Acc106 Period 1 Suggested Answers

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PERIOD 1 SUGGESTED ANSWERS,

REFER TO YOUR BOOK
FOR STUDY AND REVIEW PURPOSES

ONLY, SHARING THIS FILE TO
STUDENTS NOT ENROLLED IN ACC106
IS STRICTLY PROHIBITED. MAKE SURE
TO USE THIS PROPERLY.
Chapter 2
Cash and Cash Equivalents
PROBLEM 1: TRUE OR FALSE

1. FALSE
2. TRUE
3. TRUE
4. TRUE
5. FALSE
6. TRUE
7. FALSE
8. FALSE
9. TRUE
10. TRUE
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PROBLEM 2: MULTIPLE CHOICE – THEORY

1. C
2. A - The segregated account to be contributed to the sinking
fund is presented as part of the sinking fund.
3. B
4. D
5. D
6. D
7. B
8. C
9. A – The receipts for petty cash disbursements that are already

replenished are filed in the accounting department and not by
the petty cash custodian. If the receipts are returned to the
custodian, she would present them again (and again and
again…and many, many more) for replenishment!
10. D
PROBLEM 3: EXERCISES
1. Solution:
Cash on hand 320,000
Cash in Bank – current account (1.12M + 192K PDC) 1,312,000
Cash in Bank – peso savings deposit 6,400,000
Adjusted cash balance 8,032,000
2. Solution:
Oct. 1, Petty cash fund 40,000
20x1
Cash in bank 40,000
Oct. 1 to No journal entry
31, 20x1
 Cash count:
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Currencies and coins 2,390

Vouchers:
Office supplies 6,880
Transportation expense 12,346
Freight-out 17,627
Telecommunications expense 2,502
Total per count 41,745
Ledger balance 40,000
Cash overage 1,745
Oct. 31, Office supplies expense 6,880

20x1
Transportation expense 12,346
Freight-out 17,627
Cash shortage or overage 1,745
Cash in bank 37,610
3. Answer: ₱2,390 – equal to the currencies and coins.
4. Solutions:
Requirement (a): Petty cash fund included in cash
Currencies and coins 1,020
Check drawn to the order of the petty cash custodian 1,200
Petty cash fund included as part of cash 2,220
Requirement (b): Adjusting journal entry

Dec. 31, Various expenses 26,820
20x1
Receivable from PCF custodian 960
Petty cash fund (30K – 2,220) 27,780
PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. A
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Solution:
Unadjusted balance 8,200,000
Post-dated customer check (82,000)
Post-dated check drawn 40,000
Bank draft (53K x (51.4 - 52.5) (58,300)
Bonds 200,000
Compensating balance (900,000)
Cash and Cash Equivalents – Dec. 31, 20x1 7,399,700
2. A
Solution:
Petty cash fund (15,000 - 9,763) 5,237
Cash on hand 45,000
Cash in bank 7,809,424
Investment in 90-day commercial paper, due 1/26/x2 150,000
Tax fund 56,000
Payroll fund 235,000
Total Cash and Cash equivalents 8,300,661
3. C
Solution:
Petty cash fund 6,000
Cash on hand 65,000
Cash in bank (per ledger) 2,890,000
Customer’s check #392 – dated Jan. 8, 20x2 (20,000)
Athena Co.’s check #567 – dated Dec. 29, 20x1 54,000
NSF check (40,000) 2,884,000
Cash - Dec. 31, 20x1 2,955,000
 Customer’s check #109 was properly included in cash in bank;

thus, no adjustment is necessary.
 Customer’s check #392 is postdated. This should be excluded
from Cash and reverted back to Accounts receivable.
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 Athena Co.’s check #567 is ‘unreleased check’. This should be

included in cash and reverted back to Accounts payable.
 The NSF check should be excluded from cash and reverted
back to Accounts receivable.
4. D
Solution:
Office supplies expense 8,025
Miscellaneous selling expense 11,533
Miscellaneous administrative expense 7,805
Cash short or over 197
Cash in bank (40K – 12,834) 27,166
5. A (see solution above)
PROBLEM 5: CLASSROOM ACTIVITIES
ACTIVITY #1: CASH BALANCE

Solution:
Exhibit No. Amount
Cash on hand 1 5,882.00
Cash in bank - Savings 3 522,277.54
Cash in bank - Current 4 645,353.03
Total cash 1,173,512.57
Notes:
 Exhibit 2.1 is a post-dated customer check.
 Exhibit 2.2 is an unreleased company check. Although this
check will increase the “Cash in bank” account per records, it
should not be included in the solution above because the
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amount of “Cash in bank” in the solution is derived from the

bank statement and not from the Ledger.
 The unused credit in Exhibit 5 may be disclosed but it should
not be included in cash.
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ACTIVITY #2: PETTY CASH FUND
Solutions:
Requirement (a):
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Requirement (b):
JOURNAL
DATE ACCOUNTS Ref. Debit Credit
12.3.20X1 Petty cash fund 5,000.00
Cash in bank 5,000.00
12.21.20X1 Office supplies 356.00

Transportation expense 97.00
Advances to employees 600.00
Receivable from custodian 2,810.00
Cash in bank 3,863.00
ACTIVITY #3: PETTY CASH FUND – SHORTAGE

Solution:
The students check their own work, grade themselves and submit
their grades to the teacher for recording.
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PROBLEM 6: FOR CLASSROOM DISCUSSION

1. Solution:
Checks drawn but not yet issued to payees 120,000
Customers’ checks dated Dec. 31, 20x1 40,000
SML’s check dated Jan. 15, 20x2 already mailed to
16,000
payee
Employees’ checks representing unclaimed salaries,
14,000
held by the treasurer
Petty cash fund (fully replenished) 20,000
Total 340,000
2. Solution:
Treasury bill acquired on Nov. 1, 20x1 300,000
Investment in redeemable preference shares 1,600,000
Three-month time deposit with UCPB - unrestricted 950,000
Total 2,850,000
3. Solution:
Cash on hand (peso) 1,800,000
Cash on hand (2.9M ÷ 50) x 52 3,016,000
Revolving fund 200,000
Cash in bank – BPI 6,000,000
Cash and Cash Equivalents - Dec. 31, 20x1 11,016,000
 The contingency fund is a noncurrent asset.

 The restricted deposit in foreign bank (i.e., Swiss Savings
Account) is excluded from cash and, preferably presented as
receivable or as “other asset,” depending on the nature of the
restriction. For example, if the restriction is imposed by the
Philippine Government, such as when it results from a
pending litigation, the more appropriate classification would
be “Other assets,” with appropriate disclosure in the notes. If
the restriction is bank-imposed, the more appropriate
classification would be “Receivable.” Rarely, that a savings
account (foreign or local) qualifies as an investment, unless the
P a g e | 10
deposit earns interest above the normal rate for regular

savings accounts.
4. Solution:
Piggy Bank savings account 480,000
Piggy Bank checking account (20,000)
Oink Bank checking account (360K - 100K compensating bal.) 260,000
Cash in bank 720,000
 The ₱40,000 compensating balance on the Piggy Bank savings

account is properly included because it is not restricted.
 The ₱40,000 overdraft on the Piggy Bank checking account can
be offset from the Piggy Bank savings account.
 The ₱100,000 compensating balance on the Oink Bank
checking account is excluded because it is restricted.
 Porky Bank savings account #5100342120, which is legally
restricted, is excluded from cash and presented under other
line item (e.g., ‘Other assets’).
 The overdraft in the Porky Bank checking account is presented
as current liability.
5. Solution:
Oct. 1, Petty cash fund 30,000
20x1
Cash in bank 30,000
Oct. 1 to
31, 20x1
No journal entry
Oct. 31, Various expenses 24,260
20x1
Cash shortage or overage 115
Cash in bank (30,000 – 5,625) 24,375
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6. Solution:
Oct. 31, Various expenses 24,260
20x1
Receivable from PCF custodian 115
Petty cash fund (30,000 – 5,625) 24,375
 Amount reported in financial statements = 5,625 (equal to the

coins and currencies contained in the PCF box) or (30,000
imprest balance - 24,375 AJE = 5,625 adjusted balance).
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Chapter 3
Bank Reconciliation

