FINANCIAL ACCOUNTING REVIEW

Accounts Receivable

Problem 1

On January 1, 2016, Pau Company sold a piece of land with a carrying amount of
Php24,000,000 in exchange for a 5% promissory note with face amount of Php30,000,000. The
note is payable in annual installment of Php10,000,000 plus accrued interest on the
outstanding balance. The first installment is due on December 31, 2016. There is no
established cash price for the land and the note has no ready market. The prevailing interest
rate for a note of this type is 10%.

Required:

a. Prepare an amortization table (2016 to 2018)

b. Prepare all entries to record the transactions from January 1, 2016 to December 31,
2018

Problem 2
On January 1, 2016, Mari Company sold a tract of land that was acquired several years ago for
Php5,600,000. Mari Company received a three-year, non-interest bearing note for
Php12,000,000 in exchange for land . There is no readily available market value for the land
but the current market rate of interest for comparable notes is 15%. The note is payable in
equal annual installments of Php4,000,000 every December 31, starting December 31, 2016.
Present value of 1 for three periods at 15% is 0.6575. Present value of an ordinary annuity of 1
for three periods at 15% is 2.2832.

Required:
a. What is the amount of interest revenue recognized in Mari Company’s income statement
from 2016 to 2018?
b. What is the carrying amount of the note at December 31, 2016 and 2017?
c. What amounts of the note shall be classified as current assets and non-current assets
at December 31, 2016 and 2017?

Problem 3
Camil Company completed the following transactions during the year 2016:
Jan 14 Wrote off the account of Mayet Company for Php40,000 that arose from sale in
July 2015.
July 31 Received a Php48,000, 90-day 10% note from Pau Company for merchandise
sold.
Aug 15 Received a Php80,000 cash plus Php60,000 note from Bulacan Company for
merchandise sold. The note is dated August 15 and bears interest at 12%, and
matures in 120 days.
Nov 1 Completed a Php80,000 credit card sale with a 4% fee. Cash is received
Immediately from the credit card company.
Nov 4 Pau Company refuses to pay the note that was due to Camil Company.
Nov 5 Completed a Php36,000 credit card sale with a 5% fee. The amount due from the
credit card company was received on November 9.
Nov 15 Received the full amount of Php40,000 from Mayet Company that was previously
written off on January 14.
Dec 13 Received payment of principal plus interest from Bulacan Company for the
August 15 note.
Required:
Prepare journal entries to record the transactions on Camil Company’s books.

Problem 4
The statement of financial position of Honda Inc. shows the Accounts Receivable balance at
December 31, 2016 as follows:

Accounts receivable Php 900,000

Allowance for doubtful accounts 18,000

During 2017, transactions relating to the accounts were as follows:

1. Sales on account, Php9,600,000.

2. Cash received from collection of current receivable totaled Php7,840,000 after
discounts of Php160,000 were allowed for prompt payment.
 3. Credit memo issued to customers for sales returns , Pho120,000.
4. Customers’ accounts of Php40,000 were ascertained worthless and written off.
5. Recovered Php10,000 of accounts written off prior to 2017.
6. Received a 90-day, 12% note for Php50,000 from a customer on an overdue account.
7. Accounts receivable of Php1,400,000 have been pledged to a bank on a loan of
Php800,000. Collections of Php300,000 were made on these receivables (not included
in the collections previously given) and applied as partial payment to the loan.
8. Based on assessment of the impairment of receivables, it is estimated that allowance for
doubtful accounts should be Php118,000 at December 31.
9. Recorded the accrued interest on the note in no. 6. The note was dated December 1,
2017.

Required:

Prepare journal entries to record the foregoing transactions. After preparing the journal entries ,
determine the amortized cost of the accounts receivable at December 31, 2017.

Problem 5
Pau Company has an Allowance for doubtful accounts balance of Php68,000 at January 1,
2017. During 2017, accounts totaling Php94,000 were written off. Accounts written off in prior
years amounting to Php14,000 were recovered during the year. At December 31, 2017, an
aging of its accounts receivable showed:
Amount Probability of Collections
Not yet due Php 340,000 100%
1-30 days past due 240,000 95%
31-60 days past due 20,000 75%
61-90 days past due 30,000 50%
Over 90 days past due 24,000 10%
Additional accounts to be written off 6,000

Required:

Show computations for the following:

a. Doubtful accounts expense for the year 2017.
b. Allowance for doubtful accounts as of December 31, 2017.
c. Amortized Cost of Accounts Receivable at December 31, 2017.

