(10) Uncollectible Accounts Expense 30,000

Allowance for Uncollectible Accounts 30,000
30,000 – (12,000 – 12,000)

(11) Interest Receivable 3,200

Interest Revenue 3,200

(b) Trade and Other Receivables include the following:

Notes Receivable P 95,000
Accounts Receivable – Unassigned 977,900
Accounts Receivable - Assigned 120,000
Interest Receivable 3,200
Allowance for Uncollectible Accounts (30,000)
Total P1,166,100

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Chapter 2 – Receivables

MULTIPLE CHOICE QUESTIONS

Theory

MC1 A MC6 A MC11 C MC16 D

MC2 B MC7 C MC12 A MC17 A
MC3 A MC8 A MC13 C MC18 C
MC4 A MC9 D MC14 D
MC5 C MC10 C MC15 A

Problems

MC19 B Sales on account (450,000 x 1.4) P630,000

Cash received from credit customers 585,000
Accounts receivable balance, end P 45,000

MC20 D Invoice price (105,000 x .90) P94,500

Cash discount (2% x 94,500) (1,890)
Net price P92,610

MC21 C Invoice price (200,000 x .90 x .95) P171,000

Cash discount (3% x 171,000) (5,130)
Net price P165,870

MC22 B Accounts receivable, beginning P1,300,000

Credit sales for the year 5,400,000
Collections from customers, including recoveries of P25,000 (4,750,000)
Recoveries of accounts previously written off 25,000
Accounts written off (125,000)
Accounts receivable, ending P1,850,000

MC23 B Accounts receivable balance, beginning P80,000

Sales for the year
Cost of goods available for sale P460,000
Merchandise inventory, end (100,000)
Cost of goods sold P360,000
Sales (360,000 ÷ 80%) 450,000
Collections on accounts receivable (430,000)
Accounts receivable, ending P100,000

MC24 D Allowance for uncollectible accounts balance before adjustment (debit) P45,000
Required allowance balance based on aging analysis 75,000
Uncollectible accounts expense for the year P120,000

MC25 D Allowance for bad debts balance after adjustment (3% x 1,000,000) P30,000

MC26 C Allowance for bad debts balance before adjustment (debit) P8,000
Required allowance balance (see MC 25) 30,000
Uncollectible accounts expense P38,000

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Chapter 2 – Receivables

MC27 D Allowance balance, end (270,000 – 250,000) P20,000

Accounts written off 23,000
Uncollectible accounts recovery during the year (5,000)
Allowance balance, beginning (28,000)
Bad debts expense for the year P10,000

MC28 B Allowance for uncollectible accounts, beginning P17,500

Write off of uncollectible accounts (30,500)
Recoveries of uncollectible accounts written off in prior years 8,050
Provision for uncollectible accounts during the year 20,000
Allowance for uncollectible accounts, ending P15,050
MC29 B Accounts receivable, beginning P480,000
Sales on account 2,400,000
Cash received from customers (2,560,000)
Accounts written off (17,600)
Cash discounts granted
(1,411,200 ÷ .98 = 1,440,000 x 2%) + (792,000 ÷ .99 = 800,000 x (36,800)
1%)
Recovery of accounts written off 4,800
Accounts receivable, end P270,400

MC30 A Allowance for bad debts, January 1 P19,200

Recovery of accounts written off 4,800
Accounts written off (17,600
Allowance for bad debts, December 31, before adjustment (credit) P6,400
Required balance of allowance for bad debts (5% of 270,400) 13,520
Bad debts expense for the year P 7,120

MC31 A 0-30 days (5% x 600,000) P30,000

31-60 days (10% x 40,000) 4,000
Over 60 days 14,000
Allowance for uncollectible accounts, March 31 P48,000

MC32 B Allowance for uncollectible accounts, ending (500,000 – 480,000) P20,000

Uncollectible accounts written off 7,500
Recoveries of accounts previously written off (3,700)
Allowance for uncollectible accounts, beginning (375,000 – 362,500) (12,500)
Uncollectible accounts expense for the year P11,300

MC33 D Maturity value (50,000 x 10%) + 50,000 P55,000

Discount (55,000 x 12% x 6/12) 3,300
Proceeds from discounting P51,700

MC34 C Present value of note (400,000 x 0.75) = 300,000

Interest income (300,000 x 10%) P30,000

MC35 C Carrying amount, January 1 P300,000

Amortization of discount 30,000
Carrying amount, December 31 P330,000

MC36 C Interest revenue (1,940,000 x 13.4% x 1/12) P21,663

MC37 B Interest receivable (2,000,000 x 12% x 1/12) P20,000

MC38 C Amount of reduction in principal in 2021 P659,895

Accrued interest at December 31, 2020 (242,605 x 6/12) 121,303
Total current receivable at December 31, 2020 P781,198
(See complete amortization table below)

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Chapter 2 – Receivables

MC39 C January 1 – June 30 (308,000 x 6/12)

July 1 – December 31 (242,605 x 6/12) P275,303

Date Annual payment Interest income Reduction in principal

Balance
July 1, 2019 2,800,000
July 1, 2020 902,50011% x 2,800,000=308,000 902,500-308,000=594,500 2,205,500
July 1, 2021 902,50011% x 2,205,500=242,605 902,500-242,605=659,895 1,545,605
July 1, 2022 902,500 11% x 1,545,605=170,017 902,500-170,017=732,483
813,122
July 1, 2023 902,500 902,500-813,122=89,378 813,122 -0-

MC40 B Maturity value 500,000 + (500,000 x 8%) P540,000

Discount (540,000 x 10% x 8/12) (36,000)
Proceeds from discounting P504,000
MC41 B Proceeds from factoring P695,000
Proceeds from assignment 1,250,000 – (2% x 1,250,000) 1,225,000
Proceeds from factoring and assignment of accounts P1,920,000
receivable

MC42 D Required balance in allowance account (500,000 + 2.2M) x 3% P81,000

Allowance balance before adjustment (32,000)
Bad debt expense for the year P49,000

MC43 C Carrying value of the note (500,000 + 50,000) P550,000

Present value of restructured notes receivable
500,000 x 0.8265 413,250
500,000 x 8% = 40,000; 40,000 x 1.7355 69,420 482,670
Impairment loss P 67,330

MC44 A Carrying value of the note P5,500,000

Present value of restructured notes receivable
4,000,000 x .83 3,320,000
4.0M x 8% = 320,000; 320,000 x 1.74 556,800 3,876,800
Impairment loss P1,623,200

MC45 D See MC45 P3,876,800

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