1. FALSE
2. FALSE
3. FALSE – debit memo
4. TRUE - bank memorandums (debit memos and credit memos)
require reconciling entries in the depositor’s books
5. TRUE
6. FALSE – 100 + 20 CM – 5 NSF = 115
7. TRUE
8. FALSE – 30 + 5 -3 = 32
9. FALSE – as a deduction
10. TRUE

1. D
2. B
3. D
4. D
5. D
6. C
7. D
8. B – choice (d) is incorrect – “payee” not “drawee”
9. C
10. C
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1. Solutions:
Requirement (a): Bank reconciliation
The bank reconciliation is prepared as follows:
ABC Co.
Bank reconciliation - Bank XYZ (Checking account # 10009087)
September 30, 20x1
Balance per books, Sept. 30 5,313 Bal. per bank statement, Sept. 30 6,200
Credit memo : Deposits in transit 2,418
Collection on note by bank 3,565
Debit memos: Outstanding checks (3,100 - 310) (2,790)
NSF check (1,860)
Bank service charge (62)
Book error: Bank error:
Overstatement of collection
(198) Erroneous debit to ABC account 930
(1,593 – 1,395)
Adjusted balance 6,758 Adjusted balance 6,758
Requirement (b): Adjusting entry

Oct. 3, Cash in bank 1,445
20x1
Accounts receivable (1,860 + 198) 2,058
Bank service charge 62
Note receivable (3,565 + 155) 3,410
Interest income 155
2. Solution:
Bal. per books, end. 280,000 Bal. per bank, end. 320,000
Add: CM 20,000 Add: DIT 75,000
Less: DM (15,000) Less: OC (25,000)
Add/Less: Book errors: Add/Less: Bank errors:
Understatement 45,000 Overstatement (40,000)
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3. Solution:
Requirement (a): Bank reconciliation
Bal. per books, end. ₱260,000 Bal. per bank, end. ₱205,000
Add: CM 30,000 Add: DIT 102,500
Less: DM (5,000) Less: OC (22,500)
Add/Less: Book errors Add/Less: Bank errors
Adjusted balance ₱285,000 Adjusted balance ₱285,000
Requirement (b): Adjusting (Reconciling) entries
AJE Cash 30,000

(a) Accounts receivable 30,000
to record the collection of accounts receivable
AJE Accounts receivable 5,000
(d) Cash 5,000
to revert the NSF check back to accounts
receivable
4. Solution:
30-Jul Receipts Disbursements 31-Aug
Per books 132,200 60,000 12,200 180,000
ADD: CM
July 10,000 (10,000)
August 35,000 35,000
LESS: DM
July (7,800) (7,800)
August 8,900 (8,900)
Book errors:
August 2,800 2,800
Adjusted bal. 134,400 87,800 13,300 208,900
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30-Jul Receipts Disbursements 31-Aug

Per bank 100,600 89,000 20,600 169,000
ADD: DIT
July 45,000 (45,000)
August 43,800 43,800
LESS: OC
July (11,200) (11,200)
August 3,900 (3,900)
Adjusted bal. 134,400 87,800 13,300 208,900
5. Solution:
31-Mar Receipts Disbursements 30-Apr
Per books 400,000 180,000 40,000 540,000
ADD: CM
March 36,000 (36,000)
April 23,000 23,000
LESS: DM
March (10,000) (10,000)
April 16,000 (16,000)
Book errors:
April (9,000) 9,000
Adjusted bal. 426,000 167,000 37,000 556,000

Per bank 280,000 190,000 30,000 440,000
ADD: DIT
March 169,000 (169,000)
April 136,000 136,000
LESS: OC
March (23,000) (23,000)
April 30,000 (30,000)
Bank errors:
April 10,000 10,000
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Adjusted bal. 426,000 167,000 37,000 556,000
6. Solution:
30-Jun Receipts Disbursements 31-Jul
Per books 382,500 180,900 36,400 527,000
ADD: CM
June 74,200 (74,200)
July 262,800 262,800
LESS: DM
June (2,000) (2,000)
July 6,000 (6,000)
Book errors:
June 36,340 (36,340)
July 54,280 (54,280)
Adjusted bal. 491,040 333,160 94,680 729,520
30-Jun Receipts Disbursements 31-Jul

Per bank 365,380 396,340 108,020 653,700
ADD: DIT
June 169,000 (169,000)
July 136,000 136,000
LESS: OC
June (23,000) (23,000)
July 30,000 (30,000)
Bank errors:
June (20,340) (20,340)
July (30,180) (30,180)
Adjusted bal. 491,040 333,160 94,680 729,520
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7. Solution:
Per books 396,600 180,000 36,600 540,000
ADD: CM
March 36,000 (36,000)
April 42,000 42,000
LESS: DM
March (10,920) (10,920)
April 16,020 (16,020)
Book errors:
March (27,000) (27,000)
April 9,000 (9,000)
Adjusted bal. 394,680 186,000 23,700 556,980

Per bank 280,900 191,380 26,900 445,380
ADD: DIT
March 46,780 (46,780)
April 131,400 131,400
LESS: OC
March (23,000) (23,000)
April 19,800 (19,800)
Bank errors:
March 90,000 (90,000)
April
Adjusted bal. 394,680 186,000 23,700 556,980
P a g e | 18

1. A (25,650 + 5,900 – 750 – 2,000) = 28,800
2. C
Solution:
Per books, June 30 68,757 Per bank, June 30 54,780
(i) Credit memo (4,500 + 165 - 36) 4,629 (h) Deposits in transit 13,425
(b) Dishonored check (14,265) (d) Outstanding checks (9,885)
(e) Bank charges (210) (g) Bank error 600
(f) NSF checks (1,296)
(a) Book error (4,500 - 3,000) 1,500
(c) Book error (2,895 - 2,700) (195)
3. B (28,000 – 12,000 + 4,000 + 500) = 20,500
4. B (30,140 + 4,000 – 5,200) = 28,940
5. C (27,200 + 450 – 700 + 1,450) = 28,400
6. B (38,000 + 940 – 220 - 90 + 18) = 38,648
7. D (40,000 – 2,000 + 8,000 + 400) = 46,400
8. C (54,075 + 9,375 – 8,625 – 375) = 54,450
9. A (113,000 + 17,200 – 10,800) = 119,400 adjusted balance + 2,400

NSF = 121,800 unadjusted balance of cash per book (squeezed
upwards)
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10. A
Solution:
OC
12,600 31-Mar
Disbursements 49,700 42,100 Checks drawn (squeeze)
30-Apr 5,000
CIB - per books

31-Mar 34,900
Collections* 32,400 42,100 Checks drawn
25,200 30-Apr (squeeze)
* (Deposits per bank in April of ₱42,700 less ₱10,300 DIT from last month that
cleared in April) = 32,400
OR
Per bank statement

