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FINANCIAL ACCOUNTING AND REPORTING BATCH 3

ACCOUNTS RECEIVABLE
1. The following data were taken from the records of Jerome Company for the year ended December 31, 2021, its first year of operations:

Sales on account 25,000,000

Collections from customers (excluding collections from recoveries) 22,000,000
Doubtful accounts expense 400,000
Accounts written off 300,000
Sales returns 250,000
Sales allowance 50,000
Discounts taken by customers 120,000
Collections on accounts written off 150,000

What is the balance of accounts receivable on December 31, 2021?

a. 2,280,000 c. 2,130,000
b. 2,430,000 d. 1,880,000
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2. Thirdy Company uses the gross method of accounting for cash discounts. In one of its transactions on December 28, 2021, Thirdy sold merchandise with a list price of P6,000,000
to a client who was given a trade discount of 20% and 10%. Credit terms given by Thirdy were 5/10, n/30. The goods were shipped FOB destination, freight collect. Total freight
charge paid by the client was P100,000. On December 30, 2021, the client returned damaged goods originally billed at P220,000. Thirdy estimates that the client will take
advantage and avail of the cash discount before the end of the 10-day discount period. What is the net realizable value of this account receivable on December 31, 2021?
a. 3,895,000 c. 4,220,000
b. 3,795,000 d. 4,000,000
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3. Isid Company reported the following balances (after adjustment) at the end of 2021 and 2020.

12/31/2021 12/31/2020
Total accounts receivable P10,500,000 P9,600,000
Less: Allowance for doubtful accounts 600,000 150,000
Net realizable value 9,900,000 9,450,000

During 2021, Isid recognized doubtful accounts expense of 700,000 and collected 80,000 on accounts written off in previous years. How much accounts receivable was written off
by Isid during the 2021?
a. 350,000 c. 300,000
b. 310,000 d. 330,000
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4. Belle Company operates in an industry that has a high rate of bad debts. On December 31, 2021, before the preparation of an aging schedule and any year-end adjustments, the
balance of Belle’s Accounts Receivable account was P6,000,000 and the Allowance for Doubtful Accounts had a balance of P500,000 at the same date. Out of the P200,000 write-
offs during the year, P50,000 were recovered. The year-end balance reported in the balance sheet for the Allowance for Doubtful Accounts will be based on the aging schedule
shown below.

Probability
Days Account Outstanding Amount
of Collection
Less than 16 days 2,000,000 95%
Between 16 and 50 days 1,500,000 90%
Between 51 and 100 days 1,200,000 85%
Between 101 and 200 days 600,000 80%
Between 201 and 365 days 400,000 70%
Over 365 days 300,000 60%

What is the doubtful accounts expense of Belle Company for the year ended December 31, 2021?
a. 450,000 c. 850,000
b. 500,000 d. 290,000
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5. Bobby Company sells to wholesalers on terms of 5/15, net 30. Bobby has no cash sales but 50% of customers take advantage of the discount. Bobby uses the gross method of
recording sales. An analysis of accounts receivable on December 31, 2021, revealed the following:

Age_ Amount_ _Collectible_

0 – 15 days 6,000,000 100%
16 – 30 days 3,000,000 90%
Over 30 days 1,000,000 50%

In the December 31, 2021, statement of financial position, what amount should be reported as net realizable value of the accounts receivable?
a. 9,200,000 c. 9,450,000
b. 9,050,000 d. 9,600,000
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6. Isolation Company uses the allowance method of accounting for bad debts. The following summary schedule was prepared from an aging of accounts receivable outstanding on
December 31 of the current year.

No. of Days Probability

Outstanding Amount of Collection
0-30 days P5,000,000 .98
31-60 days 2,000,000 .90
Over 60 days 1,000,000 .80

The following additional information is available for the current year:

Net credit sales for the year P50,000,000

Allowance for Doubtful Accounts:
Balance, January 1 450,000 (cr)
Balance before adjustment, December 31 20,000 (dr)

If Isolation determines bad debt expense using the aging method, what is the net realizable value of accounts receivable on the December 31?
a. 7,270,000 c. 7,250,000
b. 7,500,000 d. 7,380,000
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7. Effective with the year ended December 31, 2021, Vega Company adopted the aging of accounts receivable method instead of the old percentage of sales method. The following
data are available:

