Chapter 4

Receivables and Related Revenues

MULTIPLE CHOICE – THEORY

1. D 2. C 3. C 4. C 5. B
6. D 7. D 8. B 9. B 10. A
11. D 12. B

Problem 1
1. A
2. E
3. B, E
4. A,C,D
5. A,C,D
6. A,C
7. D
8. C,D
9. D
10. D
11. D
12. A,B,C
13. D
14. E
15. E
16. C
17.

Problem 2 (Fontana Blue)

a. Cost of Sales 20,000

Inventory 20,000

b. Cost of Sales 18,000

Inventory 18,000

c. Cost of Goods Sold 6,000

Inventory 6,000

d. Sales 40,000
Accounts Receivable 40,000

e. Sales 60,000
Accounts Receivable 60,000

Inventory 33,600
Cost of Sales 33,600

f. Sales 120,000
Accounts Receivable 120,000

g. Accounts Receivable 60,000

Sales 60,000

Cost of Goods Sold 40,000

Inventory 40,000

h. No adjustment

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i. Accounts Receivable 80,000
Sales 80,000

Cost of Sales 55,000

Inventory 55,000

j. Accounts Receivable 90,000

Sales 90,000

Problem 3 (Magnolia Company)

1. Accounts Payable – B 74,000

Accounts Receivable - B 74,000

2. Accounts Receivable – L 16,200

Accounts Receivable – C 16,200
(Or correct subsidiary ledger balances)
3. Sales 10,000
Accounts Receivable – D 10,000

4. Sales 24,000
Accounts Receivable – E 24,000

5. Inventory 16,500
Cost of Sales 16,500

6. Sales 60,000
Accounts Receivable - F 15,000
Advances from Customers 45,000

7. Sales 85,000
Accounts Receivable – G 85,000

Inventory 59,000
Cost of Sales 59,000

8. Sales 2,500
Accounts Receivable – H 2,500
10,000 / 200 x (200 – 150) = 2,500

9. Sales 180,000
Accounts Receivable – I 180,000

10. Inventory 120,000

Cost of Sales 120,000

11. Sales Returns and Allowances 5,000

Sales 5,000

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Problem 4 (Blooms Company)

Account Per client Adjustment Per audit Not due 1-60 days 61-120 days Over 120
Past due past due days past
due
1 14,000 14,000 3,000 8,000 3,000
2 25,000 25,000 25,000
3 98,000 (98,000) 0
4 44,000 44,000 24,000 20,000
5 68,000 68,000 8,000 60,000
6 15,000 15,000 15,000
Total 264,000 (98,000) 166,000 36,000 83,000 27,000 20,000

Age Classification Balance per audit % Uncollectible Required Allowance

Not due 36,000 1% 360
1-60 days past due 83,000 2% 1,660
61-120 days past due 27,000 5% 1,350
Over 120 days past due 20,000 50% 10,000
Total P13,370

Notes Receivable 100,000

Interest Income 2,000
Accounts Receivable (customer 3) 98,000

Interest Receivable 750

Interest Income 750

Uncollectible Accounts Expense 5,370

Allowance for Doubtful Accounts 5,375
13,370 – 8,000 = 5,370

Problem 5 (Balimbing, Inc.)

Age Per Client Adjustment Per Audit % Uncollectible Required

Allowance
Under 60 days 175,000 175,000 1% 1,750.00
61- 90 days 80,000 4,800 84,800 3% 2,544.00
91 – 120 days 42,000 (2,740) 39,260 6% 2,355.60
Over 120 days 24,000 (4,000) 20,000 25% 5,000.00
Total P321,000 (2,100) 319,060 11,649.60

Required Allowance P11,650

Balance of allowance before final adjustment
22,060 – 4,000 18,060
Adjustment P 6,410

(a) Adjusting entries:

1. Uncollectible Accounts Expense 2,740

Accounts Receivable – 91 – 120 days 2,740

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2. Allowance for Doubtful Accounts 4,000
Accounts Receivable – Over 120 days 4,000

3. Accounts Receivable – 61-90 days 4,800

Advances from Customers 4,800

4. Allowance for Uncollectible Accounts 6,410

Uncollectible Accounts Expense 6,410

(b) Correct balance of Accounts Receivable P318,860

(c) Correct balance of Uncollectible Accounts Expense

Per Client ( P16,050 – 2,740) P13,310
Adjustment No. 1 2,740
No. 4 (6,261)
Per audit P 9,789

Problem 6 (Esau Industries, Inc.)