37,200 31-Mar
Disbursements 49,700 42,700 Deposits
30-Apr 30,200
 30,200 per bank - 5,000 outstanding checks recorded in books

but not yet presented for payment with the bank = 25,200
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ACTIVITY #1: BANK RECONCILIATION

Requirement (A):
ABC Co. PIGGY Bank
(a) Cash in bank 1,000,000 (a) Cash on hand 1,000,000
Cash on hand 1,000,000 Deposit liability 1,000,000
(b) Accounts payable 254,321 (b) No entry

(c) No entry (c) Deposit liability 220,320

(d) No entry (d) Cash on hand 2,460,660

Deposit liability 2,460,660
(e) Cash on hand 1,952,012 (e) Cash on hand 1,592,012

Accounts receivable 1,952,012 Deposit liability 1,592,012

Cash on hand 1,952,012
(f) No entry (f) Deposit liability 25,000
Cash on hand 25,000
(g) No entry (g) Deposit liability 1,602

Cash on hand 1,602
(i) Cash in bank 40,000 (i) No entry
Cash on hand 40,000
Requirement (B):
Cash in bank Deposit liability
(a) 1,000,000 1,000,000 (a)
254,321 (b) (c) 220,320
(e) 1,952,012 2,460,660 (d)
(f) 25,000 1,592,012 (e)
(i) 40,000 (g) 1,602
2,737,691 4,805,750
The net difference is ₱2,068,059 (₱4,805,750 – ₱2,737,691).

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Requirement (C):
Per books 2,737,691 Per bank 4,805,750
Credit memo (d) 2,460,660 DIT (i) 40,000
Debit memos: OC (b) & (c) (34,001)
NSF check (f) (25,000)
Direct debits (g) (1,602)
Book error (e) (360,000)
Adjusted balance 4,811,749 Adjusted balance 4,811,749
Requirement (D):
Simple entries:
ABC Co.
Accounts receivable 2,460,660
to record the CM in (d)
Accounts receivable 360,000

to correct the book error in (e)

Cash in bank 25,000
to record the dishonored check in (f)
Utilities expense 1,602

Cash in bank 1,602
to record the DM in (g)
Compound entry:
Cash in bank (squeeze) 2,074,058
Utilities expense (g) 1,602
Accounts receivable (d) - (e) - (f) 2,075,660*
* (2,460,660 – 25,000 – 360,000) = 2,074,058

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ACTIVITY #2: BANK RECONCILIATION
Check
Date Debits Credits Balance
No.
Nov. 1 10,000.00
Nov. 4 0339 34,000.00 44,000.00
Nov. 9 134 17,000.00 27,000.00
Nov. 12 135 13,000.00 14,000.00
Nov. 13 Cash 16,000.00 30,000.00
Nov. 16 136 8,000.00 22,000.00
Nov. 21 234 52,000.00 74,000.00
Nov. 22 0784 19,000.00 93,000.00
Nov. 29 137 7,600.00 85,400.00
Nov. 30 0846 23,500.00 108,900.00
144,500.00 45,600.00
Bank statement
Period covered: Nov. 1, 20x1 to Nov. 30, 20x1
Date Check No. Debits Credits Balance
Nov. 1 10,000.00
Nov. 5 0339 34,000.00 44,000.00
Nov. 6 0389 78,000.00 122,000.00
Nov. 13 Cash 16,000.00 138,000.00
Nov. 16 135 13,000.00 125,000.00
Nov. 18 984 33,000.00 158,000.00
Nov. 19 136 8,000.00 150,000.00
Nov. 21 234 25,000.00 175,000.00
Nov. 22 0784 19,000.00 194,000.00
Nov. 25 0784 (NSF) 19,000.00 175,000.00
Nov. 28 (DM) 2,000.00 173,000.00
Nov. 30 137 7,600.00 165,400.00
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Bank reconciliation:
Per book 108,900.00 Per bank 165,400.00
CM - Nov. 6 (#0389) 78,000.00 DIT - Nov. 30 (#0846) 23,500.00
CM - Nov. 18 (#984) 33,000.00 OC - Nov. 9 (#134) (17,000.00)
NSF - Nov. 25 (#0784) (19,000.00)
DM - Nov. 28 (2,000.00)
Book error -
overstated collection
(#234) (52K - 25K) (27,000.00)
Adjusted balance 171,900.00 Adjusted balance 171,900.00
P a g e | 24

1. Solution:
Requirement (a):
Per books Per bank
Cash on hand 500,000 Cash on hand 480,000
Accounts receivable 500,000 Deposit liability 480,000

Accounts payable 200,000 Deposit liability 140,000

Cash in bank 200,000 Cash on hand 140,000
No entry Cash on hand 360,000

Deposit liability 360,000
No entry Deposit liability 40,000

Cash on hand 40,000
Requirement (b):
(1) Deposits in transit: (500,00 – 480,000) = 20,000
(2) Outstanding checks: (200,000 – 140,000) = 60,000
(3) Credit memo = 360,000
(4) Debit memo = 40,000
Requirement (c):
The unadjusted balances are determined as follows:
Cash in bank
June 30, 20x1 100,000
(a) Deposits 500,000 200,000 (b) Checks drawn
400,000 July 31, 20x1
Deposit liability
100,000 June 30, 20x1
(b) Checks encashed 140,000 480,000 (a) Deposits
(d) Payments for bills 40,000 360,000 (c) Customer remittances
July 31, 20x1 760,000
P a g e | 25
Per books, July 31 400,000 Per bank, July 31 760,000

Credit memo 360,000 Deposits in transit 20,000
Debit memo (40,000) Outstanding checks (60,000)
Requirement (d):

2. Solutions:
Requirement (a):
Bal. per books, end. 7,540 Bal. per bank, end. 8,510
Add: CM (collection of N/R & int.) 780 Add: DIT 1,900
Less: DM (bank service charge) (25) Less: OC (325+100+700) (1,125)
+/-: Book errors +/-: Bank errors -
Overstated disb. (410 - 140) 270
Understated coll’n. (910 - 190) 720
Requirement (b):
Cash in bank 1,745
Bank service charge 25
Note receivable 700
Interest income 80
Accounts payable (410 – 140) 270
Accounts receivable (910 – 190) 720
P a g e | 26
3. Solution:
Per books 10,460 (squeeze) Per bank, June 30 11,164 (start)
Credit memo 1,120 Deposits in transit 1,340
Debit memo Outstanding checks (1,100)

(16 + 160) (176)
4. Solutions:
Requirement (a):
Deposits in transit
beg. 2,100
April deposits per
April deposits per books 12,889 10,784 bank
4,205 end.
Requirement (b):
Outstanding checks
3,800 beg.
April checks per bank 11,100 13,080 April checks per books
end. 5,780
Requirement (c):
Per books, Mar. 31 24,355 Per bank, Mar. 31 27,995
April note collected 3,000 Deposits in transit 4,205
April bank service charge (35) Outstanding checks (5,780)
April NSF check (900)
P a g e | 27
5. Solution:
31-Jan Receipts Disbursements 28-Feb
Per books 264,400 120,000 24,400 360,000
ADD: CM
January 30,000 (30,000)
February 52,500 52,500
LESS: DM
January (15,600) (15,600)
February 10,680 (10,680)
Book errors:
January 4,000 (4,000)
February (2,800) (2,800)
Adjusted bal. 282,800 135,700 19,480 399,020
31-Jan Receipts Disbursements 28-Feb

