URDANETA CITY UNIVERSITY

San Vicente West, Urdaneta City Pangasinan

College of Business Management and Accountancy

First Semester – 2022 - 2023

Intermediate Accounting 1

Chapter 4
Accounts Receivable

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. B Solution:
 300,000 x 80% = 240,000 invoice price;
 240,000 x 5% x 80% = 9,600 discount;
 240,000 – 9,600 = 230,400

2. A - 100,000 x 90% x 97%* = 87,300

*If the customer fully settles the account within 10 days, the customer cannot take anymore the 1% discount that is
available if he pays within the 11th day and 15th day.

3. B – 250,000 sale price + 20,000 reimbursement of freight = 270,000

4. A (100,000 x 50% x 2%) = 1,000

5. A
Solution:
Allowance for bad debts
10,800 Jan. 1
Write-offs 18,000 13,500 Bad debts expense (450K x 3%)
Dec. 31 6,300

D (1,000,000 x 3%) = 30,000

6. A
Solution:
Days Estimated outstanding Amount % uncollectible Allowance
0 - 60 120,000 1% 1,200
61 - 120 90,000 2% 1,800
Over 120 100,000 6% 6,000
9,000

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

Allowance for bad debts

12,000 beg.
Write-off 9,000 15,000 Bad debts
2,000 Recovery
end. 20,000

Carrying amount = 331,000 – 20,000 = 311,000

8. A Solution:

Accounts receivable
beg. 80,000
150,00
Credit sales 0 120,000 Collections, excldg. recoveries
10,000 Write-off
100,000 end.

9. B

Chapter 5
Notes Receivable

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. D
Solution:
Interest income - 20x1 (1,200,000 x 10%) 120,000
Interest income - 20x2 [(1,200,000 + 120,000) x 10%] 132,000
Total interest receivable - Dec. 31, 20x2 252,000

2. C (150K – 50K in July 1, 20x5) = 100K balance x 8% = 8,000

3. B (400,000 x PV of 1 @ 10%, n=3) = 300,526 x 10% = 30,053

4. A 480,000 carrying amount – 450,789 present value* = 30,000 loss rounded off
* (600,000 x PV of ₱1 @10%, n=3) = 450,789

5. C
Solution:
Initial measurement: (8M ÷ 4) x PV ordinary annuity of 1 @12%, n=4 = 6,074,699

Subsequent measurement:
Interest
Date Collections Amortization Present value
income
1/1/20x1 6,074,699
12/31/20x1 2,000,000 728,964 1,271,036 4,803,663
12/31/20x2 2,000,000 576,440 1,423,560 3,380,103
12/31/20x3 2,000,000 405,612 1,594,388 1,785,715
12/31/20x4 2,000,000 214,285 1,785,715 0

6. D Solution:
(1M ÷ 5) x PV ordinary annuity of 1 @12%, n=5 = 720,955

Date Collections Interest income Amortization PV

1/1/x1 720,955
12/31/x1 200,000 86,515 113,485 607,470
12/31/x2 200,000 72,896 127,104 480,366
12/31/x3 200,000 57,644 142,356 338,010
12/31/x4 200,000 40,561 159,439 178,571
12/31/x5 200,000 21,429 178,571 0

7. D Solution:
Step 1: Pro-forma amortization table
Date Collections Interest income Amortization PV
1/1/x1 ?
12/31/x1 ? 86,515 ? ?
12/31/x2 ? 72,896 127,104 480,366
12/31/x3 ? ? ? ?
12/31/x4 ? ? ? ?
12/31/x5 ? ? ? ?

Step 2: Reconstruct some information

Date Collections Interest income Amortization PV
1/1/x1 ?
12/31/x1 200,000 (1) 86,515 ? 607,470 (2)
12/31/x2 200,000 72,896 127,104 480,366
12/31/x3 200,000 ? ? ?
12/31/x4 200,000 ? ? ?
12/31/x5 200,000 ? ? ?

