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Financial Accounting Valix and Peralta Volume One - 2008 Edition

CHAPTER 1
Problem 1-1 Problem 1-4
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. D C D D C C B C D A 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. A A D B D B D C C D

SOLUTION MANUAL

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Problem 1-3

Problem 1-2
1. 2. 3. 4. 5. C D D A D

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

A C A A D A D B D D

Problem 1-5 8
1. 2. 3. 4. 5. 6. A A A D D D 1. 2. 3. 4. 5. 6. A A C A A A

Problem 1-6
1. 2. 3. 4. 5. 6. D D C A A C

Problem 1-7
1. 2. 3. 4. 5. 6. B B C C A B

Problem 1-

7. B 8. D 9. C 10. D

7. B 8. C 9. A 10. B

7. D 8. D 9. B 10. D

7. D 8. D 9. A 10. B

Problem 1-9 Problem 1-12


1. 2. 3. 4. 5. D D C B C 1. 2. 3. 4. 5. A B D B A

Problem 1-10
1. 2. 3. 4. 5. C B D A F

Problem 1-11
1. 2. 3. 4. 5. E D B C G

6. 7. 8. 9. 10.

D C A D A

6. 7. 8. 9. 10.

E J G H I

6. 7. 8. 9. 10.

H I F J A

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Problem 1-13
1. Systematic and rational allocation as a matching process 2. Comparability or consistency 3. Monetary unit 4. Income recognition principle 5. Time period 6. Going concern and cost principle 7. Accounting entity 8. Materiality 9. Completeness or standard of adequate disclosure 10. Conservatism or prudence 1. 2. 3. 4. 5. 6. 7.

Problem 1-14
Materiality Going concern Income recognition principle Accounting entity Standard of adequate disclosure Comparability Matching principle 8. Cost principle 9. Reliability 10. Time period

Problem 1-15
1. The cost of leasehold improvement should not be recorded as outright expense, but should be amortized as expense over the life of the improvement or life of the lease, whichever is shorter. This is in conformity with the systematic and rational allocation principle of expense recognition. 2. The fact that the customer has not been seen for a year is not a controlling factor to write off the account. If the account is doubtful of collection, an allowance should be set up. It is only when there is proof of uncollectibility that the account should be written off. 3. Advertising cost should be treated as outright expense, by reason of the uncertainty of the benefit that may be derived therefrom in the future, in conformity with immediate recognition principle. 4. The balance of the cash surrender value should not be charged to loss. In reality, this is conceived as a prospective receivable if and when the policy is canceled because of excessive premium in the early stage of policy. The CSV should be classified as noncurrent investment. 5. The cost of obsolete merchandise should not be included as part of inventory but charged to expense, as a conservative approach.

6. The excess payment represents goodwill which should not be amortized but subject to impairment. Conservatism dictates that goodwill should be recognized when paid for. 7. The depreciation is not dependent on the amount of profit generated during the year. Depreciation is an allocation of cost and therefore should be provided regardless of the level of earnings.

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8. An entry should be made to recognize the inventory fire loss, and such loss should be treated as component of income. 9. Revenues and expenses of the canteen should be separated from the revenues and cost of regular business operations in order to present fairly the financial position and performance of the regular operations. 10. The increase in value of land and building should not be taken up in the accounts. The use of revalued amount is permitted only when the revaluation is made by independent and expert appraiser. The expected sales price of P5,000,000 is not necessarily the revalued amount of the land and building. Moreover, increase in value is not an income until the asset is sold.

Problem 1-16
1. 2. 3. 4. 5. Accrual assumption Going concern assumption Asset recognition principle Cost principle Liability recognition principle 6. Income recognition principle 7. Expense recognition principle 8. Cause and effect association principle 9. Systematic and rational allocation principle 10. Immediate recognition principle

Problem 1-17
1. 2. 3. 4. 5. Monetary unit assumption Cost principle Materiality Time period Matching principle 6. Substance over form 7. Income recognition principle 8. Comparability or consistency 9. Conservatism or prudence 10. Adequate disclosure or completeness

Problem 1-18
1. The cost of the asset should be the amount of cash paid. No income should be recognized when an asset is purchased at an amount less than its market value. Revenue arises from the act of selling and not from the act of buying. 2. The entry should be reversed because the pending lawsuit is a mere contingency. The contingent loss is simply disclosed. To be recognized in

accordance with conservatism, the contingent loss must be both probable and measurable. 3. The new car should be charged against the president and debited to receivable from officer, because the car is for personal use.

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4. The entry is incorrect because no revenue shall be recognized until a sale has taken place. 5. Purchased goodwill should be recorded as an asset. Under the new standard, goodwill is not amortized anymore but on each balance sheet date it should be assessed for impairment.

Problem 1-19
1. 2. 3. 4. 6. Accrual Going concern Accounting entity Monetary unit Time period

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CHAPTER 2
Problem 2-1
Easy Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash and cash equivalents Accounts receivable Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Long-term investments Intangible asset Total noncurrent assets Total assets Note 800,000 450,000 900,000 200,000 2,350,000 (2) (3) 4,400,000 950,000 800,000 6,150,000 8,500,000

(1)

LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Trade and other payables Note payable, short-term debt Total current liabilities Noncurrent liabilities: Mortgage payable, due in 5 years Note payable, long-term debt Total noncurrent liabilities Shareholders equity: Share capital, P100 par Share premium Retained earnings Total shareholders equity Total liabilities and stockholders equity (4) 450,000 200,000 650,000 1,500,000 500,000 2,000,000 4,000,000 500,000 1,350,000 5,850,000 8,500,000

Note 1 - Prepaid expenses Office supplies Prepaid rent Total prepaid expenses 50,000 150,000 200,000

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Note 2 - Property, plant and equipment Property, plant and equipment Accumulated depreciation Net book value Note 3 - Intangible asset Patent Note 4 - Trade and other payables Accounts payable Accrued expenses Total 350,000 100,000 450,000 800,000 5,600,000 (1,200,000) 4,400,000

Problem 2-2
Simple Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash Trading securities Trade and other receivables Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Long-term investments Note (1) (2) 420,000 250,000 620,000 1,250,000 (3) 20,000 2,560,000 4,640,000 2,000,000

(4) (5)

Intangible assets Total noncurrent assets Total assets

(6)

300,000 6,940,000 9,500,000

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LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Trade and other payables Serial bonds payable - current portion Total current liabilities Noncurrent liabilities: Serial bonds payable - remaining portion 2,000,000 Shareholders equity: Share capital Share premium Retained earnings Total shareholders equity Total liabilities and shareholders equity Note 1 - Trade and other receivables Accounts receivable Allowance for doubtful accounts Notes receivable Claim receivable Total Note 2 - Inventories Finished goods Goods in process Raw materials 200,000 Factory supplies Total Note 3 - Prepaid expenses Prepaid insurance Note 4 - Property, plant and equipment 20,000 400,000 600,000 50,000 1,250,000 500,000 ( 50,000) 150,000 20,000 620,000 5,000,000 500,000 880,000 6,380,000 9,500,000 Note (7) 620,000 500,000 1,120,000

Land 1,500,000 Building 2,400,000 Machinery 700,000 Tools 40,000 Total 4,640,000

Cost 1,500,000 4,000,000 2,000,000 40,000 7,540,000

Accum. depr. 1,600,000 1,300,000 2,900,000

Book value

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Note 5 - Long-term investments Investment in bonds Plant expansion fund Total Note 6 - Intangible assets Franchise Goodwill 100,000 Total Note 7 - Trade and other payables Accounts payable Notes payable Income tax payable Advances from customers Accrued expenses Accrued interest on note payable Employees income tax payable Total 300,000 100,000 60,000 100,000 30,000 10,000 20,000 620,000 200,000 300,000 1,500,000 500,000 2,000,000

Problem 2-3
Exemplar Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash and cash equivalents Trading securities Note 500,000 280,000

Trade and other receivables Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Long-term investments Intangible assets Other noncurrent assets Total noncurrent assets Total assets

(1)

640,000 1,300,000 70,000 2,790,000 5,300,000 1,310,000 3,350,000 150,000 10,110,000 12,900,000

(2) (3) (4) (5)

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LIABILITIES AND SHAREHOLDERS EQUITY Note Current liabilities: Trade and other payables 1,000,000 Noncurrent liabilities: Bonds payable Premium on bonds payable Total noncurrent liabilities Shareholders equity: Share capital Reserves Retained earnings (deficit) Total shareholders equity Total liabilities and shareholders equity (6) 5,000,000 1,000,000 6,000,000 (7) (8) 7,000,000 700,000 (1,800,000) 5,900,000 12,900,000

Note 1 - Trade and other receivables Accounts receivable Allowance for doubtful accounts Notes receivable Accrued interest on notes receivable Total Note 2 - Property, plant and equipment Cost value Accum. depr. Book 400,000 ( 20,000) 250,000 10,000 640,000

Land 1,500,000 Building 3,000,000 Equipment 800,000 Total 5,300,000

1,500,000 5,000,000 1,000,000 7,500,000

2,000,000 200,000 2,200,000

Note 3 - Long-term investments Land held for speculation Sinking fund Preference share redemption fund Cash surrender value 60,000 Total Note 4 - Intangible assets Computer software Lease rights Total 3,250,000 100,000 3,350,000 500,000 400,000 350,000 1,310,000

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Note 5 - Other noncurrent assets Advances to officers, not collectible currently Long-term refundable deposit Total Note 6 - Trade and other payables Accounts payable Notes payable Unearned rent income SSS payable Accrued salaries Dividends payable Withholding tax payable Total Note 7 Share capital Preference share capital Ordinary share capital Total Note 8 - Reserves Share premium preference Share premium ordinary 500,000 200,000 2,000,000 5,000,000 7,000,000 400,000 300,000 40,000 10,000 100,000 120,000 30,000 1,000,000 100,000 50,000 150,000