Per bank 201,200 186,940 17,320 370,820
ADD: DIT
January 95,040 (95,040)
February 43,800 43,800
LESS: OC
January (13,440) (13,440)
February 15,600 (15,600)
Adjusted bal. 282,800 135,700 19,480 399,020
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Chapter 4
Accounts Receivable

1. FALSE – 1,000 x 70% = ₱700 invoice price
2. FALSE 105
3. FALSE April 2, 20x1
4. TRUE
5. TRUE
6. FALSE - 400
7. FALSE 25
8. FALSE 7
9. TRUE
10. TRUE (121 age – 30 days credit) = 91 days past due

1. D
2. D
3. D
4. D
5. B
6. A
7. D
8. A
9. B
10. A - Choice (a) is the best answer. Bad debts are computed on
credit sales (excluding cash sales).
Choice (d) is correct – PFRS 9 encourages a combination of

collective assessment (e.g., aging) and individual assessment (i.e.,
specific accounts).
P a g e | 29
1. Solution:
Trade receivables:
Add back credit balance in customers' accounts 32,000
Adjusted accounts receivable 192,000
Notes receivable (trade) 16,000
Total trade receivables - Requirement (a) 208,000
Non-trade receivables currently collectible:
Notes receivable (current portion only) 16,000
Dividends receivable 3,200
Advances to suppliers (from debit balance in accounts payable) 19,200
Total current non-trade receivables 38,400
Trade and other receivables - Requirement (b) 246,400
2. Solutions:
Requirement (a):
Journal entry on date of sale:
Accounts receivable 7,084.80 a
Revenue 7,084.80 a
a
(10,000 x 80% x 90%) = 7,200 invoice price; [7,200 – (7,200 x 2% x 80%)] =
7,084.80
 Subsequent measurement
The adjustment is computed as follows:
Invoice amount (10,000 x 80% x 90%) 7,200
Multiply by: 2%
Total available discount 144
Multiply by: Revised estimate 40%
Discount expected to be taken (revised) 57.60
Invoice amount 7,200

Less: Discount expected to be taken (revised) (57.60)
Transaction price (revised) 7,142.40
P a g e | 30
Less: Transaction price (initial estimate) (7,084.80)

Adjustment – increase in transaction price 57.60
Year-end adjusting entry:

Accounts receivable 57.60
Revenue 57.60
Requirement (b):
The entity reports account receivable and net revenue of ₱7,142.40
in its year-end financial statements.
3. Solutions:
Requirement (a): Bad debt expense
Total sales 1,320,000
Cash sales (220,000)
Gross credit sales 1,100,000
Sales returns and discounts on credit sales (13,200 – 2,200) (11,000)
Net credit sales 1,089,000
Multiply by: Percentage of net credit sales 2%
Bad debt expense 21,780
Requirement (b): Allowance for doubtful accounts on Dec. 31

Allowance for doubtful accounts
17,600 Jan. 1
Write-off 11,000 2,200 Recovery
21,780 Bad debts expense
Dec. 31 (squeeze) 30,580
Requirement (c): Carrying amount of accounts receivable

Accounts receivable, Dec. 31 – gross 330,000
Allowance for doubtful accounts, Dec. 31 (30,580)
Accounts receivable, Dec. 31 – net 299,420
P a g e | 31
4. Solutions:
Requirement (a): Bad debt expense
Accounts receivable
Jan. 1 40,000 2,500 Write-off
Net credit sales 135,000 70,000 Collections, exclg. recovery
102,500 Dec. 31 (squeeze)
Accounts receivable, Dec. 31 102,500

Percentage of receivables 5%
Allowance for doubtful accounts - Dec. 31 5,125

5,000 Jan. 1
Write-off 2,500 500 Recovery
2,125 Bad debts expense (squeeze)
Dec. 31 5,125
Requirement (b): Net realizable value of accounts receivable

Accounts receivable, Dec. 31 – gross 102,500
Allowance for doubtful accounts, Dec. 31 (5,125)
Accounts receivable, Dec. 31 – net 97,375
5. Solution:
(Total Write-offs from 20x1 to 20x3) less (Total
Percentage
= Recoveries from 20x1 to 20x3)
(Jan. 1, 20x4)
Total Net credit sales from 20x1 to 20x3
= [(21K + 30K + 45K) – (3K + 9K + 15K)] ÷ (300K + 480K + 600K)
= (96,000 – 27,000) ÷ 1,380,000
Percentage (Jan. 1, 20x4) = (69,000 ÷ 1,380,000) = 5%
(Total Write-offs from 20x1 to 20x4) less (Total

Percentage
= Recoveries from 20x1 to 20x4)
(Dec. 31, 20x4)
Total Net credit sales from 20x1 to 20x4
P a g e | 32
= (180,000 – 33,000) ÷ 2,100,000

Percentage (Dec. 31, 20x4) = (147,000 ÷ 2,100,000) = 7%

15,000 Jan. 1, 20x4 (5% x 300,000)
20x4 write-offs 84,000 6,000 20x4 recoveries
Dec. 31, 20x4 (7% x 200,000) 42,000
6. Solution:
Receivable % Required
Days past due balances Uncollectible allowance
(a) (b) (a) x (b)
 Not due - 0 to 15 days of age 350,000 None -
 Not due - 16 to 30 days of age 210,000 None -
 1 - 30 days past due 175,000 3% 5,250
 31 - 60 days past due 140,000 10% 14,000
 61 - 90 days past due 105,000 15% 15,750
 91 - 120 days past due 70,000 35% 24,500
Totals 1,050,000 59,500

28,000 Beg. bal.
Write-offs 6,000 2,000 Recoveries
End. Bal. 59,500
7. Solutions:
Requirement (a): Unadjusted bad debt expense
Net credit sales 4,200,000
Percentage of credit sales 2%
Unadjusted bad debts expense 84,000
P a g e | 33
Requirement (b): Allowance for doubtful accounts – Jan. 1, 20x1

12,600 Jan. 1, 20x1 (squeeze)
84,000 Unadjusted bad debts
Dec. 31 unadjusted bal. 35,700
Requirement (c): Required ending balance of the allowance

Receivable % Required
Days outstanding balances uncollectible allowance
(a) (b) (c) = (a) x (b)
 0 – 60 252,000 1% 2,520
 61 - 120 (189K – 42K) 147,000 2% 2,940
 Segregated account 42,000 5% 2,100
 Over 120 (210K - 21K) 189,000 6% 11,340
Totals 630,000 18,900
Requirement (d): Adjusted bad debt expense for the year

12,600 Jan. 1, 20x1 [see req’mt. (b)]
Write-offs (79.8K + 21K) 100,800 18,900 Recoveries
88,200 Adjusted bad debts (squeeze)
Dec. 31, 20x1 bal. 18,900
Requirement (e): Year-end recoverable historical cost

Gross accounts receivable, Dec. 31 before adjustments 651,000
Additional write-off at year-end (21,000)
Gross accounts receivable, Dec. 31 after adjustments 630,000
Allowance for doubtful accounts, Dec. 31 (adjusted) (18,900)
Accounts receivable - net, Dec. 31 611,100
Requirement (f): Year-end adjusting entries

Dec. 31, Allowance for doubtful accounts 21,000
20x1
P a g e | 34
to record the additional write-off

Dec. 31, Bad debts expense 4,200
20x1
Allowance for doubtful accounts 4,200
to record the additional bad debts

1. B Solution:
 300,000 x 80% = 240,000 invoice price;
 240,000 x 5% x 80% = 9,600 discount;
 240,000 – 9,600 = 230,400
2. A - 100,000 x 90% x 97%* = 87,300

*If the customer fully settles the account within 10 days, the
customer cannot take anymore the 1% discount that is available if
he pays within the 11th day and 15th day.
3. B – 250,000 sale price + 20,000 reimbursement of freight =

270,000
4. A (100,000 x 50% x 2%) = 1,000
5. A
Solution:
Allowance for bad debts
10,800 Jan. 1
Write-offs 18,000 13,500 Bad debts expense (450K x 3%)
Dec. 31 6,300
6. D (1,000,000 x 3%) = 30,000
7. A
Solution:
Days Estimated outstanding Amount % uncollectible Allowance
0 - 60 120,000 1% 1,200
61 - 120 90,000 2% 1,800
P a g e | 35
Over 120 100,000 6% 6,000

9,000
8. C Solution:
Accounts receivable
beg. 150,000
Credit sales 600,000 410,000 Collections, excld. recoveries
9,000 Write-off
331,000 end.