Allowance for doubtful accounts, January 1, 1,000,000

Provisions for doubtful accounts (5% of credit sales) 3,000,000
Accounts written off 800,000
Estimated uncollectible accounts per aging 12/31/2021 4,500,000
Accounts written off but recovered 500,000

What is the 2021 year-end adjustment to doubtful accounts expense?

a. 3,800,000 c. 800,000
b. 2,200,000 d. 700,000
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RECEIVABLE FINANCING
1. Harry Company obtained a one-year loan of P8,000,000 from a bank on September 1, 2021. The loan was discounted at 15%, meaning interest was deducted in advance from
the loan. The company signed a note and pledged all of its accounts receivable of P10,000,000 as collateral for the loan.

What is the note payable carrying amount to be reported by Harry in its December 31, 2021, statement of financial position?
a. 8,000,000 c. 6,800,000
b. 7,200,000 d. 7,600,000
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2. On December 1, 2021, Rodolfo Company assigned on a non-notification basis accounts receivable of P5,000,000 to a bank in consideration for a loan of 50% of the accounts
assigned minus a 5% service fee on the accounts receivable of P5,000,000. Rodolfo signed a note for the bank loan with an agreement to pay 1% interest per month on the
outstanding balance of the loan.

On December 31, 2021, Rodolfo collected assigned accounts of P2,000,000 less discount of P200,000. Rodolfo remitted the net amount collected to the bank in partial payment
for the loan. The bank applied first the collection to the interest and the balance to the principal. What amount should Rodolfo report as note payable as a current liability in its
December 31, 2021, statement of financial position?
a. 725,000 c. 700,000
b. 525,000 d. 500,000
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3. On January 1, 2021, Joyce Corporation needed cash to meet current operating needs. Joyce factored some P5,000,000 of accounts receivable to BDO. Joyce maintains an
allowance for doubtful accounts of 300,000 of this receivable balance. The bank withheld 10% of the purchase price as protection against sales returns and allowances. The factor
or the buyer of the accounts receivable charged a 15% service fee. What is the loss on this casual factoring transaction that Joyce will recognize in its income statement?
a. 450,000 c. 750,000
b. 950,000 d. 500,000
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4. Andrei Company factored P8,000,000 of accounts receivable to United Finance Company on October 1, 2021. Control was surrendered by Andrei. United Finance assessed a fee
of 3% and retains a holdback equal to 10% of the accounts receivable. In addition, United Finance charged 12% interest on the carrying amount of the receivables on a weighted-
average time to maturity of the receivables of 30 days. There is no recourse obligation in the factoring arrangement with. How much is the net proceeds received by Andrei
Company?
a. 7,121,096 c. 6,880,000
b. 6,881,096 d. 7,691,096
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5. Hidilyn Company accepted from a customer P6,000,000 face amount, nine-month, 12% note dated August 1, 2021. On September 1, 2021, Hidilyn discounted the note at
Metropolitan Bank and Trust Company at a 15% discount rate. What is the loss on discounting that Hidilyn will recognize on the transaction?
a. 114,000 c. 60,000
b. 174,000 d. 160,000
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6. Fatima Company received from a customer on February 1, 2021, from a customer a 6-month, P5,000,000 note bearing an annual interest rate of 10%. The principal and the
interest is payable on July 31, 2021. To obtain cash quickly, Fatima discounted the note with National Bank on March 1, 2021. National Bank charged a discount rate of 12%.

The customer dishonored the note to the bank on July 31, 2021 and the bank automatically filed a protest and incurred a fee of P100,000. Fatima then paid the bank the total
amount on August 1, 2021.

Fatima charged interest of 12% to the maker of the note based on the total amount paid to the bank on August 1. Fatima was able to collect on December 31, 2021.

What was the total amount collected from the maker of the note?
a. 5,671,000 c. 5,617,500
b. 5,350,000 d. 5,512,500
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NOTES RECEIVABLE AND LOAN IMPAIRMENT LOSS

1. Norman Company sold one of its factories on January 1, 2021, for P10,000,000. Norman received a cash down payment of P2,000,000 and a 4-year, 10% note for the balance.

The note is payable in equal annual payments of principal and interest of P2,523,767 payable on December 31 of each year until the year 2024.