Total

700,000

Problem 2-4
Relax Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash Trade accounts receivable Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Investment in associate Intangible assets Total noncurrent assets Total assets Note (1) 400,000 750,000 1,000,000 100,000 2,250,000 (2) (3) 5,600,000 1,300,000 350,000 7,250,000 9,500,000

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LIABILITIES AND SHAREHOLDERS EQUITY Note Current liabilities: Trade and other payables Mortgage note payable-current portion Total current liabilities 1,750,000 Noncurrent liabilities: Mortgage note payable, remaining position Bank loan payable, due June 30, 2010 Total noncurrent liabilities Shareholders equity: Share capital Reserves Retained earnings Total shareholders equity Total liabilities and shareholders equity Note 1 - Trade accounts receivable Accounts receivable Allowance for doubtful accounts Net realizable value 800,000 ( 50,000) 750,000 (4) 1,350,000 400,000

1,600,000 500,000 2,100,000 3,000,000 1,400,000 1,250,000 5,650,000 9,500,000

(5)

Note 2 - Property, plant and equipment Cost 500,000 5,000,000 3,000,000 400,000 8,900,000 Accum. Book depr. value 500,000 2,000,000 1,200,000 100,000 3,300,000 300,000

Land Building 3,000,000 Machinery 1,800,000 Equipment Total 5,600,000 Note 3 - Intangible assets Trademark Secret processes and formulas Total

150,000 200,000 350,000

Note 4 - Trade and other payables Notes payable Accounts payable Income tax payable Accrued expenses Estimated liability for damages Total 750,000 350,000 50,000 60,000 140,000 1,350,000

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Note 5 - Reserves Additional paid in capital Retained earnings appropriated for plant expansion Retained earnings appropriated for contingencies 100,000 Total 300,000 1,000,000 1,400,000

Problem 2-5
Summa Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash Bond sinking fund Trade and other receivables Inventory Prepaid expenses Total current assets Note (1) (2) 700,000 2,000,000 830,000 1,200,000 100,000 4,830,000

Noncurrent assets: Property, plant and equipment Investment property Intangible asset Total noncurrent assets Total assets

(3) (4)

5,500,000 700,000 370,000 6,570,000 11,400,000

LIABILITIES AND EQUITY Note Current liabilities: Trade and other payables Bonds payable due June 30, 2009 Total current liabilities 4,050,000 Noncurrent liability: Deferred tax liability Equity: Share capital Reserves Retained earnings Total equity Total liabilities and equity (6) (7) 3,500,000 500,000 2,700,000 6,700,000 11,400,000 (5) 2,050,000 2,000,000

650,000

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Note 1 - Cash Cash on hand Cash in bank Note 2 - Trade and other receivables Accounts receivable Allowance for doubtful accounts Notes receivable Accrued interest receivable Total Note 3 - Property, plant and equipment Cost Land Building 1,000,000 5,500,000 Accum. depr. 2,500,000 Book value 1,000,000 3,000,000 650,000 ( 50,000) 200,000 30,000 830,000 50,000 650,000 700,000

Furniture and equipment 1,500,000 Total 5,500,000 Note 4 - Intangible asset Patent

2,400,000 8,900,000

900,000 3,400,000

370,000

Note 5 - Trade and other payables Accounts payable Notes payable Accrued taxes Other accrued liabilities Total Note 6 Share capital Authorized share capital, 50,000 shares, P100 par 5,000,000 Unissued share capital Issued share capital Subscribed share capital, 10,000 shares Subscription receivable Paid in capital Note 7 - Reserves Share premium Retained earnings appropriated for contingencies 200,000 Total 300,000 500,000 1,000,000 850,000 50,000 150,000 2,050,000

(2,000,000) 3,000,000 1,000,000 ( 500,000) 500,000 3,500,000

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Problem 2-6 (Functional method)
Karla Company Income Statement Year ended December 31, 2008

Note
Net sales revenue 7,700,000 Cost of sales (5,000,000) Gross income 2,700,000 (1) (2)

Other income 400,000 Total income 3,100,000 Expenses: Selling expenses Administrative expenses Other expenses Income before tax Income tax Net income

(3)

(4) (5) (6)

950,000 800,000 100,000

1,850,000 1,250,000 ( 250,000) 1,000,000

Note 1 Net sales revenue


Gross sales Sales returns and allowances Sales discounts Net sales revenue 7,850,000 ( 140,000) ( 10,000) 7,700,000

Note 2 Cost of sales


Inventory, January 1 Purchases Freight in Purchase returns and allowances Purchase discounts Net purchases Goods available for sale Inventory, December 31 Cost of sales 1,000,000 5,250,000 500,000 ( 150,000) ( 100,000) 5,500,000 6,500,000 (1,500,000) 5,000,000

Note 3 Other income


Rental income Dividend revenue Total other income 250,000 150,000 400,000

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Note 4 Selling expenses
Freight out Salesmens commission Depreciation store equipment Total selling expenses 950,000 175,000 650,000 125,000

Note 5 Administrative expenses

Officers salaries Depreciation office equipment Total administrative expenses

500,000 300,000 800,000

Note 6 Other expenses


Loss on sale of equipment Loss on sale of investment Total other expenses 50,000 50,000 100,000

Natural method
Karla Company Income Statement Year ended December 31, 2008 Net sales revenue Other income Total Expenses: Increase in inventory Net purchases Freight out Salesmens commission Depreciation Officers salaries Other expenses 6,850,000 Income before tax Income tax Net income Note (1) (2) (3) (4) (5) (6) ( 500,000) 5,500,000 175,000 650,000 425,000 500,000 100,000 1,250,000 ( 250,000) 1,000,000 7,700,000 400,000 8,100,000

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Note 1 Net sales revenue
Gross sales 7,850,000 Sales returns and allowances ( 140,000) Sales discounts ( 10,000)

Net sales revenue 7,700,000

Note 2 Other income


Rental income 250,000 Dividend revenue 150,000 Total other income 400,000

Note 3 Increase in inventory


Inventory, December 31 1,500,000 Inventory, January 1 1,000,000 Increase in inventory 500,000

Note 4 Net purchases


Purchases 5,250,000 Freight in 500,000 Purchase returns and allowances ( 150,000) Purchase discounts ( 100,000) Net purchases 5,500,000

Note 5 Depreciation
Depreciation store equipment 125,000 Depreciation office equipment 300,000 Total 425,000

Note 6 Other expenses


Loss on sale of equipment Loss on sale of investment Total 50,000 50,000 100,000

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Problem 2-7
Masay Company Statement of Cost of Goods Manufactured Year Ended December 31, 2008 Raw materials January 1 Purchases Raw materials available for use Less: Raw materials December 31 280,000 Raw materials used Direct labor Factory overhead: Indirect labor Superintendence Light, heat and power Rent factory building Repair and maintenance machinery Factory supplies used Depreciation machinery 1,120,000 Total manufacturing cost 4,990,000 Goods in process January 1 240,000 Total Cost of goods in process 5,230,000 Less: Goods in process December 31 170,000 Cost of goods manufactured 200,000 3,000,000 3,200,000 2,920,000 950,000 250,000 210,000 320,000 120,000 50,000 110,000 60,000

5,060,000

Cost of sales method


Masay Company Income Statement Year ended December 31, 2008 Note Net sales revenue 7,450,000 Cost of goods sold (5,120,000) (1) (2)

Gross income 2,330,000 Other income 210,000 Total income 2,540,000 Expenses: Selling expenses Administrative expenses Other expense 1,720,000 Income before tax 820,000 Income tax expense ( 320,000) Net income 500,000

(3)

(4) (5) (6)

830,000 590,000 300,000

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Note 1 Net sales revenue
Sales Sales returns and allowances Net sales revenue 7,500,000 ( 50,000) 7,450,000

Note 2 Cost of goods sold


Finished goods January 1 Cost of goods manufactured Goods available for sale Finished goods December 31 Cost of goods sold 360,000 5,060,000 5,420,000 ( 300,000) 5,120,000

Note 3 Other income


Gain from expropriation Interest income Gain on sale of equipment 100,000 10,000 100,000 210,000

Note 4 Selling expenses


Sales salaries Advertising Depreciation store equipment 400,000 160,000 70,000

Delivery expenses Total

200,000 830,000

Note 5 Administrative expenses


Office salaries 150,000 Depreciation office equipment Accounting and legal fees Office expenses Total

40,000 150,000 250,000 590,000

Note 6 Other expense


Earthquake loss 300,000

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Nature of expense method
Masay Company Income Statement Year Ended December 31, 2008 Net sales revenue Other income Total income Expenses: Decrease in finished goods and goods in process Raw materials used Direct labor Factory overhead Salaries Advertising Depreciation Delivery expenses Accounting and legal fees Office expenses Other expense Income before tax Income tax expense Net income Note (1) (2) 7,450,000 210,000 7,660,000 130,000 2,920,000 950,000 1,120,000 550,000 160,000 110,000 200,000 150,000 250,000 300,000

(3) (4) (5) (6) (7)

(8)

6,840,000 820,000 ( _320,000) 500,000

Note 1 Net sales revenue


Sales Sales returns and allowances Net sales revenue ( 7,500,000 50,000) 7,450,000

Note 2 Other income


Gain from expropriation Interest income Gain on sale of equipment 100,000 10,000 100,000 210,000 January 1 360,000 240,000 600,000 December 31 300,000 170,000 470,000 Decrease 60,000 70,000 130,000

Note 3 Decrease in finished goods and goods in process


Finished goods Goods in process Total

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Note 4 Raw materials used
Raw materials Purchases Raw materials Raw materials Raw materials January 1 available for use December 31 used 200,000 3,000,000 3,200,000 280,000 2,920,000

Note 5 Factory overhead


Indirect labor Superintendence Light, heat and power Rent factory building Repair and maintenance machinery Factory supplies used 110,000 Depreciation machinery Total 250,000 210,000 320,000 120,000 50,000 60,000 1,120,000

Note 6 Salaries
Sales salaries Office salaries 150,000 Total 400,000 550,000

Note 7 Depreciation
Depreciation store equipment Depreciation office equipment Total 70,000 40,000 110,000