12,000 beg.
Write-off 9,000 15,000 Bad debts
2,000 Recovery
end. 20,000
Carrying amount = 331,000 – 20,000 = 311,000
9. A Solution:
Accounts receivable
beg. 80,000
Credit sales 150,000 120,000 Collections, excldg. recoveries
10,000 Write-off
100,000 end.
10. B
P a g e | 36
ACTIVITY #1: TOTAL CURRENT RECEIVABLES

Solutions:
Requirement (a): Adjusted accounts receivable
Unadjusted accounts receivable 10,537,089

Credit balance (DEF Co.) 341,236
Sales Order #21022394 20,000
Adjusted accounts receivable 10,898,325
Requirement (b): Total current receivables
Adjusted accounts receivable 10,898,325

Notes receivable (3-month) 35,000
Dividends receivable (10,000 sh. x ₱5) 50,000
Total Current receivables 10,983,325
Requirement (c): Adjusting entries

Advances from customers 341,236
To eliminate the credit balance in DEF Co.’s account

Sales 20,000
To record the unrecorded sales
Notes receivable 35,000

Cash 35,000
To record the loan given to Mr. Wilson

Dividend income 50,000
To accrue the dividends
P a g e | 37
ACTIVITY #2: JOURNAL ENTRIES
Solutions:
Requirement (a): Journal entries
1) Accounts receivable 20,000

Sales 20,000
To record SI#001101
2)
a. Accounts receivable 3,000
Allowance for bad debts 3,000
To reverse the previous write-off
Cash 3,000
To record the collection of accounts receivable
b. Cash 25,000
To record the collection of accounts receivable
c. Accounts receivable 19,000

Cash 19,000
To record the NSF check
3) Bad debts expense 22,414.88*

Allowance for bad debts 22,414.88
To accrue bad debts for the year
*Unadjusted credit sales 2,221,488

Add: SI#001101 20,000
Adjusted credit sales 2,241,488
Multiply by: 1%
Bad debts expense - 20x1 22,414.88
P a g e | 38
4) Allowance for bad debts (7K + 2K) 9,000

To record the write-off of accounts
Requirement (b): Adjusted balances of A/R & Allowance
Accounts receivable
Unadjusted 480,000
(1) 20,000
(2a) 3,000 3,000
25,000 (2b)
(2c) 19,000 9,000 (4)
485,000 Adjusted

12,000 Unadjusted
3,000 (2a)
22,414.88 (3)
(4) 9,000
Adjusted 28,414.88
Requirement (c): Carrying amount of accounts receivable

Allowance for bad debts (28,414.88)
Carrying amount 456,585.12
P a g e | 39
ACTIVITY #3: DEBTS EXPENSE
Solutions:
Requirement (a):
BDE - 20x2: (9,824,000 x 80% x 2.5%) = 196,480
BDE - 20x1: (2,670,000 x 80% x 2.5%) = 53,400
Requirement (b):

41,800 12.31.x1 (836K x 5%)
Write-offs 115,000 196,000 BDE - 20x2 (squeeze)
12.31.x2 (2.456M x 5%) 122,800

- 3.7.x1
Write-offs 12,000 53,800 BDE - 20x1 (squeeze)
12.31.x1 (836K x 5%) 41,800
P a g e | 40
ACTIVITY #4: AGING (PROVISION MATRIX)
Dear Sir / Ma’am:
The answer is already indicated in the activity (*Hints). The

student will be graded based on his/her creativity and extra effort
in making the report look professional. Suggested criteria:
1. Heading for the report (e.g., Aging Report or Provision
Matrix)
2. All headings, including the cut-off date, are in bold letters
3. Totals are double-ruled
4. The required balance of the allowance is labeled as such
5. The percentages are formatted as percentages (i.e., x%)
6. etc….. (end of thinking capacity )
Sincerely,
Zeus Vernon B. Millan

P a g e | 41

1. Solution:
Accounts receivable (158K + 15K) 173,000
Allowance for uncollectible accounts (8,000)
Total trade receivables 165,000
Claim for tax refund 12,000

Advances to officers (due in 6 months) 180,000
Total non-trade receivables 412,000
Total current receivables 577,000
Notes receivable (non-trade) 180,000

Advances to affiliates 900,000
Security deposit on a long-term lease 30,000
Total noncurrent receivables 1,110,000
TOTAL RECEIVABLES 1,687,000
2. Solutions:
a. FOB shipping point, freight collect
Dec. 27, -
20x1 No entry
Dec. 31, Accounts receivable 1,600
20x1
Sales 1,600
to record sale on account
Jan. 2, -
20x2 No entry
Jan. 5, Cash 1,600
20x2
to record settlement of accounts receivable
b. FOB destination, freight prepaid

Dec. 27,
20x1
No entry -
Dec. 31, Prepaid freight 50

20x1
Cash 50
P a g e | 42
to record prepayment of freight to the carrier

Jan. 2, Accounts receivable 1,600
20x2
Sales 1,600
to record sale on account
Jan. 2, Freight-out 50
20x2
Prepaid freight 50
to charge the prepaid freight to expense
Jan. 5, Cash 1,600
20x2
to record settlement of accounts receivable
c. FOB shipping point, freight prepaid

Dec. 27,
20x1
No entry -
Dec. 31, Accounts receivable 1,650

20x1
Sales 1,600
Cash 50
to record sale on account and freight paid on
behalf of the buyer
Jan. 2, -
20x2 No entry
-
Jan. 5, Cash 1,650
20x2
to record collection of account receivable inclusive
of reimbursement for the freight paid
d. FOB destination, freight collect

Dec. 27,
20x1
No entry -
Dec. 31, -
20x1 No entry
-
Jan. 2, Accounts receivable 1,550
20x2
Freight-out 50
Sales 1,600
to record sale on account and freight
accommodated by the buyer
Jan. 5, Cash 1,550
20x2
P a g e | 43

to record collection of account receivable net of
reimbursement for the freight
3. Solutions:
Requirement (a): Traditional GAAP
Gross method Net method

1. Sale on account
Accounts receivable 90,000 Accounts receivable 87,300
Sales 90,000 Sales 87,300
(₱100,000 x 90%) (₱100,000 x 90% x 97%)
2. Collection is made within the discount period

Cash 87,300 Cash 87,300
Sales discounts (90K x 3%) 2,700 Accounts receivable 87,300
3. Collection is made beyond the discount period.