(a) Correct balance of Trade Accounts Receivable
General Ledger Subsidiary Ledger
Balances per client P 10,536,500 P 5,635,700
Undelivered sales (2,732,900)
Goods consigned to Automatic, Trinoma, etc. (3,260,700)
Collections received from Cebu and Davao branches (1,092,800)
Write off (168,000) (168,000)
Per audit P4,374,900 P4,374,900

(b) Correct balance of Allowance for Uncollectible Accounts

Age Before Adjustment Per Audit % Uncollectible Required
Adjustments Allowance
Current P 4,067,320 (1,092,800) 2,974,520 2% P 59,490
31-60 days 402,440 402,440 5% 20,122
61-90 days 267,320 267,320 10% 26,732
 90 days 898,620 (168,000) 730,620 30% 219,186
P 325,530

Allowance for Uncollectible Accounts, Per Client P281,255

Additional write off ( 168,000)
Additional provision 212,275*
Balance per audit P325,530

(c) Correct balance of Uncollectible Accounts Expense:

Per client P3,425,625
Additional provisions as a result of audit 212,275
Per Audit P3,637,900

Audit Adjustments:

Sales 2,732,900
Accounts Receivable 2,732,900

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Receivables and Related Revenues

Sales 3,260,700
Accounts Receivable 3,260,700

Allowance for Uncollectible Accounts 168,000

Accounts Receivable 168,000

Uncollectible Accounts Expense 212,275

Allowance for Uncollectible Accounts 212,275

Problem 7

(a) Retained Earnings 20,000

Allowance for Uncollectible Accounts 20,000

Percentage of uncollectible accounts = Net wiriteoffs up to 2017 Net credit sales up to 2017
= 160,000 / 10,000,000 = 1.6%

Required allowance, beginning of 2018 = 1.6% x 1,250,000 = 20,000

(b) Allowance for uncollectible accounts, beginning P 20,000

Write off (83,000)
Recoveries 5,000
Balance before yearend adjustment P58,000 debit balance
Required allowance:
Rate = 238,000/ 14,000,000 = 1.7%
1.7% x 1,460,000 24,820
Uncollectible Accounts Expense, 2021 P82,820

Problem 8 (Smith, Inc.)

(a) Schedule of Trade Notes Receivable

Maker Due Date Per Client Adjustment Per Audit # of Days Interest Rate Accrued
Accrued Interest
Avon Co. 3/30/22 P100,000 (100,000) --
Sara Lee 1/30/22 250,000 (250,000) -- 60 8% P 3,333.
Triumph 7/2//21 60,000 (60,000) -- 60 6% 600
President 01/31/22 800,000 (800,000) --
Mondragon 1/12/22 60,000 -- 60,000 108 9% 1,620
Elizabeth 8/31/23 200,000 (200,000) -- --
Total P770,000 (710,000) P60,000 P5,553

(b) Adjusting Entries:

Liability on Discounted Notes 100,577
Trade Notes Receivable 100,000
Gain on Sale of Notes Receivable 577

Principal P100,000
Interest for the entire term 3,333
Discount (103,333 x 8% x 4/12) ( 2,756)
Proceeds from discounting P 100,577
Carrying value, date of discounting 100,000
Gain on sale of notes P 577

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Receivables and Related Revenues

