ACTIVITY (Classroom)

Problem 1
Accounts Receivable and Related Accounts

Presented below are unrelated situations. Answer the relating to each situation. 

1. The following information is from GUMAMELA CORP.'s first year of operations: 

1. Merchandise purchased P450,000
2. Ending merchandise inventory 123,000
3. Collections from customers 150,000 
4. All sales are on account and goods sell at 30% above cost.

What is the accounts receivable balance at the end of the company's first year of operations?

2. BANABA CO. reported the following information at the end of its first year of operations, December 31, 2018:

Expected credit loss for 2018  P271,000

Uncollectible accounts written off during 2018 35,400
Net realizable value of accounts receivable  895,000

What is the accounts receivable balance at December 31, 2018?

3. MAHOGANY COMPANY's analysis and aging of its accounts  receivable at December 31, 2018, disclosed the following:

Accounts receivable P460,000

Accounts estimated to be uncollectible (per aging) 95,000
Allowance for credit loss (per books) 103,000

What is the net realizable value of Mahogany receivables at December 31, 2018?

4. The following amounts are shown on the 2018 and 2017 financial statements of SAN FRANCISCO CO.:
2018  2017
Accounts receivable  ? P 470,000
Allowance for credit loss  20,000  10,000
Net sales  2,600,000  2,400,000
Cost of goods sold  1,900,000  1,752,000

San Francisco Co.'s accounts receivable turnover for 2018 is 6.5 times.

What is the accounts receivable balance at December 31, 2018?

Problem 2
Accounts Receivable Aging Schedule

CALACHUCHI CORP.'s accounts receivable subsidiary ledger shows the following information: 

ACCOUNT BALANCE  INVOICE

CUSTOMER DEC. 31, 2018  DATE AMOUNT
Aruy, Inc. P35,180 12/06/18 P14,000
11/29/18 21,180
Naku Co. 20,920 09/27/18 12,000
08/20/18  8,920
Syak Corp. 30,600 12/08/18 20,000
10/25/18 10,600
Trip Co. 45,140 11/17/18 23,140
10/09/18 22,000
Uy Co. 31,600  12/12/18 19,200
12/02/18  12,400
Xak Corp. 17,400 09/12/18 17,400

The lifetime expected credit loss rates below are based on Calachuchi Corp.'s receivable collection experience, adjusted for forward
looking estimates. 

Age of Accounts  Rate

0 - 30 days 1%
 31 - 60 days 1.5%
61 - 90 days  3%
91 - 120 days 10%
Over 120 days  50%

The allowance for credit loss account had a debit balance of P5.500 December 31, 2018, before adjustment.

1. The company's accounts receivable under “61-90 days" category should be

A. P32,600 C. P44,600
B. P44,320 D. P42,000

2. The company's accounts receivable under "91-120 days" category should be

A. P38,320  C. P29,400
B. P40,000  D. P12,000

3. The allowance for credit loss to be reported in the statement of financial position at December 31, 2018, is
A. P9,699  C. P4,199
B. P15,199  D. P5,500

4. What entry should be made on December 31, 2018, to adjust the allowance for credit loss account?
A. Expected credit loss  15,199
Allowance for credit loss  15,199
B. Expected credit loss  4,199
Allowance for credit loss 4,199
C. Allowance for credit loss 5,500
Expected credit loss  5,500
D. Expected credit loss  9,699
Allowance for credit loss  9,699

5. What is the net realizable value of accounts receivable at December 31, 2018?
A. P165,641  C. P196,039
B. P171,141  D. P186,340 

Problem 3
Discounting of Notes Receivable

During your audit of FOREVER COMPANY for the year ended December 31, 2018, you find the following account. 

Notes Receivable 
Date  Debit Credit
Sept. 1Cornea, 20%, due in 3 months P 80,000
Oct. 1 Hunk Co., 24%, due in 2 months 300,000 
1Discounted Cornea note at 25% P 80,000 
Nov. 1 Valerie, 24%, due in 13 months 600,000
30 Cellular Co., no interest, due
in one year 500,000 
30 Discounted Cellular note at 18% 500,000 
Dec. 1 Tictic, 18%, due in 5 months  900,000 
1 0. Reyes, President, 12%, 
due in 3 months
(for cash loan given to 0. Reyes) 1,200,000 

All notes are trade notes unless otherwise specified. The Cornea note was paid on December 1 as per notification received from the
bank. The Hunk Co. note was dishonored on the due date but the legal department has assured management of its full collectibility.

The company, with your concurrence, will treat the discounting as a conditional sale of note receivable.