Problem 6
The balances of selected accounts taken from the December 31, 2016 statement of financial
position of Pau Company are as follows:

Accounts receivable Php 1,348,000

Allowance for doubtful accounts 240,000

The following transactions affecting accounts receivable occurred during the year ending
December 31, 2017 (in summary):

Sales (all on account, terms: 2/10, 1/15, n/60) Php 6,000,000

Cash received from customers 6,400,000
From customers paying within the 10-day
discount period 3,528,000
From customers paying within the 15-day
discount period 1,980,000
From recovery of accounts written off 60,000
From customers paying beyond the discount period ?
Accounts receivable written off as worthless 44,000
Credit memorandum for sales returns 24,000
Based on assessment of the collectability of the accounts, impairment loss recognized on
accounts receivable is Php60,000.

Required:
Compute Accounts Receivable and Allowance for Doubtful Accounts at December 31, 2017.
Problem 7
The financial statements of Mari Company reported the following selected accounts.

Accounts receivable, January 1, 2017 Php 4,800,000

Allowance for doubtful accounts, Jan. 1, 2017 240,000
Sales during 2017 20,000,000
Cash collected from customers 17,440,000

The cash collected from customers included a Php40,000 recovery from a customer whose
account was written off in prior year. On November 15, a customer settled his overdue by
issuing a 15%, 4-month note for Php800,000. During 2017, accounts of Php200,000 were
written off as worthless.

Analysis of the accounts receivable at December 31, 2017 revealed that Php1,200,000 were
considered pas due. Management’s estimate of probable loss on past due accounts is 20% and
on current account at 5%.

Required:

1. Adjusted balance of Allowance for Doubtful Accounts at December 31, 2017.

2. Doubtful Accounts expense for year 2017.
3. Net Realizable Value of Accounts Receivable, December 31, 2017.

Problem 8

Mari Company completed the following selected transactions during 2017:

Nov 1 Assigned accounts of Php8,000,000 to Kapamilya Bank under a notification

basis. Kapamilya Bank made an advance of 75% and deducted a 6% finance
charge based on the amount advanced.

Nov 30 Received notice from Kapamilya Bank that Php4,000,000 assigned accounts
had been collected, and that Kapamilya Bank charged Mari Company 12%
interest. The collection is applied first to interest, and the balance is applied to
principal.
Dec 31 Received notice from Kapamilya Bank that Php16,000,000 had been collected.
Kapamilya Bank remitted to Mari Company the amount due to the latter, after
deducting 12% interest on the loan balance.
Required:
Prepare journal entries in the books of Mari Company to record the foregoing transactions.

Problem 9
Camil Company had the following transactions during 2017:
May 5 Camil Company assigned Php50,000,000 of accounts receivable to a
bank in consideration of a loan. The bank advanced 80% of the
assigned accounts receivable less service charge of 5% based on the
amount of the loan. Customers were not notified of the assignment, thus,
Camil Company continues to make the collection.
25 Camil company issued a credit memo to a customer, whose account is
assigned with the bank, for defective merchandise returned amounting to
Php2,400,000.
31 Assigned accounts of Php20,000,000 were collected, less 2% discount.
July 1 Remitted Php15,000,000 to the bank plus interest at a rate
of 12% per year.
15 Assigned accounts amounting to Php1,000,000 were found to be
worthless and were written off.
31 Collections of Php 20,000,000 were made from the assigned accounts.
Aug 1 Remitted the amount of collection in July 31 plus accrued interest.
October 1 Paid the balance due to the bank, plus 12% interest. The balance in the
assigned accounts, if any, is reverted to unassigned accounts after the
final settlement with the bank.
Required: Journal entries to record the foregoing transactions.