(1)
(1M face amount ÷ 5) = 200,000
(2)
(127,104 + 480,366) = 607,470
* Effective interest rate = 72,896 int. inc. in 20x2 ÷ 607,470 = 12%

Step 3: Reconstruct some more

Date Collections Interest income Amortization PV
1/1/x1 ?
12/31/x1 200,000 86,515 ? 607,470
12/31/x2 200,000 72,896 127,104 480,366
12/31/x3 200,000 57,644 (3) 142,356 338,010
12/31/x4 200,000 ? ? ?
12/31/x5 200,000 ? ? ?

(3)
480,366 x 12% = 57,644

Step 4: Solve for requirement

Unpaid balance of face amount - Dec. 31, 20x3
(1M - 200K - 200K - 200K) 400,000
Carrying amount - Dec. 31, 20x3 338,010
Unamortized discount - Dec. 31, 20x3 61,990

8. C
Solution:
Initial measurement: (1M ÷ 5) x PV of an annuity due of 1 @12%, n= 5 = 807,470

Date Collections Interest income Amortization PV

1/1/x1 807,470
1/1/x1 200,000 - 200,000 607,470
1/1/x2 200,000 72,896 127,104 480,366
1/1/x3 200,000 57,644 142,356 338,010
1/1/x4 200,000 40,561 159,439 178,571
1/1/x5 200,000 21,429 178,571 0

Carrying amt. on Dec. 31, 20x1 = 480,366 + 200,000 = 680,366

9. A
Solution:
Initial measurement: (2.1M ÷ 6) x PV ordinary annuity of 1 @5%, n=6 = 1,776,492

Subsequent measurement:
Date Collections Interest income Amortization Present value
Jan. 1, 20x1 1,776,492
July 1, 20x1 350,000 88,825 261,175 1,515,317
Dec. 31, 20x1 350,000 75,766 274,234 1,241,083
July 1, 20x2 350,000 62,054 287,946 953,137
Dec. 31, 20x2 350,000 47,657 302,343 650,794
July 1, 20x3 350,000 32,540 317,460 333,333
Dec. 31, 20x3 350,000 16,667 333,333 0

Interest income in 20x1 = (88,825 + 75,766) = 164,591

10. B
Solution:
Initial measurement:
PV of P1 @ 10%,
Date Collections Present value
n= 1 to 3
Dec. 31, 20x1 400,000 0.90909 363,636
Dec. 31, 20x2 300,000 0.82645 247,935
Dec. 31, 20x3 200,000 0.75131 150,262
Totals 900,000 761,833

Subsequent measurement:
Date Collections Interest income Amortization Present value
Jan. 1, 20x1 761,833
Dec. 31, 20x1 400,000 76,183 323,817 438,016
Dec. 31, 20x2 300,000 43,802 256,198 181,818
Dec. 31, 20x3 200,000 18,182 181,818 0

11. D
Initial measurement: 1,600,000 – the cash price equivalent

Trial and error:

Working equation:
 Future cash flows x PV factor at x% = PV of note
 2,370,470 x PV of 1 x% = 1,600,000

First trial: (at 14%)

 2,370,470 x PV of 1 @ 14%, n=3 = 1,600,000

 Conclusion: The effective interest rate is 14%.

Subsequent measurement:
Date Interest income Unearned interest Present value
1/1/x1 770,470 1,600,000
12/31/x1 224,000 546,470 1,824,000
12/31/x2 255,360 291,110 2,079,360
12/31/x3 291,110 (0) 2,370,470

Shortcut: 1,600,000 x 114% x 114% = 2,079,360

12. C
Solution:
Initial measurement:
Future cash flows Present value factors @12%, n=3 Present value
a
Principal 3,000,000 0.71178 2,135,340
Annual interest (3M x 3%) 90,000 2.40183 b 216,165
Total 2,351,505
a
(PV of P1 @12%, n=3)
b
(PV of ordinary annuity of P1 @12%, n=3