Note 8 Other expense


Earthquake loss 300,000

Problem 2-8
Youth Company Income Statement Year ended December 31, 2008 Net sales revenue Cost of goods sold Gross income Expenses: Selling expenses Administrative expenses Other expense Income before tax Income tax expense Net income Note (1) (2) (3) (4) (5) 690,000 580,000 340,000 8,870,000 (5,900,000) 2,970,000

1,610,000 1,360,000 ( 360,000) 1,000,000

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Note 1 Net sales revenue
Sales Sales returns and allowances Net sales revenue 9,070,000 ( 200,000) 8,870,000

Note 2 Cost of goods sold


Beginning inventory Purchases Transportation in Purchase discounts Goods available for sale Ending inventory Cost of goods sold 1,500,000 5,750,000 150,000 ( 100,000) 5,800,000 7,300,000 (1,400,000) 5,900,000

Note 3 Selling expenses


Depreciation store equipment Store supplies 80,000 110,000

Sales salaries Total

500,000 690,000

Note 4 Administrative expenses


Officers salaries Depreciation building Office supplies Total 400,000 120,000 60,000 580,000

Note 5 Other expense


Uninsured flood loss 340,000

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Problem 2-9
Christian Company Statement of Cost of Goods Manufactured Year Ended December 31, 2008 Purchases 1,600,000 Freight in 80,000 Total 1,680,000 Increase in raw materials ( 100,000) Raw materials used 1,580,000 Direct labor 1,480,000 Factory overhead: Indirect labor Depreciation machinery

600,000 50,000

Factory taxes Factory supplies expense Factory superintendence Factory maintenance Factory heat, light and power 1,750,000 Total manufacturing cost Decrease in goods in process Cost of goods manufactured Christian Company Income Statement Year Ended December 31, 2008 Note Sales revenue 8,000,000 Cost of goods sold (5,100,000) Gross income Expenses: Selling expenses Administrative expenses 1,730,000 Income before tax Income tax expense ( 170,000) Net income (1)

130,000 120,000 480,000 150,000 220,000 4,810,000 90,000 4,900,000

2,900,000 (2) (3) 800,000 930,000 1,170,000 1,000,000

Note 1 Cost of goods sold


Cost of goods manufactured Decrease in finished goods Cost of goods sold 4,900,000 200,000 5,100,000

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Note 2 Selling expenses


Sales salaries 520,000 Advertising 120,000 Delivery expense 160,000 Total 800,000

Note 3 Administrative expenses


Office supplies expense 30,000 Office salaries 800,000 Doubtful accounts 100,000 Total 930,000

Problem 2-10
Ronald Company Statement of Cost of Goods Manufactured Year Ended December 31, 2008 Materials January 1 1,120,000 Purchases Freight on purchases Purchase discounts 1,800,000 Materials available for use 2,920,000 Less: Materials December 31 1,560,000 Materials used 1,360,000 Direct labor 2,000,000 Factory overhead: Heat, light and power Repairs and maintenance Indirect labor Other factory overhead Factory supplies used (300,000 + 660,000 540,000) Depreciation factory building 2,100,000 Total manufacturing cost 5,460,000 Goods in process January 1 360,000 Total cost of goods in process 5,820,000 Less: Goods in process December 31 320,000 Cost of goods manufactured

1,600,000 220,000 ( 20,000)

600,000 100,000 360,000 340,000 420,000 280,000

5,500,000

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Ronald Company Income Statement Year Ended December 31, 2008 Note Net sales revenue Cost of goods sold (5,400,000) Gross income Other income Total income Expenses: Selling expenses Administrative expenses Income before tax Income tax expense Net income (1) (2) (3) 1,580,000 160,000 1,740,000 200,000 340,000 540,000 1,200,000 ( 200,000) 1,000,000 6,980,000

Note 1 Net sales revenue


Sales Sales returns and allowances Net sales revenue 7,120,000 ( 140,000) 6,980,000

Note 2 Cost of goods sold


Finished goods January 1 Cost of goods manufactured Goods available for sale Finished goods December 31 Cost of goods sold 420,000 5,500,000 5,920,000 ( 520,000) 5,400,000

Note 3 Other income


Interest revenue 160,000

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Problem 2-11
Reliable Company Statement of Retained Earnings Year Ended December 31, 2008 Retained earnings January 1 Prior period error overdepreciation in 2007 Change in accounting policy from FIFO to weighted average method credit adjustment Corrected beginning balance Net income Decrease in appropriation for treasury share Total Cash dividends paid to shareholders Current appropriation for contingencies Retained earnings December 31 200,000 100,000 150,000 450,000 1,300,000 200,000 1,950,000 ( 500,000) ( 100,000) 1,350,000

Problem 2-12
Net income Loss from fire Goodwill impairment Loss on sale of equipment Gain on retirement of bonds payable Gain on life insurance settlement Adjusted net income 3,000,000 ( 50,000) ( 250,000) ( 200,000) 100,000 450,000 3,050,000

Gondola Company Statement of Retained Earnings Year ended December 31, 2008 Balance January 1 Compensation of prior period not accrued Correction of prior period error credit Adjusted beginning balance Net income adjusted Stock dividend Loss on retirement of preference share Appropriated for treasury share Balance December 31 2,600,000 ( 500,000) 400,000 2,500,000 3,050,000 ( 700,000) ( 350,000) (1,000,000) 3,500,000

CHAPTER 3
Problem 3-1
1. 2. 3. 4. 5. D A A C B 6. 7. 8. 9. 10. D B C C A 1. 2. 3. 4. 5. D D C A C

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Problem 3-2
6. 7. 8. 9. 10. D D B D B

Problem 3-3
a. Undeposited collections Cash in bank PCIB Cash in bank PCIB (for payroll) 150,000 Cash in bank - PCIB (savings deposit) Money market instrument 90 days Total cash and cash equivalents b. Accounts receivable (15,000 + 25,000) Cash in foreign bank Advances to officers Sinking fund cash Trading securities Bank overdraft Cash 40,000 100,000 30,000 450,000 120,000 50,000 690,000 60,000 500,000 100,000 2,000,000 2,810,000

Problem 3-4
Adjusting entries on December 31, 2008 a. Cash Accounts payable b. Cash Accounts payable c. Accounts receivable Cash d. Accounts receivable (20,000 + 60,000 + 30,000) Money market placement Cash in closed bank 100,000 100,000 50,000 50,000 200,000 200,000 110,000 1,000,000 50,000

Advances to employee Pension fund Cash

30,000 400,000 1,590,000

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Cash and cash equivalents: Demand deposit (see below) Time deposit 30 days 500,000 Petty cash fund Total Demand deposit per book Undelivered check Postdated check delivered Window dressing of collection Adjusted balance 1,450,000 10,000 1,960,000 1,500,000 100,000 50,000 ( 200,000) 1,450,000

Problem 3-5
1. Cash on hand Postdated check Adjusted cash on hand 2. Petty cash fund Unreplenished petty cash expenses Postdated employee check Adjusted petty cash 3. Security Bank current account Postdated company check delivered Adjusted balance 4. Cash on hand Petty cash fund Security Bank current account PNB current account No. 1 PNB current account No. 2 BSP Treasury bill 60 days 3,000,000 Total cash and cash equivalents 500,000 (100,000) 400,000 20,000 ( 2,000) ( 3,000) 15,000 1,000,000 200,000 1,200,000 400,000 15,000 1,200,000 400,000 ( 50,000) 4,965,000

*The BPI Time deposit of P2,000,000 is shown as noncurrent investment because it is restricted for land acquisition. 5. Accounts receivable Cash on hand Expenses Receivable from employee 100,000 100,000 2,000 3,000

Petty cash fund Security Bank current account Accounts payable 200,000

5,000 200,000

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Problem 3-6
1. Cash on hand 500,000 NSF customer check ( 40,000) Postdated customer check ( 60,000) Adjusted on hand 400,000 2. Currency and coins Check drawn payable to petty cashier Adjusted petty cash 3. Cash in bank 2,000,000 Undelivered company check 100,000 Postdated company check delivered 150,000 Adjusted cash in bank 2,250,000 4. Accounts receivable (40,000 + 60,000) Cash on hand 100,000 Advances to employees Cash short or over Petty cash fund Cash in bank (100,000 + 150,000) Accounts payable 250,000 100,000 1,000 14,000 15,000

3,000 2,000 5,000 250,000

Problem 3-7
1. Cash on hand 200,000 NSF customer check ( 35,000) Postdated customer check ( 15,000)

Adjusted cash on hand 150,000 2. Petty cash fund: Currency and coins 3. Philippine Bank current account 5,000,000 Undelivered company check Postdated company check delivered Adjusted balance 4. Cash on hand Petty cash fund Philippine Bank current Manila Bank current Asia Bank time deposit Total cash and cash equivalent 5,000

25,000 45,000 5,070,000 150,000 5,000 5,070,000 4,000,000 2,000,000 11,225,000

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5. Accounts receivable Cash on hand 50,000 Receivable from officer Expenses Cash short or over Petty cash Philippine Bank current Accounts payable City Bank current 100,000 Bank overdraft 100,000 50,000

2,000 12,000 1,000 15,000 70,000 70,000

Problem 3-8
Fluctuating Fund System 1. Petty cash fund Cash in bank 2. Postage Supplies Transportation Miscellaneous expense Petty cash fund 10,000 10,000 1,500 5,500 1,200 800 9,000 Imprest Fund System 1. Petty cash fund Cash in bank 2. No entry 10,000 10,000

3. Petty cash fund Cash in bank

14,000 14,000

3. Petty cash fund 5,000 Postage 1,500 Supplies 5,500 Transportation 1,200 Miscellaneous expense 800 Cash in bank 14,000 Imprest Fund System

Problem 3-9
Fluctuating Fund System 1. Petty cash fund Cash in bank 2. Postage Supplies Petty cash fund 10,000 10,000 1,500 2,000 3,500 3. No entry 3. Transportation 1,000 Miscellaneous expense 500 Cash in bank 1,500 4. No entry