Cash 90,000 Cash 90,000
Accounts receivable 90,000 Sales discount forfeited 2,700
Requirement (b.1): PFRS 15

Invoice amount (100,000 x 90%) 90,000
Multiply by: 3%
Total available discount 2,700
Multiply by: 80%
Discount expected to be taken 2,160
Invoice amount 90,000

Less: Discount expected to be taken (2,160)
Transaction price 87,840
P a g e | 44
1. Sale on account
Revenue 87,840
2. Portion collected within the discount period

Cash (90,000 x 80% x 97%) 69,840
3. Portion collected beyond the discount period

Cash (90,000 x 20%) or (87,840 – 69,840) 18,000
Requirement (b.2): PFRS 15
1. Sale on account
Accounts receivable (100K x 90%) 90,000
Revenue 90,000
Sales discount 2,160
Allowance for sales discount 2,160
2. Portion collected within the discount period

Cash on hand (90,000 x 80% x 97%) 69,840
Allowance for sales discount 2,160
Accounts receivable (90,000 x 80%) 72,000
3. Portion collected beyond the discount period

Cash on hand [(90K x 20%) or remaining balance] 18,000
P a g e | 45
4. Solution:
Requirement (a):
(a)
Sales 250,000
(b)
Cash 220,000
(c)
Bad debt expense 30,000
(d)
(e)
Cash 8,000
Requirement (b):
Accounts receivable
beg. 120,000
Sales on account 250,000 220,000 Collections, excluding recoveries
15,000 Write-offs
Recovery 8,000 8,000 Collection on recovery
135,000 end.

P a g e | 46
9,000 beg.
Write-off 15,000 30,000 Bad debts
8,000 Recovery
end. 32,000
Requirement (c):
Accounts receivable, end. 135,000
Allowance for bad debts, end. (32,000)
Carrying amount, end. 103,000
5. Solutions:
(a) Percentage of net credit sales
12,600 beg.
16,200 (1) Bad debts [900K – 90K) x 2%]
(2) end. 15,600
Accounts receivable
beg. 180,000
Net credit sales 810,000 15,800 Write-offs
781,000 Collections, excldg. recoveries
193,200 end.

Allowance for bad debts, Dec. 31 (15,600)
(3) Carrying amount, Dec. 31 177,600
P a g e | 47
(b) Percentage of ending receivable

12,600 beg.
16,056 (1) Bad debts (squeeze)
(2) end. (193.2K x 8%) 15,456

6. Solution:
Days outstanding Amount % uncollectible Required allowance
0 – 60 190,000 1% 1,900
61 – 90 240,000 3% 7,200
91 - 120 30,000 7% 2,100
Over 120 10,000 10% 1,000
Totals 470,000 12,200

10,100 beg.
Write-offs 4,600 200 Recoveries
6,500 (1) Bad debts (squeeze)
(2) end. 12,200

P a g e | 48
Chapter 5
Notes Receivable

1. FALSE – interest receivable = face amount x nominal rate
2. TRUE
 (1,241,843 x 110% x 110%) = 1,502,630 carrying amount on Dec.
31, 20x2
 2M face amount - 1,502,630 = 497,370
3. TRUE
4. FALSE (1M x PV of ordinary annuity of 1 @10%, n=3)
5. TRUE
6. FALSE 40,000 (400,000 cash price equivalent x 10%)
7. TRUE (100,000 x .90) = 90,000 x 10% = 9,000
8. TRUE (100,000 x .90 x 110% x 10%) = 9,900 OR (90,000 + 9,000)
x 10% = 9,900
9. FALSE 850,000 (the note is collectible in installments)
10. TRUE

1. D – a note with below-market interest rate is discounted
2. A
3. C
4. A
5. C
6. C
7. C
8. D
9. B
1st note: 6,000 x 18% = 1,080 interest income;
2nd note: (7,080 ÷ 118%) x 18% = 1,080 interest income
10. B
P a g e | 49
1. Solutions:
Initial measurement:
₱1,000,000 x PV of ₱1 @14%, n= 4 = ₱592,080
Requirement (a):
Date Interest income Unearned interest Present value
1/1/x1 407,920 592,080
12/31/x1 82,891 325,029 674,971
12/31/x2 94,496 230,533 769,467
12/31/x3 107,725 122,807 877,193
12/31/x4 122,807 0 1,000,000
Requirement (b):
1/1/x1
Note receivable 1,000,000
Unearned interest 407,920
Land 500,000
Gain 92,080
12/31/x1
Interest income 82,891
12/31/x2
12/31/x3
12/31/x4
P a g e | 50
Cash 1,000,000
2. Solutions:
₱900,000 x PV of ₱1 @12%, n= 3 = ₱640,602
Requirement (a):
1/1/x1 259,398 640,602
12/31/x1 76,872 182,526 717,474
12/31/x2 86,097 96,429 803,571
12/31/x3 96,429 0 900,000
Requirement (b):
1/1/x1
Note receivable 900,000
Accum. depn. 400,000
Loss 159,398
Machinery 1,200,000
12/31/x1
12/31/x2
12/31/x3
12/31/x3
Cash 900,000
P a g e | 51
3. Solution:
₱250,000 x PV of ₱1 @14%, n= 4 = ₱759,337
Requirement (a):
Date Collections Interest income Amortization Present value
1/1/x1 759,337
12/31/x1 250,000 91,120 158,880 600,457
12/31/x2 250,000 72,055 177,945 422,512
12/31/x3 250,000 50,701 199,299 223,213
12/31/x4 250,000 26,787 223,213 -
Requirement (b):
Current portion = 177,945 (see table above)
Noncurrent portion = 422,512 (see table above)
Requirement (c):
1/1/x1
Loss 240,663
Unearned interest (1M – 759,337) 240,663
Land 1,000,000
12/31/x1
Cash 250,000
12/31/x2
Cash 250,000
P a g e | 52
12/31/x3
Cash 250,000
12/31/x4
Cash 250,000
4. Solution:
₱400,000 x PV of ₱1 @15%, n= 3 = ₱913,290
Requirement (a):
1/1/x1 913,290
12/31/x1 400,000 136,994 263,006 650,284
12/31/x2 400,000 97,543 302,457 347,827
12/31/x3 400,000 52,173 347,827 (0)
Requirement (b):
Requirement (c):
1/1/x1
Loss 86,710
Unearned interest (1.2M – 913,290) 286,710
Land 1,000,000
P a g e | 53
12/31/x1
Cash 400,000
12/31/x2
Cash 400,000
12/31/x3
Cash 400,000
5. Solution:
(300,000 x PV of an annuity due of 1 @9%, n=3) = 827,733
Requirement (a):
1/1/x1 827,733
1/1/x1 300,000 - 300,000 527,733
1/1/x2 300,000 47,496 252,504 275,229
1/1/x3 300,000 24,771 275,229 (0)
Requirement (b):
Interest income in 20x1 = 47,496 (see table above)
P a g e | 54
Requirement (c):
1/1/x1
Cash 100,000
Unearned interest (900K – 827,733) 72,267
Land 800,000
Gain 127,733
1/1/x1
Cash 300,000
12/31/x1
6. Solution:
Face amount (1) (400,000 x 4) = 1,600,000
Unearned interest at initial recognition (2) (1.6M – 1,119,272) = 480,728
Effective interest rate (3) (179,084 ÷ 1,119,272) = 16%
Term of the note (in years) (4) 4 years