1. At what amount on the current assets section of the December 31, 2018, statement of financial position will the Notes
receivable trade be carried?
A. P1,500,000  C. P2,400,000
B. P1,800,000  D. P2,080,000

2. What amount of loss on notes receivable discounting should be reported in the 2018 income statement of the company?
A. P90,500  C. P90,000
 B. P90,833  D. P 0

3. Based on the ledger account presented, what amount of interest income should be accrued at December 31, 2018?
A. P55,500  C. P49,500
B. P61,500  D. P67,500 

ASSIGNMENT/HOMEWORK
_________________________________________________________________________

Problem 4
Expected Credit Loss Based on a Provision Matrix

CURDAPIA COMPANY, a manufacturer, operates in one geographical region and has a large number of small customers. The
company uses a provision matrix based on its historical observed default rates, adjusted to reflect current conditions and forward-
looking estimates. At every reporting date, it analyzes changes in the forward-looking estimates and adjusts the historical observed
default rates.

Curdapia Company estimates the following provision matrix at December 31, 2018: 
Expected  Gross 
Default Rate Carrying Amount
Current 0.15% P7,500,000
1-30 days past due  0.80%  3,750,000
31-60 days past due  1.80%  2,000,000
61-90 days past due  3.30%  1,250,000
More than 90 days past due 5.30%  500,000

Because of a deterioration in general economic conditions, Curdapia Company revises its forward-looking estimates on December
31, 2019. 

Expected Gross 
Default Rate Carrying Amount
Current  0.25% P8,000,000
1-30 days past due  0.90% 4,000,000
31-60 days past due  1.90% 2,500,000
61-90 days past due 3.50% 1,750,000
More than 90 days past due 5.50% 750,000

1. What amount of expected credit loss should be recognized for the year ended December 31, 2018?
A. P145,000  C. P61,000
B. P206,000  D. P0

2. The entry to adjust the allowance for credit loss on December 31, 2019 is
A. Expected credit loss  145,000
Allowance for credit loss 145,000
B. Expected credit loss  206,000
Allowance for credit loss 206,000
C. Expected credit loss  61,000
Allowance for credit loss 61,000
D. Allowance for credit loss  61,000
Expected credit loss  61,000 

Problem 5
Notes Receivable: Classification and Interest Computation

The following long-term receivables were reported in the December 31, 2017, statement of financial position of MANGO
CORPORATION:

Note receivable from sale of plant P3,000,000

Note receivable from officer  800,000

The following transactions during 2018 and other information relate to the company's long-term receivables:
1. The note receivable from sale of plant bears interest at 12% per annum. The note is payable in 3 annual installments of
P1,000,000 plus interest on the unpaid balance every April 1. The initial principal and interest payment was made on April 1,
2018.

2. The note receivable from officer is dated December 31, 2017, earns interest at 10% per annum, and is due on December 31,
2020. The 2018 interest was received on December 31, 2018.

3. Mango sold a piece of equipment to Banana, Inc. on April 1, 2018, in exchange for a P400,000 non-interest-bearing note due on
April 1, 2020. The note had no ready market, and there was no established exchange price for the equipment. The prevailing
interest rate for a note of this type at April 1, 2018, was 12%. The present value factor of 1 for two periods at 12% is 0.797.

4. A tract of land was sold by Mango to Orange, Inc. on July 1, 2018, for P2,000,000 under an installment sale contract. Orange
signed a 4-year 11% note for P1,400,000 on July 1, 2018, in addition to the down payment of P600,000. The equal annual
payments of principal and interest on the note will be P451,250 payable on July 1, 2019, 2020, 2021, and 2022. The land had an
established cash price of P2,000,000, and its cost to Mango was P1,500,000. The collection of the installments on this note is
reasonably assured.

1. The amount to be reported as noncurrent receivables in the statement of financial position at December 31, 2018, is
A. P3,096,242 C. P3,221,550
B. P3,067,550  D. P3,250,242

2. The current portion of notes receivable on December 31, 2018, should be

A. P1,451,250 C. P2,097,250
B. P1,297,250  D. P2,297,250

3. The accrued interest receivable on December 31, 2018, should be

A. P257,000  C. P285,692
B. P180,000  D. P334,000

4. On December 31, 2018, the unamortized discount on note receivable from sale of equipment should be
A. P42,944  C. P 0
B. P109,892  D. P52,508

5. The total interest income for the year ended December 31, 2018, should be
A. P427,000  C. P375,692
B. P455,692  D. P532,692 

“Do not let what you can’t do interfere what you can.” /map 😊