1. Petty cash fund Cash in bank 2. No entry

10,000 10,000

30
Fluctuating Fund System 4. Supplies Accounts payable Petty cash fund 5. Petty cash fund Cash in bank 6. Postage Supplies Transportation Petty cash fund 7. Petty cash fund Cash in bank 1,000 3,000 4,000 9,000 9,000 2,000 3,000 4,000 9,000 19,000 19,000 Imprest Fund System 5. Postage 1,500 Supplies 3,000 Transportation 1,000 Miscellaneous expense 500 Accounts payable 3,000 Cash in bank 6. No entry 7. Petty cash fund Postage Supplies Transportation Cash in bank 10,000 2,000 3,000 4,000 19,000

9,000

Problem 3-10
Fluctuating Fund System
May 2 Petty cash fund Cash in bank 29 Postage Supplies 3,000 10,000 10,000 1,000 3,000

Imprest Fund System


May 2 Petty cash fund Cash in bank 29 Postage Supplies 10,000 10,000 1,000

Transportation Miscellaneous expense 1,500 Petty cash fund

2,500 1,500 8,000

Transportation

2,500 Miscellaneous expense 8,000 8,000

Petty cash fund Petty cash fund Cash in bank

8,000 June 30 Supplies Accounts payable Transportation Petty cash fund July 1 Petty cash fund Supplies Postage Transportation 2,000 1,000 June 30 Supplies Accounts payable 1,000 Transportation 4,000 Petty cash fund 4,000 2,000 1,000 1,000 2,000 1,000 1,000 4,000

To reverse the adjustment made on June 30. 15 Petty cash fund 5,000 July 15 Supplies 1,500 Supplies 3,500 Postage 500 Postage 1,500 Transportation 500 Transportation 1,500 Miscellaneous expense 500 Miscellaneous expense 500 Petty cash fund 3,000 Cash in bank 12,000 Petty cash fund 12,000 Cash in bank 12,000

31
Problem 3-11
2008 Nov. 2 30 Petty cash fund Cash in bank Postage Supplies Petty cash fund Cash in bank Postage Supplies Special deposit Petty cash fund Petty cash fund Postage Supplies Special deposit No entry Postage Supplies 5,000 6,000 10,000 10,000 2,000 5,000 10,000 17,000 3,000 4,000 2,000 9,000 9,000 3,000 4,000 2,000

Dec. 31

2009 Jan. 1

2 31

Accounts payable Cash short or over Cash in bank

7,000 1,000 19,000

Problem 3-12 Requirement 1


2008 Dec. 1 Petty cash fund Cash in bank 20 Selling expenses Miscellaneous expenses Equipment Cash in bank 31 Receivable from employee Selling expenses Transportation Petty cash fund 2009 Jan. 1 Petty cash fund Receivable from employee Selling expenses Transportation 10,000 10,000 5,000 2,000 2,000 9,000 2,000 1,500 500 4,000 4,000 2,000 1,500 500

32
2009 Jan. 15 No entry 31 Selling expenses Administrative expenses Transportation Purchases Cash in bank 2,000 2,000 1,500 1,200 6,700

Requirement 2
Petty cash 10,000 Less: Petty cash expenses from December 21, 2008 to January 31, 2009: Selling expenses (1,500 + 500) 2,000 Administrative expenses 2,000 Transportation (500 + 1,000) 1,500 Purchases 1,200 6,700 Petty cash before replenishment 3,300

Problem 3-13 Answer B Problem 3-15 Answer A


Petty cash fund Undeposited collections Cash in bank 50,000 1,100,000 2,500,000

Problem 3-14 Answer C Problem 3-16 Answer A


Payroll account Value added tax account Travelers check 2,500,000 1,000,000 300,000

Total

3,650,000

Money order Petty cash fund Total

700,000 40,000 4,540,000

Problem 3-17 Answer C


Checking account #101 Checking account #201 Time deposit account 90-day Treasury bill Total cash and cash equivalent 1,750,000 ( 100,000) 250,000 500,000 2,400,000

Problem 3-18
Cash in First Bank Change fund Petty cash fund Total

Answer B
5,000,000 50,000 15,000 5,065,000

Problem 3-19 Answer B


Cash balance per book Credit adjustment Adjusted cash balance 6,000,000 (1,600,000) 4,400,000

33
Note receivable Accounts receivable (400,000 + 200,000) Cash 1,000,000 600,000 1,600,000

Problem 3-20 Answer A


Checkbook balance Postdated customer check NSF check Undelivered company check Adjusted balance 8,000,000 (2,000,000) ( 500,000) 1,500,000 7,000,000

Problem 3-21 Answer A


Cash on hand Cash in bank Petty cash Saving deposit Total deposit 2,400,000 3,500,000 40,000 2,000,000 7,940,000

Problem 3-22 Answer B 24 Answer A Problem 3-25 Answer A

Problem 3-23 Answer A

Problem 3-

Cash on hand and in bank Time deposit Saving deposit Total

5,000,000 6,000,000 1,000,000 12,000,000

Problem 3-26 Answer B


Currencies Coins Accommodation check Total 4,000 1,000 6,000 11,000

Problem 3-27 Answer C


Coins and currency Replenishment check 4,000 Total 2,000 6,000

Problem 3-28 Answer C


Total petty cash Currency and coins Amount of replenishment 10,000 ( 3,000) 7,000

34
CHAPTER 4
Problem 4-1 1. 2. 3. 4. 5. D A B C C 6. 7. 8. 9. 10. C D C A B 11. 12. 13. 14. 15. C B A C C

Problem 4-2 Balance per book Add: CM for note collected Total Less: DM for service charge Adjusted book balance Balance per bank 108,000 Add: Deposit in transit 80,000 65,000 30,000 95,000 2,000 93,000

Total 188,000 Less: Outstanding checks: No. 102 105 107 95,000 Adjusted bank balance 93,000 Adjusting entries: 1. Cash in bank Note receivable 30,000 2. Bank service charge Cash in bank 2,000 Problem 4-3 Balance per book 110,000 Add: CM for note collected 45,000 Total 155,000 Less: DM for service charge NSF check Book error (52,000 25,000) 42,000 Adjusted book balance 113,000

15,000 30,000 50,000

30,000

2,000

5,000 10,000 27,000

35
Balance per bank 135,000 Add: Deposit in transit Erroneous bank debit 68,000 Total 203,000 Less: Outstanding checks: No. 770 775

60,000 8,000

20,000 30,000

777 90,000 Adjusted bank balance 113,000 Adjusting entries: 1. Cash in bank Bank service charge Note receivable 50,000 2. Bank service charge Accounts receivable Accounts payable Cash in bank 42,000 45,000 5,000

40,000

5,000 10,000 27,000

Problem 4-4
Balance per book 2,840,000 Add: CM for note collected 270,000 Total 3,110,000 Less: DM for service charge 5,000 Adjusted book balance 3,105,000 Balance per bank 3,265,000 Add: Deposit in transit 450,000 Total 3,715,000 Less: Outstanding checks: No. 116 122 124 125 610,000 Adjusted bank balance 3,105,000 Adjusting entries: 1. Cash in bank Bank service charge Note receivable Interest income 270,000 10,000 250,000 30,000

60,000 180,000 120,000 250,000

2. Bank service charge Cash in bank

5,000 5,000

36
Problem 4-5 Balance per book 5,000,000 Add: Note collected by bank Total 7,150,000 Less: Bank service charge NSF check 550,000 Adjusted book balance 6,600,000 Balance per bank 4,450,000 Deposit in transit 3,000,000 Total 7,450,000 Less: Outstanding checks 850,000 Adjusted bank balance 6,600,000 Adjusting entries: 1. Cash in bank Bank service charge Note receivable 2,000,000 Interest income 200,000 2. Bank service charge Accounts receivable Cash in bank 550,000 Problem 4-6 Book balance 1,405,000 Add: Collection of note Interest on note Book error on check no. 175 2,695,000 2,150,000 50,000

2,150,000 50,000 500,000

50,000 500,000

2,500,000 150,000 45,000

Total 4,100,000 Less: Bank service charge Payment for light and water NSF check 470,000 Adjusted book balance 3,630,000 Bank balance 5,630,000 Add: Deposit in transit 750,000 Total 6,380,000 Less: Bank error Outstanding checks 2,750,000 Adjusted bank balance 3,630,000

5,000 245,000 220,000

1,100,000 1,650,000

37
Adjusting entries: 1. Cash in bank Note receivable 2,500,000 Interest income 150,000 Accounts payable 45,000 2. Bank service charge Light and water Accounts receivable Cash in bank 470,000 Problem 4-7 a. Balance per book April 30 1,100,000 Credit memo for note collected 60,000 Outstanding checks: No. 1331 2,695,000

5,000 245,000 220,000

40,000

1332 1334 1335 140,000 Total 1,300,000 Less: Bank service charge NSF check Undeposited collections 300,000 Balance per bank April 30 1,000,000 b. Adjusting entries: 1. Cash in bank Note receivable 2. Bank service charge Accounts receivable Cash in bank c. Balance per book April 30 1,100,000 CM for note collected Bank service charge ( 5,000) NSF check ( 25,000) Adjusted cash in bank 1,130,000

30,000 60,000 10,000

5,000 25,000 270,000

60,000 60,000 5,000 25,000 30,000

60,000

38
Problem 4-8 a. Balance per bank 3,500,000 Add: Undeposited collections NSF check DM for safety deposit Unrecorded check 730,000 Total Less: Checks outstanding Overstatement of creditors check

550,000 50,000 5,000 125,000 4,230,000 650,000 270,000

Understatement of customers check 1,100,000 Balance per book 3,130,000 b. Adjusting entries: 1. Cash in bank Accounts payable 270,000 Accounts receivable 180,000 2. Accounts receivable Bank service charge Accounts payable Cash in bank 180,000 c. Balance per book 3,130,000 Overstatement of creditors check 270,000 Understatement of customers check 180,000 Total 3,580,000 Less: NSF check DM for safety box Unrecorded check 180,000 Adjusted book balance 3,400,000

