Problem I- The balances of selected accounts taken from December 31, 2014 records of ABC Company

are as follows:
Accounts Receivable, Gross P 500,000
ABC set up its 2014 allowance for doubtful account using percentage of receivable with the historical bad
debt loss percentage to be recomputed each year based on all available years up to a maximum of three
years. Information related to this are as follows:

Year Credit Sales Accounts Written Off Recoveries

2009 2,200,000 16,000 0

2010 1,600,000 11,000 0

2011 1,300,000 36,000 4,000

2012 1,100,000 88,000 3,000

2013 1,400,000 49,000 2,000

2014 1,300,000 149,000 15,000

The following transactions affecting the accounts receivable occurred during the year ended December
31, 2015:
Gross sales, all on account (2/10, 1/15, n/60) P 3,000,000
Cash received from all customers 1,500,000
From customers paying within 10- day discount period P 661,500
From customers paying within 15- day discount period 371,250
From customers paying not within discount period ?
From recovery of accounts written off 140,000
Accounts written off 25,000
Credit memoranda for sales returns 197,750
Starting 2015, ABC Company set up its allowance for doubtful accounts through aging of receivable.
Upon further analysis, details of the ending balance of accounts receivable, net of accounts written off,
are as follows:

Days Percentage of Total Receivables Percentage of Collectability

0-60 35% 100%

61-90 28% 86%

91-120 22% 56%

Over 120 15% 13%

By January 15, 2016, due to lack of available cash, ABC company decided to sell 20% of its gross
December 31, 2015 accounts receivable without recourse. The factor charged P 57,000 commission on all
accounts receivable factored and withheld P 22,000 as protection against customer returns and other
adjustments. The factored accounts receivable was categorized in aging of receivable under 61-90 days
and have associated allowance for doubtful accounts based on the matrix. By February 1, 2016, ABC
company had collected the factor’s holdback there being no customer returns and other adjustments.
By March 1, 2016, ABC Company assigned 50% of its remaining receivable as collateral on a 6% note
from a certain bank. The principal amount of the loan is 85% of the assigned accounts. The entity will
continue to collect the assigned accounts receivable. In addition to the interest on the note, the bank also
charged a 6% of the loan finance charge deduced in advance on the value of the note. During March
2016, 70% of assigned accounts are collected and the entire collection was remitted to the bank as
payment for March 2016 interest and the note. ABC accepted sales return of P 7,000 related to the
assigned accounts and wrote off P 14,000 assigned accounts.
Given these, answer the following questions: (Whenever necessary, round off your final answers to the
nearest centavo)
Problem II- You are assigned to assess the collectability of the receivables carried in the books
of ABC Company, your company’s audit client. The working trial balance prepared at December
31, 2018 showed the following balances:
Notes Receivable P 18,000,000
In the course of your examination, you discovered the composition of the notes receivable which
is as follows:
From Company A P 6,000,000
From Company B P 9,000,000
From Company C P 3,000,000
No interest has yet been recorded by ABC during 2018 on any of the notes above.
Company A is undergoing bankruptcy proceedings and has negotiated for a restructuring of its
notes receivable. The note was for a four- year period and interest of 10% is collectible annually.
All interest accrued before 2018 has been collected. The note matured on December 31, 2018.
Collection of interest was last made on December 31, 2017. The restructuring agreement with
Company A calls for annual payment of P 1,100,000 starting December 31, 2019. No further
interest will be collected during the six-year term.
The notes receivable from Company B is a seven-year non-interest bearing note, with face value
of P 9,000,000. The note was received in exchange for a piece of land sold by ABC on June 1,
2018. The land was carried in the books at the date of sale at P 7,800,000. The difference
between the face amount of the note and the carrying value of the land was credited to gain on
sale of land. The market rate for a note of this type is 10%.
The Notes Receivable from Company C bears interest at 10%. The note was received from sale
of goods in the normal course of business. The note is dated October 1, 2018 and matures on
March 31, 2019.
Table of present value factors at 10% is provided as follows:

Number of Periods PV of 1 PV of Ordinary Annuity of 1

1 0.91 N/A

2 0.83 1.74

3 0.75 2.49
4 0.68 3.17

5 0.62 3.79

6 0.56 4.36

7 0.51 4.87

8 0.47 5.33

9 0.42 5.76

10 0.39 6.14

Given these, compute for the following:

Problem 1

First, establish the Doubtful accounts rate computed as:

(Total accounts written off MINUS Total Recovery of Accounts) / Total Credit Sales
Take note that information need is only the latest 3 years (2012-2014)
From the computed rate, multiply it with the beginning balance of A/R to compute the
beginning ADA balance and NRV.