Problem 10
Kapuso Bank has a Php20,000,000 loan to Camil Realty, which was invested by the latter in
real estate development. Due to the economic downtrend in the real estate business, Camil
Realty is experiencing declining sales and is likely to default on its obligation to Kapuso Bank.
Camil Realty requests for a restructuring of its loan with Kapuso Bank. Prevailing market rate of
interest for similar obligations at the time of restructuring is 8%. Accrued interest receivable on
the loan at December 31, 2016 is Php2,000,000, based on stated interest rate of 10%.
For each of the following alternative restructuring arrangements, determine the amount of the
impairment loss to be recognized by Kapuso Bank , and give the entry in the books of the
company to record impairment. (Round off present value factors to four decimal places)

Alternative 1
) Reduction of principal to Php18,000,000
) Condonation of accrued interest
) Extension of maturity date to December 31, 2018
) Reduction of interest rate to 8%, payable annually on December 31.

Problem 11
Pau Company received from a SMC Corporation a one-year, P5,000,000 note bearing annual
interest of 8%. Five months prior to maturity , Pau Company discounted the note at Kapuso
Bank at 10%.
Required:
1. What were the proceeds from the note discounting?
2. Give the entry for the discounting , assuming the note was discounted without
recourse.
3. Give the entry for the discounting, assuming the note was discounted with
recourse.
Problem 12
Mari Company finances some of its current operations by factoring its accounts receivable to
Kapuso Finance Company. On July 1, 2016, the company factored Php4,000,000 of its
accounts receivable to Kapuso Finance Company. Purchase price was 85% of the receivables
factored. Kapuso Finance Company withheld 5% of the purchase price as protection against
sales returns and allowances.
Sales returns recorded by Mari Company on the factored accounts receivable totalled
Php60,000; the balance of the factor’s holdback was settled by Kapuso Finance Company on
August 31, 2016.
Required:
1. What was the net cash received by Mari Company from this factored accounts?
2. Give the entries in the books of Mari Company to record the foregoing in the
Months of July and August 2016.
Problem 13
Pau Company manufactures and sells beauty products to retailers. During 2017, the company
completed the following transactions related to receivables:
a. Sold goods, Php6,000,000 on account, all under the terms: 2/15,n/60. The company
uses the gross method to record accounts receivable.
b. Total cash collected from customers on account was Php4,500,000. Customers who
paid Php1,764,000 paid their accounts within the discount period.
c. Notes received in settlement of account were Php500,000.
d. Collected Php400,000 of notes receivable plus interest of Php32,000 (which includes
the Php5,600 interest receivable at December 31, 2015).
e. Notes receivable discounted with recourse were Php80,000. Proceeds from the
discounting were Php82,800. The total maturity value of the notes is Php92,000. All
of theses notes matured without notice of protest.
f. Accounts receivable assigned were Php600,000 on a loan for Php480,000. Service
fees of Php36,000 were charged by the finance company on the assignment.
g. Notes receivable of Php30,000 were overdue as of December 31, on which
Php1,800 interest has accrued.
h. Accounts of Php24,000 were written off during 2016.
i. As of December 31, Php360,000 of the assigned accounts had already been
collected, this amount plus appropriate interest of Php6,000 had been remitted to the
finance company.
j. As of December 31, an assessment of collectability of the receivables indicated that
the allowance for uncollectible accounts must be adjusted to a balance of
Php60,000.
k. Of the remaining notes not yet due, Php6,400 interest had accrued at December 31.

The following were the balances as of December 31, 2016:

Notes receivable Php 200,000
Interest receivable 5,600
Accounts receivable 1,200,000
Allowance for uncollectible accounts 24,000

Required:
1. Prepare entries relating to the foregoing including year-end adjustments and any
reversing entries at January 1.
Problem 14
The following data are given for Toyota, Inc.:
Cash Credit Total
Cost of sales Php 500,000 Php 4,500,000 Php 5,000,000
Cash received from
customers 650,000 2,340,000 2,990,000
Assuming merchandise was marked to sell as follows: Cash sales, at 30% above cost and
credit sales, at 40% above cost, all of which are collectible. The balance of accounts receivable
at the end of the period was _____________.

Problem 15
Camil Company had the following information relating to its accounts receivable:
Accounts receivable at 12/31/16 Php 5,200,000
Credit sales for 2017 10,800,000
Collection from customers during 2016 (including
recovery of Php500,000) 9,500,000
Accounts written off 9/30/17 250,000
Collection of accounts written off in prior years 500,000
Estimated uncollectible receivables per aging
at 12/31/17 330,000

At December 31, 2017, Camil’s accounts receivable before allowance for uncollectible
accounts, should be ____________.