180,000

450,000

50,000 5,000 125,000

50,000 5,000 125,000

Problem 4-9
Balance per book 2,700,000 Add: Proceeds of bank loan Note collected by bank 1,375,000 Total 4,075,000 Less: Service charge Customers check charged back 60,000 Adjusted book balance 4,015,000

940,000 435,000

10,000 50,000

39
Balance per bank 4,000,000 Add: Deposit in transit Incorrect deposit Erroneous bank charge Erroneous debit memo 915,000 Total 4,915,000 Less: Outstanding checks Erroneous bank credit 900,000 Adjusted bank balance 4,015,000 Adjusting entries: 1. Cash in bank Bank service charge Interest expense (60,000 x 1/6) Prepaid interest expense Loan payable (940,000/94%) 1,000,000 Note receivable Interest income 2. Bank service charge Accounts receivable Cash in bank Problem 4-10 Balance per book (squeeze) Add: Proceeds of bank loan Proceeds of note collected 935,000 Total Less: Bank service charge NSF check 55,000 Adjusted book balance Balance per bank (squeeze) Add: Deposit in transit Bank error (200,000 20,000) 630,000 Total Less: Outstanding checks (750,000 50,000) 700,000 2,120,000 500,000 435,000 3,055,000 5,000 50,000 3,000,000 3,070,000 450,000 180,000 3,700,000 1,375,000 5,000 10,000 50,000 400,000 40,000 10,000 50,000 60,000

475,000 90,000 150,000 200,000

600,000 300,000

Adjusted bank balance Adjusting entries: Cash in bank Bank service charge (5,000 + 15,000) Accounts receivable Loan payable Notes receivable Interest income 880,000 20,000 50,000

3,000,000

500,000 400,000 50,000

40
Problem 4-11 Balance per book Add: Proceeds of bank loan Total Less: Understatement of check in payment of account (200,000 20,000) Petty cash fund 190,000 Adjusted book balance Balance per bank Add: Undeposited collections Erroneous bank charge Deposit omitted from bank statement 500,000 Total Less: Erroneous bank credit Outstanding checks 674,000 Adjusted bank balance Adjusting entries: Cash in bank Interest expense (84,000 x 2/12) Prepaid interest expense Accounts payable Petty cash fund Supplies Transportation Postage Loan payable (516,000/86%) Problem 4-12 Balance per book Add: Overstatement of check number 765 Check number 555 stopped for payment 30,000 1,300,000 20,000 10,000 326,000 14,000 70,000 180,000 4,000 2,000 3,000 1,000 600,000 5,000,000 516,000 5,516,000 180,000 10,000 5,326,000 5,500,000 300,000 50,000 150,000 6,000,000 130,000 544,000 5,326,000

Total Less: Service charge NSF check 90,000 Adjusted book balance Balance per bank Add: Undeposited collections Total Less: Outstanding checks: Number 761 762 763 764 765 235,000 Adjusted bank balance

1,330,000 5,000 85,000 1,240,000 1,200,000 275,000 1,475,000 55,000 40,000 25,000 65,000 50,000 1,240,000

41
Adjusting entries: 1. Cash in bank Accounts payable Miscellaneous income 2. Bank service charge Accounts receivable Cash in bank 3. Receivable from cashier Accounts receivable Sales discounts 30,000 20,000 10,000 5,000 85,000 90,000 40,000 30,000 10,000

Problem 4-13
a. Bank reconciliation June 30 Book balance Add: Credit memo for note collected Total Less: NSF check Service charge Adjusted book balance Bank balance Add: Deposit in transit Total Less: Outstanding checks Adjusted bank balance Bank reconciliation July 31 Book balance Add: Credit memo for bank loan 1,400,000 500,000 1,000,000 300,000 1,300,000 100,000 4,000 104,000 1,196,000 1,650,000 400,000 2,050,000 854,000 1,196,000

Total Less: Service charge Adjusted book balance Bank balance Add: Deposit in transit Total Less: Outstanding checks Adjusted bank balance b. Adjusting entries, July 31 1. Cash in bank Bank loan payable 500,000 500,000

1,900,000 1,000 1,899,000 2,650,000 1,100,000 3,750,000 1,851,000 1,899,000

42
2. Bank service charge Cash in bank Computation of deposit in transit July 31 Deposit in transit June 30 400,000 Add: Deposits during July: Book debits Less: June credit memo for note collected 3,700,000 Total 4,100,000 Less: Deposits credited by bank during July: Bank credits Less: July credit memo for bank loan 3,000,000 Deposit in transit July 31 1,100,000 Computation of outstanding checks July 31 Outstanding checks, June 30 854,000 Add: Checks drawn by company during July: Book credits Less: June debit memos for NSF check Service charge 3,496,000 Total Less: Checks paid by bank during July: Bank debits 1,000 1,000

4,000,000 300,000

3,500,000 500,000

3,600,000 100,000 4,000 104,000 4,350,000 2,500,000

Less: July service charge Outstanding checks, July 31

1,000

2,499,000 1,851,000

Problem 4-14
a. Reconciliation October 31 Adjusted book balance Bank balance Add: Deposit in transit Total Less: Outstanding checks Adjusted bank balance Reconciliation November 30 Book balance Add: Understatement of collection from customer Total Less: Understatement of check disbursement Adjusted book balance 1,000,000 90,000 1,090,000 270,000 820,000 600,000 400,000 300,000 700,000 100,000 600,000

43
Bank balance 930,000 Add: Deposit in transit Check of Susan Company charged in error 390,000 Total 1,320,000 Less: Outstanding checks Deposit of Susan Company erroneously credited 500,000 Adjusted bank balance 820,000 b. Adjusting entries November 30 1. Cash in bank Accounts receivable 90,000 2. Accounts payable Cash in bank 270,000 90,000

190,000 200,000

400,000 100,000

270,000

Computation of outstanding checks October 31 Outstanding checks October 31 (squeeze) Add: Checks issued by depositor: Book disbursements Understatement of check paid 2,070,000 Total Less: Checks paid by bank: Bank disbursements Check of Susan Company charged in error 1,770,000 Outstanding checks November 30 Computation of deposit in transit November 30 Deposit in transit October 31 Add: Cash receipts deposited during November: Book receipts Understatement of collection from customer 2,290,000 Total Less: Deposits credited by bank during November: Bank receipts Deposit of Susan Company erroneously credited 2,400,000 Deposit in transit November 30 300,000 2,200,000 90,000 2,590,000 2,500,000 ( 100,000) 190,000 100,000 1,800,000 270,000 2,170,000 1,970,000 ( 200,000) 400,000

Problem 4-15
a. Reconciliation on July 1 Adjusted book balance 1,270,000

44
Bank balance 1,720,000 Add: Deposit in transit 500,000 Total 2,220,000 Less: Outstanding checks 950,000 Adjusted bank balance 1,270,000 Reconciliation on July 31

Book balance 470,000 Add: Note collected by bank 1,500,000 Total 1,970,000 Less: Bank service charge 20,000 Adjusted book balance 1,950,000 Bank balance 2,700,000 Add: Deposit in transit 400,000 Total 3,100,000 Less: Outstanding checks: Check # 107 108 1,150,000 Adjusted bank balance b. Adjusting entries on July 31 1. Cash in bank Note receivable 2. Bank service charge Cash in bank Computation of deposit in transit July 1 Deposit in transit July 1 (squeeze) Cash receipts per book Total Less: Deposits credited by bank Deposit in transit July 31 Computation of outstanding checks July 1 Outstanding checks July 1 (squeeze) Checks drawn by depositor Total Less: Checks paid by bank Outstanding checks July 31 950,000 4,200,000 5,150,000 4,000,000 1,150,000 500,000 3,400,000 3,900,000 3,500,000 400,000 1,500,000 1,500,000 20,000 20,000

650,000 500,000 1,950,000

45

Problem 4-16
Balance per book November 30 Less: Service charge NSF check Customers note erroneously recorded as cash receipt 160,000 Adjusted book balance Balance per bank November 30 Add: Deposit in transit Total Less: Outstanding checks Adjusted bank balance Deposit in transit October 31 Cash receipts deposited: Book debits October collections recorded in November Customers note recorded as cash receipt Total Less: Deposits credited by bank: Bank credits Correction of bank error Deposit in transit November 30 Outstanding checks October 31 Checks issued by depositor: Book credits October bank service charge Total Checks paid by bank: Bank debits November bank service charge November NSF check Outstanding checks November 30 Adjusting entry: Bank service charge Accounts receivable Note receivable Cash in bank 10,000 50,000 100,000 160,000 500,000 10,000 50,000 100,000 340,000 600,000 120,000 720,000 380,000 340,000 45,000 710,000 ( 45,000) (100,000)

565,000 610,000

500,000 ( 10,000) 490,000 120,000 125,000 1,200,000 ( 5,000) 1,000,000 10,000) 50,000) 1,195,000 1,320,000

( (

940,000 380,000

46

Problem 4-17
March 31 April 30 Book balance 280,000 Note collected by bank March April Service charge March April ( 2,000) NSF check March April ( 30,000) Deposit in transit March 31 April 30 (220,000) Outstanding checks March 31 April 30 Bank balance 200,000 60,000 ( 8,000) Receipts 800,000 ( 60,000) 100,000 ( 8,000) 2,000 Disbursements 720,000

100,000

( 20,000)

( 20,000) 30,000 80,000 (220,000) 178,000 (372,000) 530,000

( 80,000)

178,000 330,000 700,000

372,000 500,000

Problem 4-18
July 31 Receipts Disbursements August 31 Bank balance 800,000 5,000,000 3,940,000 1,860,000 Book error on collection ( 180,000) ( 180,000) Book error on payment ( 540,000) 540,000 Bank error on deposit ( 200,000) ( 200,000) Bank error on payment ( 400,000) 400,000 NSF check: July 100,000 100,000 August ( 50,000) 50,000 Note collected by bank: July ( 200,000) 200,000 August ( 300,000) ( 300,000) Deposit in transit: July 600,000 ( 600,000) August 480,000 480,000 Outstanding checks: July ( 100,000) ( 100,000) August 650,000 ( 650,000) Book balance 1,200,000 4,400,000 3,600,000 2,000,000