Subsequent measurement:
Date Collection of interest Interest income Amortization Present value
Jan. 1, 20x1 2,351,505
Dec. 31, 20x1 90,000 282,181 192,181 2,543,685
Dec. 31, 20x2 90,000 305,242 215,242 2,758,927
Dec. 31, 20x3 90,000 331,071 241,071 2,999,999

13. C
Solution:
Jan. 1, 20x1 1,200,000
Interest in 20x1 (1.2M x 3%) 36,000
Interest in 20x2 [(1.2M + 36K) x 3%] 37,080
Interest in 20x3 [(1.2M + 36K + 37.080K) x 3%] 38,192
Total future cash flow 1,311,272

Alternative solution:
Face amount of note receivable 1,200,000
FV of P1 @ 3%, n=3 1.092727
Future cash flow 1,311,272

Future cash flow 1,311,272

PV of P1 @12%, n=3 0.71178
PV of note receivable – Jan. 1, 20x1 933,337

14. C
Solution:
The equal annual year-end payments are computed as follows:
PV = Cash Flow x PVF
20,000 = Cash Flow x PV ordinary annuity of 1 @8%, n=5
20,000 = Cash Flow x 3.993
Cash Flow = 20,000 ÷ 3.9927
Cash Flow = 5,009

Total cash flow = 5,009 x 5 years = 25,045

Less: Present value (5,009 x PV ordinary annuity @9%, n=5) = 19,483
Total interest revenue = 5,561 (Answer choice is rounded-off)

15. B
Solution:
PV of 1 @ 12%,
Cash flows
n=3; 4; & 5 PV
1/1/x1 - - -
1/1/x2 - - -
1/1/x3 - - -
1/1/x4 800,000 0.7117802478 569,424
1/1/x5 800,000 0.6355180784 508,414
1/1/x6 800,000 0.5674268557 453,941
Carrying amt. on Jan. 1, 20x1 1,531,779

Date Collections Interest income Amortization PV

 1/1/x1 1,531,779
1/1/x2 - 183,813 (183,813) 1,715,592
1/1/x3 - 205,871 (205,871) 1,921,463
1/1/x4 800,000 230,576 569,424 1,352,039
1/1/x5 800,000 162,245 637,755 714,284
1/1/x6 800,000 85,714 714,286 (2)

Chapter 7
Inventories

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. B
Solution:
Unadjusted balance 260,000
(a) 11,000
(b) 5,000
(c) (16,000)
(d) 20,000
(e) (4,000)
Correct inventory 276,000

2. C – the amount based on the physical count. No adjustment is necessary:

 The goods are properly included in inventory because they were shipped only on July 10, 2002, after the June 30,
2002 cut-off date.
 The goods purchased FOB destination are properly excluded.

3. D
Solution:
Warehouse Consigned goods Total
Beginning inventory 110,000 12,000
Purchases 480,000 60,000
Freight in 10,000
Transportation to consignees 5,000
TGAS 600,000 77,000
Ending inventory (145,000) (20,000)
Cost of goods sold 455,000 57,000 512,000

4. D
Mark-up on unsold consigned goods (40K x 40%) 16,000
Goods held on consignment by Opal 27,000
Total reduction in inventory 43,000

5. C Net method [(80K + 100K) x 98%] = 176,000

Gross method (80K x 98%) + 100K = 178,400

6. C
 Inventory (380,000 x 98% = 372,400);
 Accounts payable: 372,400 initial measurement + 7,600 adjustment on Dec. 31, 20x1 = 380,000

Initial recognition on Dec. 15, 20x1:

Purchases (380,000 x 98%) 372,400
Accounts payable 372,400

Adjusting entry on Dec. 31, 20x1:

Purchase discount lost (380,000 x 2%) 7,600
 Accounts payable 7,600

7. A
Solution:
EI: 200,000 x 98% x 10% = 19,600
COGS: 200,000 x 98% x 90% = 176,400

8. C
Solution:
I. Discount is allocated only to the goods sold:
Gross amts. Allocation of discount Net amounts
EI (200K x 10%) 20,000 - 20,000
COGS (200K x 90%) 180,000 3,200 176,800
Total 200,000 3,200