Problem 16
Camil Company prepared an aging of its accounts receivables at December 2016 and
determined that the amortized cost of the receivables was Php500,000. Additional information
is available as follows:
Allowance for bad debts, 1/1/16-credit balance Php 56,000
Accounts written off as uncollectible during 2016 46,000
Accounts receivable at 12/31/16 540,000
Uncollectible accounts recovery during 2016 10,000
What is Camil’s uncollectible account expense for the year 2016? Php20,000

Problem 17
The following accounts were abstracted from Pau Company’s unadjusted trial balance at
December 31, 2016:
Debit Credit
Accounts receivable Php 2,000,000
Allowance for uncollectible
accounts 16,000
Net credit sales Php 6,000,000
Pau Company estimates that 3% of the gross accounts receivable outstanding will become
uncollectible.
 1. After adjustments at December 31, 2016, what is the balance of the allowance for
uncollectible accounts? Php60,000
3% x 2,000,000 = 60,000
2. How much uncollectible accounts expense is reported in Pau Company’s statement of
comprehensive income for year ended December 31, 2016? Php76,000
60,000 + 16,000 = 76,000
Problem 18
You are given the following information relating to Mari Trading, a general merchandising
company:
Rate of gross profit on sales 20%
Accounts receivable, December 31, 2015 Php 160,000
Collections on accounts receivable in 2016 860,000
Cost of goods available for sale in 2016 Php 920,000
Collections on accounts receivable in 2016 860,000
Merchandise inventory, December 31, 2016 200,000
Assuming all sales were on account, what was the company’s accounts receivable balance on
December 31, 2016?

Problem 19
Accounts receivable for Mari Company at December 31, 2016 showed a balance of
Php3,000,000. The allowance for uncollectible accounts had a Php90,000 debit balance before
the year end adjustment. Sales during the year totaled Php25,000,000. An aging analysis
shows that Php150,000 of the outstanding accounts receivable are estimated to be
uncollectible. The uncollectible account expense for 2016 is ____________.

Problem 20
Camil Company recorded uncollectible accounts expense of Pho40,000 during 2016. The
allowance for uncollectible accounts had a balance of Php35,000 on December 31, 2015.
During the year 2016, Camil Company wrote of Php61,000 of uncollectible receivables and
recovered Php16,100 of uncollectible accounts written off in prior years.
How much will be the allowance for uncollectible accounts at December 31, 2016?

Problem 21
Alexis Company has the following data relating to accounts receivable for the year ended
December 31, 2016:
Accounts receivable, January 1, 2016 Php 960,000
Allowance for uncollectible accounts, Jan 1, 2016 38,400
Sales during the year, all on account, terms: 2/10,1/15,n/30 4,800,000
Cash received from customers during the year 5,120,000
Accounts written off during the year 35,200
An analysis of cash received from customers during the year revealed that Php2,822,400 was
received from customers availing the 10-day discount period, Php1,584,000 from customers
availing the 15-day discount period, Php9,600 represented recovery of accounts written off, and
the balance was received from customers paying beyond the discount period.
Alexis Company’s year-end balance of allowance for uncollectible accounts was estimated to
be 5% of the outstanding accounts receivable as at December 31, 2016, based on the aging of
the accounts.
1. What is the accounts receivable balance at December 31, 2016?
2. How much was Alexis Company’s doubtful account expense for the year ended
December 31, 2016?
3.
Problem 22
During 2016, Camil Company wrote off uncollectible accounts of Php15,000 and recovered
accounts of Php7,400 that had been written off in 2015. In addition the following information is
available:
Accounts Receivable Amortized Cost
December 31, 2014 Php 750,000 Php 725,000
December 31, 2015 1,000,000 960,000
The uncollectible account expense for the year 2016 is __________.

Problem 23
On June 30, 2016, Alexis Company had an unadjusted credit balance of Php20,000 in its
allowance for uncollectible accounts. An analysis of Alexis Company’s trade accounts
receivable at that date revealed the following:
Age Amount % of Collectibility
0-30 days Php 1,200,000 95%
31-60 days 80,000 90%
Over 60 days 40,000 Php28,000
What amount should Alexis Company report as allowance for uncollectible accounts in its June
30, 2016 statement of financial position?