47
Problem 4-19
Nov. 30 Dec. 31 Book balance 3,160,000 Bank service charge November 30 December 31 4,000) Collection of note November 30 December 31 ( 300,000) Adjusted book balance 2,856,000 2,032,000 ( 2,000) 2,568,000 ( 2,000) 4,000 1,440,000 Receipts Disbursements

( 200,000) 1,830,000

200,000 ( 2,468,000 300,000) 1,442,000

Bank balance 1,890,000 2,090,000 1,080,000 2,900,000 Outstanding checks November 30 ( 180,000) ( 180,000) December 31 592,000 ( 592,000) Deposit in transit November 30 80,000 ( 80,000) December 31 498,000 498,000 Check erroneously charged by bank November 30 40,000 ( 40,000) December 31 ( 50,000) 50,000 Adjusted bank balance 1,830,000 2,468,000 1,442,000 2,856,000

Adjusting entry: Bank service charge Note receivable Cash in bank 4,000 300,000 304,000

48
Problem 4-20
Sept. 30 Oct. 31 Book balance 1,900,000 1,400,000 2,400,000 900,000 NSF check: September 30 ( 60,000) ( 60,000) October 31 40,000 ( 40,000) Collection of accounts receivable September 30 30,000 ( 30,000) October 31 50,000 50,000 Overstatement of check September 30 90,000 ( 90,000) October 31 ________ ( 120,000) 120,000 Adjusted balance 1,960,000 1,330,000 2,260,000 1,030,000 Bank balance 800,000 Deposit in transit September 30 October 31 260,000 Outstanding checks September 30 October 31 ( 30,000) Adjusted balance 1,030,000 2,100,000 130,000 1,200,000 ( 130,000) 260,000 ( 270,000) 30,000 1,960,000 1,330,000 2,260,000 2,500,000 Receipts Disbursements

( 270,000)

Adjusting entries on October 31 1. Accounts receivable Cash in bank 2. Cash in bank Accounts receivable Salaries 120,000 40,000 40,000 170,000 50,000

49
Problem 4-21
May 31 June 30 Balance per book 2,400,000 Bank service charge: May 31 June 30 ( 25,000) NSF check: June 30 ( 200,000) Interest collected: June 30 Book error: June 30 Adjusted balance Balance per bank Deposit in transit May 31 June 30 Outstanding checks May 31 June 30 Adjusted balance 2,500,000 ( 20,000) 5,300,000 ( 5,400,000 20,000) 25,000 200,000 75,000 2,480,000 2,700,000 625,000 ( 845,000) 2,480,000 5,375,000 _________ 5,375,000 5,500,000 ( 625,000) 500,000 ( 845,000) 550,000 5,305,000 ( ( 300,000) 5,305,000 5,600,000 75,000 300,000 2,550,000 2,600,000 500,000 550,000) 2,550,000 Receipts Disbursements

Adjusting entries on June 30: 1. Cash in bank Interest income Equipment 2. Bank service charge Accounts receivable Cash in bank 375,000 75,000 300,000 25,000 200,000 225,000

Problem 4-22 Answer A


Balance per book Bank charges Customer note collected by bank Interest on customer note NSF customer check Depositors note charged to account (1,000,000) Adjusted book balance ( 4,000,000 10,000) 1,500,000

60,000 ( 250,000) 4,300,000

50
Problem 4-23 Answer B
Balance per bank Add: Deposit in transit Total Less: Outstanding checks Erroneous bank credit 700,000 Adjusted bank balance 2,000,000 200,000 2,200,000 400,000 300,000 1,500,000

The adjusted cash in bank can also be computed by starting with the balance per book. Balance per book Add: Proceeds of note collected Total Less: NSF checks (150,000 50,000) 100,000 Adjusted book balance 850,000 750,000 1,600,000 1,500,000

Problem 4-24 Answer C


Balance per book Note collected by bank 8,500,000 950,000

Book error (200,000 20,000) ( 180,000) NSF check Bank service charge Adjusted book balance

( 250,000) ( 20,000) 9,000,000

Problem 4-25 Answer A Problem 4-26 Answer B Problem 4-27 Answer B Problem 4-28 Answer D
Balance per ledger Service charges Collection of note Book error Unrecorded check for traveling expenses Adjusted book balance Balance per bank Deposit in transit Total Outstanding checks (squeeze) Adjusted bank balance ( ( 3,750,000 50,000) 1,500,000 100,000)

( 500,000) 4,600,000 6,200,000 1,400,000 7,600,000 3,000,000 4,600,000

51
Problem 4-29 Answer B Problem 4-30 Answer A Problem 4-31 Answer C Outstanding checks May 31 3,000,000 Checks issued by depositor in June: Total credits to cash in June Service charge in May recorded in June 8,900,000 Total 11,900,000 Checks paid by bank in June: Checks and charges by bank in June Service charge in June NSF check in June 6,950,000 Outstanding checks June 30 4,950,000

9,000,000 (

100,000)

8,000,000 50,000) (1,000,000)

Problem 4-32 Answer A Balance per book June 30 2,100,000 Service charges ( 50,000) Collection by bank 550,000 NSF check ( 100,000) Adjusted book balance 2,500,000 Balance per bank June 30 2,400,000 Deposits outstanding June 30 500,000 Checks outstanding June 30 ( 400,000) Adjusted bank balance 2,500,000 Outstanding checks May 31 100,000 Checks recorded by book in June 2,500,000 Total 2,600,000 Less: Checks recorded by bank in June 2,200,000 Outstanding checks June 30 400,000 Deposits outstanding May 31 300,000 Deposits recorded by book in June 1,800,000 Total 2,100,000 Less: Deposits recorded by bank in June 1,600,000 Deposits outstanding June 30 500,000 Problem 4-33 Answer A Note collected 1,936,000 Book error (1,930,000 1,390,000) ( 540,000) NSF check ( 840,000) Service charge ( 47,000)

Net debt to cash

509,000

52
Problem 4-34 Answer A

Problem 4-35 Answer A


Problem 4-36 Answer D

Balance per bank November 30 3,600,000 December deposits 5,500,000 Total 9,100,000 December disbursements (4,400,000) Balance per bank December 31 4,700,000 Deposit in transit December 700,000 Outstanding checks December ( 500,000) Adjusted bank balance December 31 4,900,000 Balance per book December 31 (squeeze) 4,300,000 Note collected by bank 1,000,000 NSF check ( 350,000) Service charge ( 50,000) Adjusted book balance 4,900,000 Problem 4-37 Answer A

Bank disbursements for July 9,000,000 Outstanding checks June 30 (1,400,000) Outstanding checks July 31 1,000,000 Book disbursements for July 8,600,000 Problem 4-38 Answer B

Bank receipts for April 6,000,000

Deposits in transit March 31 (1,000,000) Deposits in transit April 30 1,500,000 Book receipts for April 6,500,000

53
Problem 5-1 Problem 5-3
1. 2. 3. 4. 5. D D D B A 6. 7. 8. 9. 10. A B C A C

CHAPTER 5
Problem 5-2
1. 2. 3. 4. 5. A C A A A 6. 7. 8. 9. 10. A D C C D 1. 2. 3. 4. 5. D B C D A

Problem 5-4
a. Accounts receivable Notes receivable Installments receivable Advances to suppliers Advances to subsidiary Claim receivable Subscriptions receivable Accrued interest receivable Customers credit balances Advances from customers Receivables b. Accounts receivable Allowance for doubtful accounts Notes receivable 775,000 100,000 300,000 150,000 400,000 15,000 300,000 10,000 30,000 20,000 2,000,000 775,000 50,000) 100,000

Installments receivable Advances to suppliers Claim receivable Subscription receivable Accrued interest receivable Total trade and other receivables

300,000 150,000 15,000 300,000 10,000 1,600,000

c. The advances to subsidiary should be classified as noncurrent and presented as long-term investment. The customers credit balances and advances from customers should be classified as current liabilities and included as part of trade and other payables.

Problem 5-5
a. Accounts receivable January 1 Charge sales Total Less: Collections from customers Writeoff Merchandise returns Allowances to customers Accounts receivable December 31 600,000 6,000,000 6,600,000 5,300,000 35,000 40,000 25,000 5,400,000 1,200,000

54
b. Subscription receivable Deposit on contract Claim receivable Advances to employees Advances to affiliated Advances to supplier Accounts receivable 490,000 c. Accounts receivable 1,200,000 Claim receivable 60,000 Advances to employees 10,000 Advances to supplier 50,000 Total trade and other receivables 1,320,000 d. The subscriptions receivable should be deducted from subscribed share capital. The deposit on contract should be classified as noncurrent and presented as other noncurrent asset. 150,000 120,000 60,000 10,000 100,000 50,000

The advances to affiliates should be classified as noncurrent and presented as long-term investment.