1/1/x1 1,119,272
12/31/x1 400,000 179,084 (5) 220,916 898,356
12/31/x2 400,000 (6) 143,737 256,263 (7) 642,093
12/31/x3 400,000 102,735 (8) 297,265 344,827
(9) 12/31/x4 400,000 (10) 55,172 344,828 0
P a g e | 55
7. Solutions:
First step: Place the given information on the amortization table:
1/1/x1 911,205
12/31/x1 300,000
12/31/x2 300,000 86,466 213,534 507,015
12/31/x3 300,000
12/31/x4 300,000
Second step: Squeeze for the carrying amount of the note on

December 31, 20x1.
1/1/x1 911,205
12/31/x1 300,000 720,549*
12/31/x2 300,000 86,466 213,534 507,015
12/31/x3 300,000
12/31/x4 300,000
* (213,534 + 507,015) = 720,549
Third step: Compute for the effective interest rate

EIR = 86,466 ÷ 720,549 = 12%
Fourth step: Squeeze for the other missing information

1/1/x1 911,205
12/31/x1 300,000 109,345 190,655 720,549
12/31/x2 300,000 86,466 213,534 507,015
12/31/x3 300,000 60,842 239,158 267,857
12/31/x4 300,000 32,143 267,857 -
P a g e | 56

1. D
Solution:
Interest income - 20x1 (1,200,000 x 10%) 120,000
Interest income - 20x2 [(1,200,000 + 120,000) x 10%] 132,000
Total interest receivable - Dec. 31, 20x2 252,000
2. C (150K – 50K in July 1, 20x5) = 100K balance x 8% = 8,000
3. B (400,000 x PV of 1 @ 10%, n=3) = 300,526 x 10% = 30,053
4. A 480,000 carrying amount – 450,789 present value* = 30,000

loss rounded off
* (600,000 x PV of ₱1 @10%, n=3) = 450,789
5. C
Solution:
Initial measurement: (8M ÷ 4) x PV ordinary annuity of 1 @12%, n=4 =
6,074,699
Subsequent measurement:
Interest
Date Collections Amortization Present value
income
1/1/20x1 6,074,699
12/31/20x1 2,000,000 728,964 1,271,036 4,803,663
12/31/20x2 2,000,000 576,440 1,423,560 3,380,103
12/31/20x3 2,000,000 405,612 1,594,388 1,785,715
12/31/20x4 2,000,000 214,285 1,785,715 0
P a g e | 57
6. D Solution:
(1M ÷ 5) x PV ordinary annuity of 1 @12%, n=5 = 720,955
Date Collections Interest income Amortization PV

1/1/x1 720,955
12/31/x1 200,000 86,515 113,485 607,470
12/31/x2 200,000 72,896 127,104 480,366
12/31/x3 200,000 57,644 142,356 338,010
12/31/x4 200,000 40,561 159,439 178,571
12/31/x5 200,000 21,429 178,571 0
7. D Solution:
Step 1: Pro-forma amortization table

1/1/x1 ?
12/31/x1 ? 86,515 ? ?
12/31/x2 ? 72,896 127,104 480,366
12/31/x3 ? ? ? ?
12/31/x4 ? ? ? ?
12/31/x5 ? ? ? ?
Step 2: Reconstruct some information

1/1/x1 ?
12/31/x1 200,000 (1) 86,515 ? 607,470 (2)
12/31/x2 200,000 72,896 127,104 480,366
12/31/x3 200,000 ? ? ?
12/31/x4 200,000 ? ? ?
12/31/x5 200,000 ? ? ?
(1)
(1M face amount ÷ 5) = 200,000
(2)
(127,104 + 480,366) = 607,470
* Effective interest rate = 72,896 int. inc. in 20x2 ÷ 607,470 = 12%
P a g e | 58
Step 3: Reconstruct some more

1/1/x1 ?
12/31/x1 200,000 86,515 ? 607,470
12/31/x2 200,000 72,896 127,104 480,366
12/31/x3 200,000 57,644 (3) 142,356 338,010
12/31/x4 200,000 ? ? ?
12/31/x5 200,000 ? ? ?
(3)
480,366 x 12% = 57,644
Step 4: Solve for requirement

Unpaid balance of face amount - Dec. 31, 20x3
(1M - 200K - 200K - 200K) 400,000
Carrying amount - Dec. 31, 20x3 338,010
Unamortized discount - Dec. 31, 20x3 61,990
8. C
Solution:
Initial measurement: (1M ÷ 5) x PV of an annuity due of 1 @12%, n=
5 = 807,470

1/1/x1 807,470
1/1/x1 200,000 - 200,000 607,470
1/1/x2 200,000 72,896 127,104 480,366
1/1/x3 200,000 57,644 142,356 338,010
1/1/x4 200,000 40,561 159,439 178,571
1/1/x5 200,000 21,429 178,571 0
Carrying amt. on Dec. 31, 20x1 = 480,366 + 200,000 = 680,366
9. A
Solution:
Initial measurement: (2.1M ÷ 6) x PV ordinary annuity of 1 @5%, n=6
= 1,776,492
P a g e | 59
Interest
income
Jan. 1, 20x1 1,776,492
July 1, 20x1 350,000 88,825 261,175 1,515,317
Dec. 31, 20x1 350,000 75,766 274,234 1,241,083
July 1, 20x2 350,000 62,054 287,946 953,137
Dec. 31, 20x2 350,000 47,657 302,343 650,794
July 1, 20x3 350,000 32,540 317,460 333,333
Dec. 31, 20x3 350,000 16,667 333,333 0
Interest income in 20x1 = (88,825 + 75,766) = 164,591
10. B
Solution:
PV of P1 @
Date Collections Present value
10%, n= 1 to 3
Dec. 31, 20x1 400,000 0.90909 363,636
Dec. 31, 20x2 300,000 0.82645 247,935
Dec. 31, 20x3 200,000 0.75131 150,262
Totals 900,000 761,833
Interest
income
Jan. 1, 20x1 761,833
Dec. 31, 20x1 400,000 76,183 323,817 438,016
Dec. 31, 20x2 300,000 43,802 256,198 181,818
Dec. 31, 20x3 200,000 18,182 181,818 0
11. D
Initial measurement: 1,600,000 – the cash price equivalent
Trial and error:

Working equation:
 Future cash flows x PV factor at x% = PV of note
P a g e | 60
 2,370,470 x PV of 1 x% = 1,600,000
First trial: (at 14%)

 2,370,470 x PV of 1 @ 14%, n=3 = 1,600,000
 Conclusion: The effective interest rate is 14%.
1/1/x1 770,470 1,600,000
12/31/x1 224,000 546,470 1,824,000
12/31/x2 255,360 291,110 2,079,360
12/31/x3 291,110 (0) 2,370,470
Shortcut: 1,600,000 x 114% x 114% = 2,079,360
12. C
Solution:
Present value
Future cash flows factors @12%, n=3 Present value
a
Principal 3,000,000 0.71178 2,135,340
b
Annual interest (3M x 3%) 90,000 2.40183 216,165
Total 2,351,505
a
(PV of P1 @12%, n=3)
b
(PV of ordinary annuity of P1 @12%, n=3
Collection Interest
Date Amortization Present value
of interest income
Jan. 1, 20x1 2,351,505
Dec. 31, 20x1 90,000 282,181 192,181 2,543,685
Dec. 31, 20x2 90,000 305,242 215,242 2,758,927
Dec. 31, 20x3 90,000 331,071 241,071 2,999,999
P a g e | 61
13. C
Solution:
Jan. 1, 20x1 1,200,000
Interest in 20x1 (1.2M x 3%) 36,000
Interest in 20x2 [(1.2M + 36K) x 3%] 37,080
Interest in 20x3 [(1.2M + 36K + 37.080K) x 3%] 38,192
Total future cash flow 1,311,272
Alternative solution:
Face amount of note receivable 1,200,000
FV of P1 @ 3%, n=3 1.092727
Future cash flow 1,311,272
Future cash flow 1,311,272