Problem 24
On December 31, 2014, Pau Company sold equipment to Camil Company for Php200,000.
Pau Company accepted a 10% note receivable for the entire sales price. This note is payable
in two equal installments of Php100,000 plus accrued interest on December 31, 2015 and
December 31, 2016. On July 1, 2016, Pau Company discounted the note at a bank at a
discount rate of 12%.

Pau Company’s proceeds from the discounted note were _________.

Problem 25
On December 31, 2016, Angel Finance Company gave Camil Company a Php4,000,000, 12%
loan. Camil Company received proceeds of Php3,880,000, after deduction of non-refundable
finance and other processing charges of Php120,000. Principal and interest are due in 60
monthly installments of Php89,000 beginning January 1, 2017. The repayment yields an
effective interest rate of 13.4% based on the proceeds of Php3,880,000. Angel Finance
Company has the intention of collecting the contractual cash flows from this loan over the full
term of the loan, thus, does not elect to measure this at fair value.
1. What amount of interest revenue should Angel Finance Company recognize for the year
2016 as a result of this loan ?
2. How much interest receivable should Angel Finance Company record on December 31,
2017?

Problem 26
Camil Company sold a tract of land with carrying amount of Php6,000,000 to Lacoste Company
on July 1, 2016, Php2,400,000 was collected on the date of sale and the balance of
Php5,600,000 is collectible in four equal annual installments of Php1,805,000, consisting of
principal and 11% interest on the unpaid balance, The first annual installments is due on July 1,
2017.
1. What amount related to the notes receivable shall be classified as current assets on
December 31, 2017?
2. How much is interest income for the year ended December 31, 2017?

Problem 27
On January 1, 2017, Angel Corporation sold equipment costing Php760,000 with accumulated
depreciation of Php320,000 on the date of sale. Angel received as consideration for the sale, a
Php800,000 non interest bearing note, due January 1, 2020. There was no established
exchange price for the equipment and the note had no ready market. The prevailing rate of
interest for a note of this type at January 1, 2017 was 10%. The present value of 1 at 10% for
three periods is 0.75.
1. In Angel’s 2017 statement of comprehensive income, how much should be reported as
interest income?
2. What is the carrying amount of the note at Angel’s December 31, 2017 statement of
financial position?

Problem 28
Mummy Company received from a customer a one year, Php1,000,000 note bearing annual
interest of 8%. After holding the for four months, Mummy company discounted the note , with
recourse, at Kapuso Bank at a discount rate of 10%.
At the date of discounting, Mummy Company would receive cash of ________.

Problem 29
Camila Company found itself in financial difficulties and decided to use its accounts receivable
as a means of obtaining cash to continue operations. On July 1, 2017, Camila factored
Php1,500,000 of accounts receivable for cash proceeds of Php1,390,000. No allowance for
uncollectible was associated with these accounts.
On December 17, 2017, Camila assigned the remainder of its accounts receivable ,
Php5,000,000 as of that date, as collateral on a Php2,500,000, 12% annual interest rate loan
from Kapatid Bank. Camila received Php2,500,000 less 2% finance charge.
Additional information is as follows:
Allowance for doubtful accounts expense, 12/31/2017 (before adjustment) Php64,000
Estimated uncollectible, 12/31/2017 – 3% of Accounts receivable
Accounts receivable (not including factored and assigned accounts), December 31, 2017-
Php1,000,000
Of the assigned accounts, Php600,000 had been collected by the end of the year.
1. How much were the proceeds from factoring and general assignment of the accounts
receivable?
2. Assuming that these are the only transactions affecting receivables, how much is the
uncollectible account expense for the year ended December 31, 2017?

Problem 30
Mari Company, One of Pau Company credit customers, is experiencing financial difficulties and
a downward trend in its financial performance. The firm is unable to service its obligation and
as a result has missed the payment of its note and accrued interest with Pau Company. The
principal amount of the note is Php1,000,000 (which is already due) with annual interest of 10%
payable annually. Accrued interest balance at December 31, 2017 is Php100,000. Mari
Company management has negotiated a modification of its debt terms with Pau Company. At
this time, the prevailing market rate of interest for similar transaction remained at 10%.
Pau Company agreed to the following new terms:
 Forgive the accrued interest at December 31, 2017
 Extend the payment of the principal for two years
 Reduce the interest rate (payable annually) to 8%
How much impairment loss should be recognized by Pau Company on December 31, 2017?