Problem 5-6
Requirement 1 1. Accounts receivable Sales 3,600,000 2. Notes receivable Accounts receivable 400,000 3. Doubtful accounts Allowance for doubtful accounts 90,000 4. Allowance for doubtful accounts Accounts receivable 20,000 5. Sales return Accounts receivable 15,000 6. Cash Accounts receivable 2,450,000 7. Sales discount Accounts receivable 45,000 8. Cash Notes receivable 150,000 3,600,000

400,000

90,000

20,000

15,000

2,450,000

45,000

150,000

55
Requirement 2 Notes receivable Requirement 3 Accounts receivable Less: Allowance for doubtful accounts Net realizable value 670,000 70,000 600,000 250,000

Problem 5-7
FOB destination and freight collect 1. Accounts receivable Freight out Sales Allowance for freight charge 2. Cash Sales discount Allowance for freight charge Accounts receivable FOB destination and freight prepaid 1. Accounts receivable Freight out Sales Cash 2. Cash Sales discount Accounts receivable FOB shipping point and freight collect 1. Accounts receivable Sales 2. Cash Sales discount Accounts receivable 500,000 500,000 485,000 15,000 500,000 500,000 10,000 500,000 10,000 485,000 15,000 500,000 500,000 10,000 500,000 10,000 475,000 15,000 10,000 500,000

FOB shipping point and freight prepaid 1. Accounts receivable Sales Cash 510,000 500,000 10,000

56
2. Cash Sales discount Accounts receivable 495,000 15,000 510,000

Problem 5-8
1. Accounts receivable Sales 2. Cash 4,000,000 4,000,000 1,470,000

Sales discount Accounts receivable 3. Cash Accounts receivable 4. Sales return Accounts receivable 5. Sales return Allowance for sales return

30,000 1,500,000 1,000,000 1,000,000 100,000 100,000 40,000 40,000

Problem 5-9
Gross method
July 1 Accounts receivable 49,000 Sales 49,000 2 Accounts receivable Sales 196,000 50,000 50,000 200,000 200,000

Net method
July 1 Accounts receivable Sales 2 Accounts receivable Sales 196,000

12 Cash 196,000 Sales discount 4,000 196,000 Accounts receivable 30 Cash Accounts receivable 49,000 forfeited 1,000 50,000

12 Cash 196,000 Accounts receivable 200,000 30 Cash 50,000 50,000 Accounts receivable Sales discount

Problem 5-10
a. Credit sales (75% x 5,000,000) 3,750,000 Doubtful accounts (2% x 3,750,000) 75,000 Doubtful accounts Allowance for doubtful accounts 75,000 b. Doubtful accounts (1% x 5,000,000) Allowance for doubtful accounts 50,000 75,000

50,000

57
c. Required allowance Less: Credit balance of allowance 80,000 20,000

Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts d. Required allowance (10% x 500,000) Less: Credit balance of allowance Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts 30,000 60,000

60,000 60,000 50,000 20,000 30,000 30,000

Problem 5-11
a. Required allowance (5% x 600,000) Add: Debit balance in allowance account Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts b. Required allowance Add: Debit balance in allowance account Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts c. Doubtful accounts (2% x 1,900,000) Allowance for doubtful accounts 60,000 60,000 38,000 38,000 40,000 40,000 50,000 10,000 60,000 30,000 10,000 40,000

Problem 5-12
a. Doubtful accounts (3% x 8,000,000) Allowance for doubtful accounts b. Doubtful accounts Allowance for doubtful accounts Allowance January 1 Doubtful accounts (squeeze) Recovery Total Accounts written off Allowance December 31 (8% x 2,000,000) c. Doubtful accounts Allowance for doubtful accounts 210,000 210,000 240,000 240,000 170,000 170,000 100,000 170,000 20,000 290,000 130,000 160,000

58
Allowance January 1 100,000

Doubtful accounts (squeeze) Recovery Total Accounts written off Allowance December 31

210,000 20,000 330,000 130,000 200,000

Problem 5-13
Requirement a 1. Accounts receivable Sales 2. Cash Sales discount Accounts receivable(2,450,000/98%) 2,500,000 3. Cash Accounts receivable 4. Allowance for doubtful accounts Accounts receivable 5. Accounts receivable Allowance for doubtful accounts Cash Accounts receivable 6. Sales return Accounts receivable Requirement b Doubtful accounts Allowance for doubtful accounts Rate = 40,000/1,000,000 = 4% Allowance for doubtful accounts December 31 (4% x 1,500,000) 60,000 Less: Allowance before adjustment Doubtful accounts expense Requirement c Accounts receivable December 31 Allowance for doubtful accounts Net realizable value 1,500,000 ( 60,000) 1,440,000 40,000 40,000 7,000,000 7,000,000 2,450,000 50,000

3,900,000 3,900,000 30,000 30,000 10,000 10,000 10,000 10,000 70,000 70,000

20,000 40,000

59

Problem 5-14
Requirement a 1. Cash Accounts receivable Sales (800,000/10%) 2. Cash Sales discount (5% x 720,000) Accounts receivable(10% x 7,200,000) 3. Cash Accounts receivable 4. Sales discount Allowance for sales discount 10,000 5. Sales return Accounts receivable 6. Allowance for doubtful accounts Accounts receivable Accounts receivable Allowance for doubtful accounts Cash Accounts receivable 7. Doubtful accounts Allowance for doubtful accounts Required allowance December 31 (5% x 2,400,000) Less: Allowance before adjustment Doubtful accounts Rate = 100,000/2,000,000 = 5% Requirement b Accounts receivable Less: Allowance for doubtful accounts Allowance for sales discount 130,000 Net realizable value 2,400,000 120,000 10,000 2,270,000 60,000 60,000 10,000 10,000 10,000 10,000 70,000 70,000 120,000 50,000 70,000 800,000 7,200,000 8,000,000 684,000 36,000 720,000 5,940,000 5,940,000 10,000

80,000 80,000

60
Problem 5-15
Requirement a 1. Accounts receivable Sales (3,070,000 470,000) 2. Cash (2,455,000 1,455,000) Accounts receivable 1,000,000 3. Cash Sales discount Accounts receivable (1,455,000/97%) 4. Allowance for doubtful accounts Accounts receivable 5. Cash Sales 6. Sales return and allowances Accounts receivable 7. Sales return and allowances Cash 8. Accounts receivable Allowance for doubtful accounts Cash Accounts receivable 7. Doubtful accounts Allowance for doubtful accounts Credit sales Less: Sales discount Sales return and allowances 100,000 Net credit sales Doubtful accounts (2,500,000 x 2%) Requirement b Accounts receivable Less: Allowance for doubtful accounts Net realizable value 625,000 60,000 565,000 2,600,000 2,600,000 1,000,000

1,455,000 45,000 1,500,000 20,000 20,000 470,000 470,000 55,000 55,000 10,000 10,000 5,000 5,000 5,000 5,000 50,000 50,000 2,600,000 45,000 55,000 2,500,000 50,000

61

Problem 5-16
1,500,000 7,935,000 15,000 (8,000,000) ( 115,000) ( 55,000) ( 30,000) 1,250,000 Percent of Required Amount Uncollectible 5% 25% 50% 100% 4,410,000/98% 2,475,000/99% Sales discount: 2% x 1% x

1. Accounts receivable Jan. 1 4,500,000 Sales Recovery 2,500,000 Collections Sales discount Writeoff 90,000 Sales return 25,000 Accounts receivable Dec. 31 115,000

4,500,000 2,500,000

Problem 5-17

allowance 1. Not yet due 1 30 days past due 60,000 31 60 days past due 25,000 61 90 days past due 75,000 Over 90 days past due 120,000 280,000 2. Allowance January 1 170,000 Receivables 30,000 Doubtful accounts expense (squeeze) 345,000 Total 545,000 Less: Writeoff (235,000 + 30,000) 265,000 Required allowance December 31 280,000 3. Accounts receivable 3,270,000 Less: Allowance for doubtful accounts 280,000 Net realizable value 2,990,000

1,700,000 1,200,000 100,000 150,000 1,200,000 3,270,000

Problem 5-18
1. 1,000,000 x 1% 10,000 2. 90,000 400,000 x 5% 20,000 20,000 300,000 x 10% 30,000 200,000 200,000 x 25% 50,000 310,000 60,000 x 100% 60,000 140,000 1,960,000 170,000 170,000 3. Doubtful accounts Allowance for doubtful accounts 20,000 Correct amount 200,000 Recorded (2% x 9,000,000) 180,000 Understatement 20,000 4. Accounts receivable December 31 1,960,000 Less: Allowance for doubtful accounts 170,000 Net realizable value 1,790,000 Allowance January 1 Recoveries Doubtful accounts (squeeze) Total Less: Writeoff (100,000 + 40,000) Allowance December 31 20,000

62
Problem 5-19
2005 Total 1. Writeoff 85,000 Less: Recoveries 9,000 Net writeoff 76,000 26,000 2,000 24,000 29,000 3,000 26,000 30,000 4,000 26,000 2006 2007

76,000 Percentage to be used in computing the allowance = ------------------- = 2% 3,800,000 2. Credit sales for 2008 3,000,000 Multiply by bad debt percentage Provision for doubtful accounts 60,000

2%

3. Accounts receivable January 1, 2008 250,000 Add: Credit sales for 2008 Recoveries 3,005,000 Total 3,255,000 Less: Collections in 2008 Writeoff Accounts receivable December 31, 2008 4. Allowance for doubtful accounts January 1 Add: Doubtful accounts for 2008 Recoveries Total Less: Writeoff Allowance for doubtful accounts December 31

3,000,000 5,000

2,615,000 40,000

2,655,000 600,000 20,000 60,000

5,000

65,000 85,000 40,000 45,000

Problem 5-20
1. Accounts receivable December 31, 2007 Add: Sales for 2008 Recovery of accounts written off Total Less: Collection from customers Accounts written off Accounts settled by issuance of note Accounts receivable December 31, 2008 600,000 5,000,000 10,000 4,360,000 50,000 200,000 5,010,000 5,610,000 4,610,000 1,000,000

2. Allowance for doubtful accounts December 31, 2007 30,000 Add: Recovery of accounts written off Total Less: Accounts written off 50,000 Allowance before adjustment December 31, 2008 (debit balance)

10,000 40,000 (10,000)

63
3. Required allowance December 31, 2008 On current accounts (700,000 x 5%) 35,000 On past due accounts (300,000 x 20%) Total 4. Required allowance December 31, 2008 Add: Debit balance before adjustment Increase in allowance 5. Doubtful accounts Allowance for doubtful accounts

60,000 95,000 95,000 10,000 105,000 105,000 105,000

Problem 5-21
170,000 10,000 Rate in 2007 = ------------------------ = .016 017 10,000,000 1. Retained earnings (.016 x 1,250,000) Allowance for doubtful accounts 2. Allowance January 1 Recoveries 2008 10,000 Doubtful accounts 2008 (squeeze) Total Less: Writeoff 2008 Allowance December 31 (.017 x 2,000,000) 3. Accounts receivable Less: Allowance for doubtful accounts Net realizable value 258,000 20,000 Rate in 2008 = -------------------------- = . 14,000,000 20,000 20,000 20,000 92,000 122,000 88,000 34,000 2,000,000 34,000 1,966,000