II. Discount is allocated to both EI and COGS:

Gross amts. Allocation of discount Net amounts
EI (200K x 10%) 20,000 320* 19,680
COGS (200K x 90%) 180,000 2,880* 177,120
Total 200,000 3,200

* (3,200 x 10%); (3,200 x 90%)

9. D
Solutions:
FIFO periodic
 Ending inventory, in units = 1,400 – 400 + 800 – 900 + 700 – 600 = 1,000 units

In units Unit cost In pesos

Ending inventory 1,000
Allocation to June 24 purchase (700) 30 21,000
Excess allocated to June 14
purchase 300 35 10,500
Ending inventory, in pesos 31,500

 TGAS, in pesos:
Date Transaction Quantity Unit Cost In pesos
June 1 Balance fwd. 1,400 24 33,600
14 Purchase 800 35 28,000
24 Purchase 700 30 21,000
TGAS, in pesos 82,600

TGAS in pesos 82,600

Ending inventory, in pesos (31,500)
Cost of goods sold 51,100

FIFO perpetual
 SAME AS FIFO PERIODIC

or

Date Transaction Quantity Unit Cost In pesos

June 1 Balance 1,400 24 33,600
8 Sale 400 24 (9,600)
14 Purchase 800 35 28,000
18 Sale 900 24 (21,600)
24 Purchase 700 30 21,000
29 Sale 600
100 from June 1 24 (2,400)
500 from June 14 35 (17,500)
Ending inventory 31,500

Cost of goods sold (9,600 + 21,600 + 2,400 + 17,500) 51,100

10. A
Solutions:
Weighted average periodic

Weighted Ave. Unit cost = TGAS, in pesos ÷ TGAS, in units

 TGAS, in units = 1,400 + 800 + 700 = 2,900 units

Weighted Ave. Unit cost = ₱82,600 (see previous solution) ÷ 2,900

Weighted Ave. Unit cost = ₱28.48

Ending inventory = ₱28.48 x 1,000 units = 28,480

TGAS in pesos 82,600

Ending inventory, in pesos (28,480)
Cost of goods sold 54,120

Weighted average perpetual

Date Transaction Quantity Unit Cost In pesos
June 1 Balance forwarded 1,400 24 33,600
8 Sale (400) (9,600)
14 Purchase 800 35 28,000
Totals 1,800 28.89 52,000
18 Sale (900) (26,001)
24 Purchase 700 30 21,000
Totals 1,600 29.37 46,999
29 Sale (600) (17,622)
Ending inventory 1,000 29,377

Cost of goods sold (9,600 + 26,001 + 17,622) 53,223

11. C
Solution:
FIFO – periodic
Beginning inventory in units 2,000
Net purchases in units (3,000 + 4,800 + 1,900 – 300) 9,400
Total goods available for sale in units 11,400

Total goods available for sale in units 11,400

Quantity of goods sold (4,200 – 600 + 3,800) (7,400)
Ending inventory in units 4,000

Unit
Units Total cost
cost
Ending inventory to be allocated 4,000
Allocated as follows:
From Nov. 29 net purchases
(1,900 - 300) (1,600) ₱38.60 ₱ 61,760
Bal. to be allocated to the next most
2,400
recent purchase date
From Nov. 21 purchase (2,400) 38.00 91,200
Ending inventory at cost - ₱152,960

Total goods available for sale in pesos (see below) 427,760

Ending inventory at cost (152,960)
Cost of goods sold 274,800

 TGAS in pesos:
Date Transaction Units Unit cost Total cost
1-Aug Inventory 2,000 ₱ 36.00 ₱ 72,000
7 Purchase 3,000 37.20 111,600
21 Purchase 4,800 38.00 182,400
29 Purchase 1,900 38.60 73,340
30 Purchase return 300 38.60 (11,580)
Total goods available for sale ₱ 427,760