PV of P1 @12%, n=3 0.71178
PV of note receivable – Jan. 1, 20x1 933,337
14. C
Solution:
The equal annual year-end payments are computed as follows:
PV = Cash Flow x PVF
20,000 = Cash Flow x PV ordinary annuity of 1 @8%, n=5
20,000 = Cash Flow x 3.993
Cash Flow = 20,000 ÷ 3.9927
Cash Flow = 5,009
Total cash flow = 5,009 x 5 years = 25,045

Less: Present value (5,009 x PV ordinary annuity @9%, n=5) =
19,483
Total interest revenue = 5,561 (Answer choice is rounded-off)
P a g e | 62
15. B
Solution:
PV of 1 @ 12%,
Cash flows
n=3; 4; & 5 PV
1/1/x1 - - -
1/1/x2 - - -
1/1/x3 - - -
1/1/x4 800,000 0.7117802478 569,424
1/1/x5 800,000 0.6355180784 508,414
1/1/x6 800,000 0.5674268557 453,941
Carrying amt. on Jan. 1, 20x1 1,531,779

1/1/x1 1,531,779
1/1/x2 - 183,813 (183,813) 1,715,592
1/1/x3 - 205,871 (205,871) 1,921,463
1/1/x4 800,000 230,576 569,424 1,352,039
1/1/x5 800,000 162,245 637,755 714,284
1/1/x6 800,000 85,714 714,286 (2)
P a g e | 63
ACTIVITY 1:
The learners perform the activity, grade themselves, and then pass
their scores to the teacher for recording.
ACTIVITY 2:
The learners perform the activity, grade themselves, and then pass
their scores to the teacher for recording.
ACTIVITY 3:
The learners perform the activity and then pass their printed work
to the teacher for grading.
ACTIVITY 4:
The learners perform the activity and then pass their printed work
to the teacher for grading.
P a g e | 64

1. Solutions:
₱133,100 x PV of ₱1 @10%, n= 3 = ₱100,000
Requirement (a):
1/1/x1 33,100 100,000
12/31/x1 10,000 23,100 110,000
12/31/x2 11,000 12,100 121,000
12/31/x3 12,100 - 133,100
Requirement (b):
1/1/x1
Land 100,000
12/31/x1
12/31/x2
12/31/x3
12/31/x3
Cash 133,100
P a g e | 65
2. Solutions:
₱100,000 x PV ordinary annuity of ₱1 @10%, n=3 = ₱248,685
Requirement (a):
1/1/x1 248,685
12/31/x1 100,000 24,869 75,131 173,554
12/31/x2 100,000 17,355 82,645 90,909
12/31/x3 100,000 9,091 90,909 0
Requirement (b):
Requirement (c):
Outstanding balance of face amount (100K x 2) 200,000
Carrying amt. on 12/31/x1 (173,554)
Unearned interest on 12/31/x1 26,446
OR
Unearned interest on 12/31/x1 = Interest income in 20x2 and 20x3:
(17,355 + 9,091) = 26,446
Requirement (d):
1/1/x1
Accum. depreciation 700,000
Loss 51,315
Unearned interest (300,000 – 248,685) 51,315
Equipment 1,000,000
12/31/x1
P a g e | 66
Cash 100,000
12/31/x2
Cash 100,000
12/31/x3
Cash 100,000
Requirement (e):
Loss on sale of equipment (51,315)
Net effect on P/L - decrease (26,446)
3. Solutions:
(1.2M ÷ 3) = 400,000;
400,000 x PV of an annuity due of ₱1 @10%, n=3 = 1,094,215
Requirement (a):
1/1/x1 1,094,215
1/1/x1 400,000 - 400,000 694,215
1/1/x2 400,000 69,422 330,578 363,637
1/1/x3 400,000 36,363 363,637 (0)
P a g e | 67
Requirement (b):
69,422 – see table above.
Requirement (c):
Carrying amt. on 1/1/x2 363,637
Add back: Collection on 1/1/x2 400,000
Carrying amt. on 12/31/x1 763,637

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PERIOD 1 SUGGESTED ANSWERS,

FOR STUDY AND REVIEW PURPOSES

PROBLEM 1: TRUE OR FALSE

PROBLEM 2: MULTIPLE CHOICE – THEORY

9. A – The receipts for petty cash disbursements that are already

Currencies and coins 2,390

Oct. 31, Office supplies expense 6,880

3. Answer: ₱2,390 – equal to the currencies and coins.

Requirement (b): Adjusting journal entry

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

 Customer’s check #109 was properly included in cash in bank;

 Athena Co.’s check #567 is ‘unreleased check’. This should be

5. A (see solution above)

PROBLEM 5: CLASSROOM ACTIVITIES

ACTIVITY #1: CASH BALANCE

amount of “Cash in bank” in the solution is derived from the

ACTIVITY #2: PETTY CASH FUND

12.21.20X1 Office supplies 356.00

ACTIVITY #3: PETTY CASH FUND – SHORTAGE

PROBLEM 6: FOR CLASSROOM DISCUSSION

 The contingency fund is a noncurrent asset.

deposit earns interest above the normal rate for regular

 The ₱40,000 compensating balance on the Piggy Bank savings

 Amount reported in financial statements = 5,625 (equal to the

PROBLEM 1: TRUE OR FALSE

PROBLEM 2: MULTIPLE CHOICE – THEORY

Requirement (b): Adjusting entry

Requirement (b): Adjusting (Reconciling) entries

AJE Cash 30,000

30-Jul Receipts Disbursements 31-Aug

Adjusted bal. 134,400 87,800 13,300 208,900

31-Mar Receipts Disbursements 30-Apr

Adjusted bal. 426,000 167,000 37,000 556,000

30-Jun Receipts Disbursements 31-Jul

31-Mar Receipts Disbursements 30-Apr

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

3. B (28,000 – 12,000 + 4,000 + 500) = 20,500

4. B (30,140 + 4,000 – 5,200) = 28,940

5. C (27,200 + 450 – 700 + 1,450) = 28,400

6. B (38,000 + 940 – 220 - 90 + 18) = 38,648

7. D (40,000 – 2,000 + 8,000 + 400) = 46,400

8. C (54,075 + 9,375 – 8,625 – 375) = 54,450

9. A (113,000 + 17,200 – 10,800) = 119,400 adjusted balance + 2,400

CIB - per books

Per bank statement

 30,200 per bank - 5,000 outstanding checks recorded in books

PROBLEM 5: CLASSROOM ACTIVITIES

ACTIVITY #1: BANK RECONCILIATION

(b) Accounts payable 254,321 (b) No entry

(c) No entry (c) Deposit liability 220,320

(d) No entry (d) Cash on hand 2,460,660

(e) Cash on hand 1,952,012 (e) Cash on hand 1,592,012

Cash in bank 1,952,012

(g) No entry (g) Deposit liability 1,602

The net difference is ₱2,068,059 (₱4,805,750 – ₱2,737,691).

Accounts receivable 360,000

Accounts receivable 25,000

Utilities expense 1,602

* (2,460,660 – 25,000 – 360,000) = 2,074,058

ACTIVITY #2: BANK RECONCILIATION

PROBLEM 6: FOR CLASSROOM DISCUSSION

Cash in bank 500,000

Accounts payable 200,000 Deposit liability 140,000