Accounts Receivable

(cash from customers w/ 10-day discount) /

Beginning
0.98

(cash from customers w/ 15-day discount) /

Gross Sales, all on account
0.99

Recovery Recovery of A/R written off

Cash from customers w/o discount*

A/R written off

Sales return

Ending Balance
Then, compute the gross A/R balance 2015:
*Total cash received MINUS cash from customers w/ 10-day discount MINUS cash from
customers w/ 15- day discount MINUS recovery of A/R written off

Next, you will segregate the ending balance based on the aging table to get the ADA
12/31/2015 ending balance.
0-60 days will produce zero ADA since % of collectability is 100%. The rest (61-90, 91-
120 and over 120) will produce ADA (100% MINUS percentage of collectability).

For factoring, entry goes like this:

Dr. Cash XX*
Dr. Factor’s Holdback XX (given; “withheld”)
Dr. ADA XX (20% of A/R MULTIPLIED BY (100% MINUS % of Collectability
under 61-90 days)
Dr. Loss on Factoring XX (BALANCING FIGURE)
Cr. A/R XX (20% of 12/31/2015 A/R gross)
*20% of 12/31/2015 A/R gross LESS commission LESS factor’s holdback

For assignment:
(12/31/2015 Gross A/R LESS A/R factored) X 50% = A/R gross assigned
Loan amount = A/R gross assigned X given rate (varies depending on the SW set
assigned to you)
Total collection = A/R gross assigned X 70%
Collection applicable to principal = total collection MINUS (loan amount X 6% X 1/12)
Remaining A/R gross assigned = A/R gross assigned LESS total collection LESS sales
return LESS write off
Remaining loan amount = Original loan amount MINUS collection applicable to principal
Equity in Assigned accounts = remaining A/R gross assigned MINUS remaining loan
amount
A/R gross, 12/31/2015
Less: A/R factored
Less: Total collection from A/R assigned
Less: sales return in A/R assigned
Less: write off A/R assigned
Remaining A/R gross, 3/31/2016

ADA based on aging

Less: ADA related to A/R factored
Less: write-off A/R assigned
Remaining ADA 3/31/2016

Remaining A/R gross, 3/31/2016

Less: remaining ADA 3/31/2016
NRV of all A/R, 3/31/2016

PROBLEM 2

Total interest income, 2018

Note from company A = interest income is still based on original face amount and good
for 1 year
Note from company B = the face value of the note X PV factor X 10% X Months/12
Note from company C = face value of the note X 10% X Months/12

Impairment loss, 2018

Face of the note from company A

Add: interest income based on face amount, 2018
Carrying amount of the note
Less: PV of restructured note = installment X PV of OA of 1*
Impairment Loss, 2018

*period is stated in the statement “No further interest will be collected during the ten-
year term”. In this case, it is for 10 periods.

Financial impact, 2018

Total interest income, 2018
Less: impairment loss, 2018
Less: loss on sale, 2018 related to note from company B*

*Computed as follows:
Dr. N/R XX (face value)
Dr. Loss on sale XX (balancing figure)
Cr. Land XX (at cost)
Cr. Disc on N/R XX (face value LESS the (face value X PV factor))

Carrying amount of N/R 12/31/2018 excluding interest receivable

From company A (the PV of restructured note)
From company B (carrying amount at 12/31/2018, use amortization table)*
From company C (face amount since short-term)

*for company B, example, transaction happened on March 1, 2018

Date Interest Carrying Amount
3/1/2018 3,360,000
3/1/2019 336,000 3,696,000
The 336,000 is for 3/1/2018 to 3/1/2019; given this, 336,000 X 10/12 = 280T interest
income for 2018
Then, revise the amortization table to include 12/31/2018:
Date Interest Carrying Amount
3/1/2018 3,360,000
12/31/2018 280,000 3,640,000
3/1/2019 56,000 3,696,000
12/31/2019 308,000 4,004,000
Interest income for 2019 is 56,000 PLUS 308,000 (3.696M X 10% X 10/12)

Interest income, 2019

From company A (restructured note X 10%)
From company B (see solution above)
From company C (face amount X 10% X remaining months before collection for
2019/12)

Carrying amount, 12/31/2019

From Company A (use amortization table)
From Company B (see solution above)

Note Company C is no longer included since it’s already collected last March.
Problem 1- Your audit of the Cash account of ABC Company reveals the following:

(1) Savings account of P 2,100,000 and commercial checking account of P 500,000 with DEF Bank.
Balances were taken from ABC’s general ledger.