Subscription Receivable – Preference Share 250,000

Trade Notes Receivable 250,000

Accounts Receivable 60,600

Trade Notes Receivable 60,000
Interest Income 600

Receivable from Officers 800,000

Compensation Expense 66,055
Trade Notes Receivable 800,000
Discount on Notes Receivable from Officers 66,055

Discount on Notes Receivable from Officers (66,055 x 11/12) 60,550

Interest Income 60,550

Depreciation Expense – Equipment 26,667

Accumulated Depreciation – Equipment 26,667
10% x P400,000 x 8/12

Accumulated Depreciation – Equipment 186,667

Notes Receivable – Non-current 200,000
Loss on Sale of Equipment 53,893
Discount on Notes Receivable 40,560
Equipment (400,000 – 250,000) 200,000
Trade Notes Receivable 200,000

Face P200,000
PV = 200,000 x .7972 159,440
Discount P 40,560

Discount on Notes Receivable 6,378

Interest Income (159,440 x 12% x 4/12) 6,378

Interest Receivable 4,953

Interest Income 4,953
(5,553 – 600 interest income recorded in audit adj. no. 3)

Problem 9 (Glowing Candles)

(a) Non-current Portion of Long-Term Receivables

Notes Receivable from Sale of Division P1,000,000
Note Receivable from Officers 6,000,000
Notes Receivable from Sale of Patents
Face P2,000,000
Less: Discount on Notes Receivable
(285,400 – 34.292) 251.108 1,748,892
Notes Receivable from Sale of Land 11,236,748
Total P22,557,854

(b) Current Portion of Long-term Receivables:

Notes Receivable from Sale of Division, including interest
Receivable of P135,000 P1,135,000
Notes Receivable from Sale of Land, including interest
Receivable of P746,667 (2763,252 + 746,667) 3,509,919

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Receivables and Related Revenues
Total P4,069,919

(c) Interest Income from Long-term Receivables

On NR from Sale of Division
January 1, 2018 – March 31, 2018 P3,000,000 x 9% x 3/12 P67,500
April 1, 2018 – December 31, 2018 P2,000,000 x 9% x 9/12 135,000
Total P202,500

On NR from Officer
P6,000,000 x 9% P540,000
On NR from Sale of Patents
P1,714,600 x 8% x 3/12 P 34,292
On NR from Sale of Land
P2,240,000 x 4/12 P746,667
Total interest income P1,523,459

(c) Gain on Sale of land (P20,000,000 – P15,000,000) P 5,000,000

Gain on Sale of Patents

Selling Price P2,000,000 x .8573 P1,714,600
Carrying value of the patents on 10/01/21
Carrying value 1/01/18 P1,800,000
Amortization up to 10/01/21
450,000 x 9/12 (337,500) 1,462,500
Gain on sale of patents P 252,100

Note Receivable from Sale of Land

Date Periodic Payment Payment Applied to Balance of Principal, end
Interest Principal
09/01/21 P 14,000,000
09/01/22 P5,003,252 P 2,240,000 P 2,763,252 11,236,748
09/01/23 5,003,252 1,797,880 3,205,372 8,031,376

Problem 10 (Goliath Company)

Notes Receivable from Company B

Initial amortized cost = 3,000,000 x .7513 = P2,253,900
Face P3,000,000
Less: Discount on Notes Receivable
Initial discount P3,000,000 – P2,253,900 = P746,100
Interest earned P2,253,900 x 10% x 8/12 = 150,260 595,840
Carrying value, 12/31/18 P2,404,160

Notes Receivable from Company C

Face P1,000,000
Interest Receivable 1,000,000 x 10% x 3/12 25,000
Carrying value of the note P1,025,000

(a) Audit Adjustments:

Interest Receivable 200,000
Interest Income 200,000

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Receivables and Related Revenues
Impairment Loss ( Bad Debts) 456,555
Restructured Notes Receivable 1,743,445
Interest Receivable 200,000
Notes Receivable – Company A 2,000,000