FIFO – perpetual
 SAME AS FIFO PERIODIC

12. A
Solution:
Weighted Average - Periodic
Weighted average unit cost = (₱427,760 (a) ÷ 11,400 (a)) = ₱37.52

(a)
see previous computations

Ending inventory in units (refer to previous computation) 4,000

Multiply by: Weighted average unit cost 37.52
Ending inventory at cost 150,080

Total goods available for sale in pesos (refer to previous table) 427,760
Ending inventory at cost (150,080)
Cost of goods sold 277,680

Weighted Average – Perpetual

Date Transaction Units Unit cost Total cost
 1-Nov Inventory 2,000 ₱36.00 ₱72,000
7 Purchase 3,000 37.20 111,600
Moving average unit cost =
5,000 36.72 183,600
(₱183,600 ÷ 5,000)
12 Sales (4,200) 36.72 (154,224)
15 Purchase 4,800 38.00 182,400
Moving average unit cost =
5,600 37.82 211,776
(₱211,776 ÷ 5,600)
 16 Sales returns 600 36.72 22,032
Moving average unit cost =
6,200 37.71 233,808
(₱233,808 ÷ 6,200)
22 Sales (3,800) 37.71 (143, 298)
29 Purchase 1,900 38.60 73,340
30 Purchase returns (300) 38.60 (11,580)
Ending inventory in units & at cost 4,000 ₱ 152,270

Cost of goods sold (Nov. 12, ₱154,224 – ₱22,032 Sales returns + Nov. 22, ₱143,298 = ₱275,490)

13. C
Solution:
 Concept: TGAS is the same under LIFO and FIFO.

TGAS in pesos (195,000 LIFO COGS + 65,000 LIFO) 240,000

FIFO Ending inventory in pesos (65,000)
FIFO Cost of goods sold 175,000

14. A
Solution:
Invoice price inclusive of VAT 112,000
VAT (12,000)
Shipping costs 40,000
Transit insurance 12,000
Commission to broker 5,600
Cost of inventory 157,600

15. C
Solution:
Sales 1,000,000
Sales discounts (50,000)
Sales returns (10,000)
Net sales 940,000
Cost of goods sold:
Beginning inventory 60,000
Purchases 500,000
Purchase returns (25,000)
Purchase discounts (10,000)
Freight-in 60,000
TGAS 585,000
Ending inventory (75,000) (510,000)
Gross profit 430,000

The freight-out and commission expense are presented as other operating expenses; thus, they do not affect the
computation of gross profit.

16. C
Solution:
 X Y Z Total
Cost (50 + 5); (30 + 4); (109 + 68) 55 34 177
NRV (56 - 4); (60 - 8); (250 - 75) 52 52 175
Lower 52 34 175
No. of units 3,700 2,500 1,300
Total 192,400 85,000 227,500 504,900

17. D – Raw materials are not written-down if the finished goods in which they will be incorporated are
expected to be sold at or above cost.

18. B – The recovery in 20x2 of ₱40,000 (490,000 – 450,000) exceeds the previous write-down. Thus, the amount of
reversal recognized is limited to the previous write down of ₱30,000 (410,000 – 440,000).

19. B
Solution:
Inventory
beg. 60,000
Net purchases, excldg.
freight in 465,000
Freight-in (squeeze) 60,000
510,000 COGS
75,000 end.

OR

Inventory
beg. 60,000
Purchases 500,000 25,000 Purchase returns
Freight-in (squeeze) 60,000 10,000 Purchase discounts
510,000 COGS
75,000 end.

TGAS = 510,000 COGS + 75,000 EI = 585,000;

OR

TGAS = 60,000 BI + (500,000 – 25,000 – 10,000 + 60,000) Net purchases = 585,000

20. A
Solution:
Inventory
beg. 60,000
Purchases 500,000 25,000 Purchase returns (squeeze)
Freight-in 60,000 10,000 Purchase discounts
510,000 COGS
75,000 end. (585K TGAS – 510K COGS)