What is the total balance of the notes receivable in Norman’s December 31, 2022, statement of financial position?
a. 6,276,233
b. 4,380,089
c. 2,294,331
d. 4,000,000
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2. Noli Company borrowed from Commercial Bank under a 10-year loan in the amount of P5,000,000 with a stated rate of 6%. Payments are due monthly, and are computed to be
P55,500. Commercial bank incurs P300,000 of direct loan origination costs and P100,000 of indirect loan origination costs. In addition, Commercial Bank charges a 5-point
nonrefundable loan origination fee. Commercial Bank, the lender, has a carrying amount for the loan of
a. 5,300,000
b. 4,950,000
c. 5,050,000
d. 5,150,000
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3. Berna Company is a dealer in equipment. On January 1, 2021, Berna Company sold an equipment with a cost of P3,000,000 in exchange for a noninterest bearing note of
P6,000,000 requiring a lump sum payment at the end of 5 years. The market interest for similar notes was 12%. The relevant present value factors are:

PV of 1 at 10% for 5 periods 0.567

PV of an ordinary annuity of 1 at 10% for 5 periods 3.605
PV of an annuity due of 1 at 10% for 5 periods 4.037

What is the carrying amount of the notes receivable on December 31, 2021?
a. 3,402,000
b. 3,810,240
c. 4,267,469
d. 4,779,565
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4. Reginald Company sold one of its machines on January 1, 2021, to Marron Company in exchange for a noninterest bearing note requiring three equal annual payments of
P1,000,000 or a total of P3,000,000.

The machine had a carrying amount of P2,000,000 in Reginald’s books. The first payment is due on December 31, 2021.

The market interest for similar notes was 12% and the relevant present value factors are:

PV of a single payment at 12% for 3 periods .7118

PV of an ordinary annuity of 1 at 12% for 3 periods 2.4018
PV of an annuity due of 1 at 12% for 3 periods 2.6901

In its December 31, 2021, statement of financial position, what should Reginald report as current notes receivable?
a. 1,000,000
b. 797,198
c. 892,818
d. 1,690,016
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5. BioNTech Bank loaned P5,000,000 to Pfizer Company on January 1, 2018. The terms of the loan require principal payments of P1,000,000 each year on December 31 for 5 years
plus interest at 8%. The first principal and interest payment is due on December 31, 2018. Pfizer Company made the required payments during 2018 and 2019.

However, during 2020 Pfizer Company began to experience financial difficulties and was not able to pay the next installment of principal and interest, this required BioNTech to
reassess the collectibility of the loan.

On December 31, 2021, BioNTech determined that the remaining principal payment will be collected starting December 31, 2022 but the collection of the interest is unlikely.

Assume that BioNTech accrued interest on December 31, 2020 but did not continue to accrue interest because of its uncollectibillity.

The present value of 1 at 8% is as follows:

For one period 0.93

For two periods 0.86
For three periods 0.79

What is the loan impairment loss recognized on December 31, 2021?

a. 660,000 c. 420,000
b. 550,000 d. 0
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6. Janssen Bank loaned P5,000,000 to Aztra Company on January 1, 2019. The terms of the loan require the principal payment of P5,000,000 to be made after 5 years on December
31, 2023, and interest at 12% to be paid annually on December 31.

The first interest payment is due on December 31, 2019. Aztra Company made the required interest payment during 2019.

However, during 2020 Aztra Company began to experience financial difficulties, which led to the default of the 2020 required interest payment.

This caused Janssen to reassess the collectibility of the loan. On December 31, 2021, Janssen did not continue to accrue interest and determined that the remaining principal
payment will be collected but it is probable that the accrued interest in 2020, interest earned in 2021 but was not accrued and further interest cannot be collected.

The probable timing and amount of collections is determined as follows:

December 31, 2022 500,000

December 31, 2023 1,000,000
December 31, 2024 1,500,000
December 31, 2025 2,000,000

The present value at 12% is as follows

For one period 0.89

For two periods 0.80
For three periods 0.71
For four periods 0.64

1. What is the loan impairment loss on December 31, 2021?

a. 2,010,000 c. 2,610,000
b. 1,410,000 d. 1,560,000

2. What is the interest revenue to be recognized in 2022?

a. 430,800 c. 422,496
b. 600,000 d. 660,000

3. What is the carrying amount of this loan in Dhalia’s books on December 31, 2022?
a. 4,020,800 c. 4,500,000
b. 3,520,800 d. 3,020,800

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