(2) Five certificates of deposit with DEF Bank, each totaling P 2,500,000, with maturity dates of 90 days
and less.

(3) Money market placements with GHI Group of companies acquired last 2016, not intended to be
terminated until 2018, P 2,900,000 face amount. Last value date was December 29, 2018, on which date,
cumulative income earned on the instrument is P 600,000.

(4) Checking account with JKL bank for payroll fund, P 900,000 and another checking account for tax
fund, P 400,000.

(5) A check for P 45,000 for salaries of an employee on leave was recorded as disbursed on December 15;
the employee has not claimed the check as of December 31.

(6) Savings account with JKL, P 1,500,000 as equipment acquisition fund, P 1,080,000 of which was
earmarked for an equipment to be delivered in March 2019. You were able to verify that this amount was
actually disbursed in March 2019.

(7) Petty cash fund, with imprest balance of P 20,000. Your count of the fund (located in the petty cash
custodian drawer) on January 4, 2019 revealed the following fund composition: Bills and coins – P
14,000; paid petty cash vouchers, all dated December 2018 – P 3,800; IOUs from employees, with no
supporting petty cash vouchers, P 2,200; and a check drawn against DEF checking account in the amount
of P 7,300 covering electricity bill for the period November 29 to December 30, 2018.

(8) Checks from customers in settlement of account, both on sales invoices for the month of December
2018, totaling P 45,000. The checks were verified to have been recorded in the December cash receipts
journal, although one check for P 5,000 was dated January 8, 2019. All the checks proved to be good
when subsequently deposited.

Given these, compute for the following balances as of December 31, 2018:
Problem 2- You examined the petty cash fund of the ABC Company immediately after the close of
business on June 30, 2018, the end of the company’s fiscal year. Your audit showed the following fund
composition:
Currencies – 5,200
Coins – 345
Petty cash vouchers:
Gasoline payments for delivery vehicle – 210
Office supplies – 140
Medicines for employees – 205
Transportation – 350
Office equipment repairs – 350
Loans to employees – 690
A check drawn by the company payable to the order of the petty cash custodian, representing her salary –
2,420
An employee’s check returned by the bank because of insufficient funds – 1,040
A piece of paper with names of several employees together with a contribution for a wedding gift for an
employee. Attached to the sheet of paper are currencies amounting to P 6,500.
The petty cash general ledger has an imprest balance of P 13,000.
Given these, compute for the following:
Problem 3- ABC Company keeps all its cash in a checking account. Presented below are the company’s
bank reconciliation prepared at the end of May, the general ledger account for cash, and a summary of the
company’s bank statement for June:

Bank Book

Unadjusted 25,000 Unadjusted 24,288

Add: Deposit in Transit 900

Total 25,900

Deduct: Outstanding Deduct: Bank Service

1,672 60
Checks Charge

Adjusted, May 31 24,228 Adjusted, May 31 24,228

Cash

Balance, June 1 – 24,288 June Disbursements – 102,776

June Receipts – 104,728

Bank Statement for June

Balance, June 1 25,000
Deposits shown for June 102,768
Note and interest collected during June 6,300
Checks that cleared during June (102,828)
June service charge (68)
Balance, June 30 31,172

Additional Information:
-During June, ABC incorrectly recorded two checks. Check no. 507 was drawn for P 932 but recorded as
P 1,292; check no. 521 was drawn for P 720 but recorded as P 72. Both checks were issued in payment of
accounts payable and cleared the bank in June.
-During June, the bank erroneously charged a P 840 check of DEF Company to ABC Company’s
account.
Given these, compute for the following:

Problem 4- The cash account of ABC Company disclosed a balance of P 68,225.92 on October 31. The
bank statement as of October 31 showed an unreadable balance. Upon comparing the statement with the
cash records, the following facts were developed.
(a) ABC account was charged on October 26 for a customer’s uncollectible check amounting to P 4,572.
(b) A 2-month 9% P 12,000 customer’s note dated August 25, discounted on October 12, was dishonored
October 26 and the bank charged Dolly P 12,203.32, which included a protest fee of P 23.32.
(c) A customer’s check for P 2,900 was entered as P 2,500 by both the depositor and the bank but was
later corrected by the bank during October.
(d) Check No. 661 for P 4,970 was entered in the cash disbursements journal at P 4,898 and check No.
652 for P 131.60 was entered as P 1,316. The company uses the voucher system.
(e) Bank service charges of P 157.72 for October were not yet recorded on the books.
(f) A bank memo stated that a customer note for P 10,000 and interest of P 250 had been collected on
October 29, and the bank charged P 50. (No entry was made on the books when the note was sent to the
bank for collection).
(g) Receipts of October 29 for P 27,400 were deposited November 1.
(h) Outstanding checks on October 31 totaled P 49,232.52.
Given these, compute for the following:
FPoSW03 Solution Guide

Problem 1

(1) both included in cash balance

(2) included in cash equivalent
(3) excluded
(4) both included in cash balance
(5) add to cash balance; unclaimed disbursement check
(6) excluded
(7) add to cash balance bills and coins
(7) check drawn against DEF checking account should also be added to cash since it is not yet forwarded
to intended payee, electricity, thus, still part of the cash of the company
(8) add to cash balance the total amount of checks LESS the amount for postdated customer check

Problem 2

Petty cash includes currencies, coins and check drawn by company payable to order of petty cash
custodian, representing her salary (sometimes called accommodation check)
Petty cash custodian’s accountability is the imprest petty cash balance PLUS other collections handed
over to her; in the problem, it is the contribution for a wedding gift.
Cash shortage/ overage is petty cash custodian’s accountability LESS all petty cash and other items
COUNTED
If PCC’s accountability > items counted, shortage; otherwise, overage
Petty cash and other items counted include bills and coins, currencies, petty cash vouchers,
accommodation check, NSF employee check and contribution for wedding

Problem 3

DIT JUNE

DIT, May
Plus: book June receipts (shown in the general ledger for cash table)
Less: bank deposits shown for June*
DIT, June

*no need to deduct CM for June since the deposits shown for June exclusively pertain only to deposits
made by the company; If, instead the problem states “bank credits”, then, that’s the time that you will
deduct current month CM.

OC JUNE

OC, May
Plus: adjusted book disbursements*
Less: adjusted checks that cleared during June**
OC, June

*June disbursements from the general ledger table MINUS May bank service charge MINUS excess
amount on check no. 507 PLUS insufficient disbursement from check no. 521
**checks that cleared during June LESS erroneous DEF check
BOOK

Transactions May Balance June Receipts June Disbursements June Balance

Unadjusted – from
XX XX XX XX
general ledger table

Notes and interest

XX XX
collected during June

May SC (XX) (XX)

June SC XX (XX)

Error – check no. 507 (XX) XX

Error – check no. 521 XX (XX)

Adjusted XX XX XX XX
BANK

Transactions May Balance June Receipts June Disbursements

Unadjusted – from bank recon

XX XX* XX**
and bank statement

DIT, May XX (XX)

DIT, June XX

OC, May (XX) (XX)

OC, June XX

Erroneous DEF Check (XX)

Adjusted XX XX XX

*Unadjusted bank June receipts = deposits shown for June PLUS notes and interest collected during June
** Unadjusted bank June disbursements = checks that cleared during June PLUS June service charge
Problem 4

Unadjusted per book XX

(a) NSF (XX)
(b) DM (XX)
(c) error – understated receipt XX
(d) check 661 – understated disbursement (XX)
(d) check 652 – overstated disbursement XX
(e) SC (XX)
(f) CM net of bank charge XX
(g) DIT -
(h) OC -
Adjusted Balance XX

For net adjustment in book, simply total impact from (a) to (f), resulting to a negative net adjustment

For net adjustment in bank, its simply DIT minus OC resulting to a negative net adjustment

Adjusted balance XX
(g) DIT (XX)
(h) OC XX
Unadjusted per bank XX