Problem 5-22
1. Allowance January 1, 2008 Doubtful accounts recorded (2% x 20,000,000) 400,000 Recovery Total Less: Writeoff (300,000 + 100,000) 400,000 Allowance balance before adjustment 2. 5,000,000 x 5% 2,000,000 x 10% 1,000,000 x 25% 500,000 100,000 x 75% 300,000 Required allowance December 31, 2008 3. Doubtful accounts 450,000 Allowance for doubtful accounts (1,000,000 550,000) 500,000 50,000 950,000 550,000 250,000 200,000 250,000 1,000,000

450,000

64
Problem 5-23
1. Allowance 1/1/2008 (1% x 2,800,000) 2. Allowance 1/1/2008 Doubtful accounts recorded in 2008 (1% x 3,000,000) 30,000 28,000 28,000

Recovery Total Writeoff (27,000) Allowance before adjustment 3. 300,000 x 1% 80,000 x 5% 60,000 x 20% 25,000 x 80% Required allowance 12/31/2008 39,000 4. Doubtful accounts Allowance for doubtful accounts (39,000 38,000) 1,000 1,000

7,000 65,000 38,000 3,000 4,000 12,000 20,000

Problem 5-24
2008 Jan. 1 4,000,000 Cash Unearned interest income 342,100 Unearned interest income Cash 150,000 Dec. 31 400,000 Unearned interest income Interest income (10%) Date Interest received Carrying value 01/01/2008 3,807,900 12/31/2008 400,000 3,864,848 12/31/2009 400,000 3,928,630 12/31/2010 400,000 4,000,000 (12%) Interest income 56,948 56,948 Amortization Cash Interest income 400,000 150,000 342,100 Loan receivable Cash 4,000,000

456,948 463,782 471,370*

56,948 63,782 71,370

*12% x 3,928,630 equals 471,435, or a difference of P65 due to rounding. 2009

Dec. 31 400,000

Cash Interest income

400,000

65
2009 Dec. 31 2010 Dec. 31 400,000 Unearned interest income Interest income Cash Loan receivable 4,000,000 71,370 71,370 4,000,000 Unearned interest income Interest income Cash Interest income 63,782 63,782 400,000

Problem 5-25
2008 Jan. 1 3,000,000 Direct origination cost Cash 260,300 Cash Direct origination cost 100,000 Dec. 31 240,000 Interest income Direct origination cost (8%) Date Interest received Carrying value 01/01/2008 3,160,300 12/31/2008 240,000 3,109,918 12/31/2009 240,000 3,056,513 12/31/2010 240,000 3,000,000 (6%) Interest income 50,382 50,382 Amortization Cash Interest income 240,000 100,000 260,300 Loan receivable Cash 3,000,000

189,618 186,595 183,487

50,382 53,405 56,513

2009 Dec. 31 240,000

Cash Interest income Interest income Direct origination cost

240,000

53,405 53,405

2010 Dec. 31 240,000

Cash Interest income

240,000

66
2010 Dec. 31 Interest income Direct origination cost Cash Loan receivable 3,000,000 56,513 56,513 3,000,000

Problem 5-26
Requirement 1 December 31, 2009 (1,000,000 x .93) 900,000 December 31, 2010 (2,000,000 x .86) 1,720,000 December 31, 2011 (3,000,000 x .79) 2,370,000 Total present value of loan 5,020,000 Requirement 2 Loan receivable 12/31/2008 6,000,000 Accrued interest (6,000,000 x 8%) 480,000 Total carrying value 6,480,000 Present value of loan 5,020,000 Impairment loss 1,460,000

Requirement 3 2008 Impairment loss Accrued interest receivable 480,000 Allowance for loan impairment 980,000 2009 Cash Loan receivable 1,000,000 Allowance for loan impairment Interest income (8% x 5,020,000) 401,600 2010 Cash Loan receivable 2,000,000 Allowance for loan impairment Interest income 353,728 Loan receivable 12/31/2009 5,000,000 Allowance for loan impairment (980,000 401,600) ( 578,400) Carrying value 12/31/2009 4,421,600 Interest income for 2010 (8% x 4,421,600) 353,728 1,460,000

1,000,000

401,600

2,000,000

353,728

67
2011 Cash Loan receivable 3,000,000 Allowance for loan impairment Interest income 224,672 Loan receivable 12/31/2010 3,000,000 Allowance for loan impairment (578,400 353,672) ( 224,672) Carrying value 12/31/2010 2,775,328 3,000,000

224,672

Interest income for 2011 (8% x 2,775,328) 222,026 Allowance per book 224,672 Difference due to rounding 2,646

Problem 5-27
Requirement 1 December 31, 2009 ( 500,000 445,000 December 31, 2010 (1,000,000 800,000 December 31, 2011 (2,000,000 1,420,000 December 31, 2012 (4,000,000 2,560,000 Total present value of loan 5,225,000 Requirement 2 Loan receivable 7,500,000 Accrued interest receivable (12% x 7,500,000) 900,000 Total carrying value 8,400,000 Present value of loan 5,225,000 Impairment loss 3,175,000 Requirement 3 2008 Impairment loss Accrued interest receivable Allowance for loan impairment 2009 Cash Loan receivable Allowance for loan impairment Interest income (12& x 5,225,000) 2010 Cash Loan receivable Allowance for loan impairment Interest income 3,175,000 900,000 2,275,000 500,000 500,000 627,000 627,000 1,000,000 1,000,000 642,240 642,240 x .89) x .80) x .71) x .64)

68

Loan receivable 12/31/2009 7,000,000 Allowance for loan impairment (2,275,000 627,000) (1,648,000) Carrying value 12/31/2009 5,352,000 Interest income for 2010 (12% x 5,352,000) 642,240

Problem 5-28
December 31, 2011 ( 360,000 4,000,000 December 31, 2012 ( 360,000 3,365,360 December 31, 2013 ( 360,000 634,640 December 31, 2014 (4,360,000 Total present value of loan 2008 Cash Interest income 360,000 Impairment loss Allowance for loan impairment 634,640 2009 Allowance for loan impairment Interest income (9% x 3,365,360) 302,882 2010 Allowance for loan impairment Interest income (634,640 302,882) 331,758 2011 Cash Interest income 360,000 2012 Cash Interest income 360,000 2013 Cash Interest income 360,000 2014 Cash Interest income 360,000 x .772) x .708) x .650) 277,920 254,880 234,000 Face value of loan Present value of loan Impairment loss

x .596) 2,598,560 3,365,360 360,000

634,640

302,882

331,758

360,000

360,000

360,000

4,360,000

Loan receivable 4,000,000

Problem 5-29
12/31/2008 Impairment loss Allowance for loan impairment value factor for 4 periods is used. 338,500 338,500

The remaining term of the loan is 4 years. Accordingly, the present

69
Present value of principal (500,000 x .735) 367,500 Present value of interest (80,000 x 5 = 400,000 x .735) 294,000 Total present value of loan Loan receivable Present value of loan Loan impairment loss 338,500 12/31/2009 Allowance for loan impairment Interest income (8% x 661,500) 52,920 52,920 661,500 1,000,000 661,500

Problem 5-30 Answer B


Accounts receivable-January 1 Credit sales Collections from customers Sales return Accounts written off Accounts receivable-December 31 Allowance for doubtful accounts Allowance for sales return Net realizable value 1,300,000 5,500,000 (5,000,000) ( 150,000) ( 100,000) 1,550,000 ( 250,000) ( 50,000) 1,250,000

Problem 5-31 Answer A


Trade accounts receivable Allowance for doubtful accounts Claim receivable Total trade and other receivables 2,000,000 ( 100,000) 300,000 2,200,000

Problem 5-32 Answer C

Accounts receivable (squeeze) Allowance for doubtful accounts (900,000 200,000) Net realizable value (

6,700,000 700,000) 6,000,000

Problem 5-33 Answer B


Allowance January 1 Doubtful accounts expense Recovery of accounts written off Total Accounts written off Allowance December 31 300,000 650,000 100,000 1,050,000 450,000 600,000

70
Problem 5-34 Answer D
Allowance January 1 Uncollectible accounts expense (squeeze) Recovery of accounts written off Total Accounts written off (230,000) Allowance December 31 (2,700,000 2,500,000) 200,000 280,000 100,000 50,000 430,000

Problem 5-35 Answer A


Allowance December 2007 180,000 Doubtful accounts expense Total Accounts written off (squeeze) Allowance December 2008 200,000

50,000 230,000 30,000

Problem 5-36 Answer B


0 60 days (1,200,000 x 1%) 12,000 61 120 days (900,000 x 2%) 18,000 Over 120 days (1,000,000 x 6%) Allowance December 31, 2008 Allowance December 31, 2007 Uncollectible accounts expense (squeeze)

60,000 90,000 60,000 80,000

Recovery Total Accounts written off Allowance December 31, 2008

20,000 160,000 ( 70,000) 90,000

Problem 5-37 Answer D


Allowance for sales discount (5,000,000 x 2% x 50%) 50,000

Problem 5-38 Answer A Problem 5-39 Answer B


Doubtful accounts expense (3% x 3,000,000 + 10,000) 100,000

Problem 5-40 Answer A


Doubtful accounts expense (2% x 7,000,000) 140,000

71
Problem 5-41 Answer A
Allowance January 1 Doubtful accounts expense (4% x 5,000,000) Collection of accounts written off Total Accounts written off Allowance December 31 40,000 200,000 10,000 250,000 30,000 220,000

Problem 5-42 Answer D


Allowance January 1 Doubtful accounts expense (squeeze) Total Accounts written off Allowance December 31 250,000 175,000 425,000 205,000 220,000

Problem 5-43 Answer A Problem 5-44 Answer A