Gain on Sale of Land (400,000 -346,100) 400,000

Loss on Sale of Land 346,100
Discount on Notes Receivable 746,100

Discount on Notes Receivable 150,260

Interest Income 150,260
2,253,900 x 10% x 8/12

Interest Receivable 25,000

Interest Income 25,000

(b) Carrying value of notes:

Current Assets:
Note Receivable from Company A
P550,000 – (P1,743,445 x 10%) P119,345
Note Receivable from Company C, including
Accrued interest of P25,000 325,000
Total P444,345

Non-current Assets:
Note Receivable from Company A (P1,743,445 – P119,345) P1,624,100
Note Receivable from Company B 2,404,160
Total Non-current Receivables P4,028,260

(d) Impairment Loss

Notes Receivable from Company A
Face P2,000,000
Interest Receivable (still unrecorded) P2,000,000 x 10% 200,000
Carrying value of note P2,200,000
PV of future cash flows P550,000 x 3.1699 1,743,445
Impairment loss P 456,555

Interest Income:
From Company A P200,000
From Company B 150,260
From Company C 25,000
Total P375,260

Problem 11 (MARINA CORPORATION )

Corrections:

(1) Audit Adjustments:

a. Interest Expense 625

Trade Notes Receivable - Balanga 625
Balanga Company’s note

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Receivables and Related Revenues
b. Accounts Receivable 48,000
Impairment Loss – Notes Receivable (or Uncollectible Accounts Expense) 32,000
Trade Notes Receivable – Caloocan 80,000

c. Notes Receivable – Officers 75,000

Trade Notes Receivable – Tomas Dee 75,000

Interest Receivable 300

Interest Revenue 300
75,000 x 8% x 138/360 = 2,300
2,300 – 2,000 = 300

d. Accounts Receivable 51,000

Interest Expense 340
Trade Notes Receivable – Eager Corp. 50,000
Interest Revenue 1,000
Interest Receivable 340

e. Trade Notes Receivable – Felicity 38,000

Notes Payable 38,000

Interest Receivable 507

Interest Revenue 507
48,000 x 8% x 60/360 = 640
640 – 133 = 507

Interest Expense 317

Interest Payable 38,000 x 10% x 30/360 317

f. Accounts Receivable 15,150

Trade Notes Receivable – Germany Company 15,000
Interest Revenue 150

Interest Revenue 300

Interest Receivable 300
45,000 x 12% x 60/360 = 900
1,200 – 900 =300

Trade Notes Receivable Interest Receivable

Per Client P 275,625 P3,673
Adjustments:
(a) (625)
(b) ( 80,000)
(c) (75,000) 300
(d) (50,000) (340)
(e) 38,000 507
(f) (15,000) (300)
Per Audit P 93,000 P3,840

Trade Notes Receivable:

Felicity Ltd. P48,000
Germany Co. 45,000
Total P93,000

Interest Receivable:

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Tomas Dee = 75,000 x 8% x 133/360 = P 2,300
Felicity Ltd. = 48,000 x 8% x 60/360= 640
Germany Company = 45,000 x 12% x 60/360 900
Total P 3,840

MULTIPLE CHOICE - PROBLEMS

1. C 5. C 9. D 13. D 17. C 21. A

2. B 6. A 10. B 14. B 18. A 22. A
3. B 7. C 11. A 15. B 19. A 23. B
4. A 8. A 12. A 16. B 20. D 24. D

Computations

1. P523,000 + P224,000 + P75,000 + P27,000 = P849,000

2-5 2. Accounts Receivable 3. Inventories 4. Sales 5. Cost of Sales
Per Client P276,500 P425,000 P1,320,000 P842,000
Adjustments : ( 8,680) 7,240 (8,680) (7,240)
(14,200) 12,500 (14,200) (12,500)
(10,000) (10,000)
(6,100) 6,100
(14,000) (14,000)
21,000 (18,200) 21,000 18,200
Per Audit P250,620 P420,440 P1,294,120 P846,560
6.
Classification Balance per audit % Uncollectible Required Allowance
Nov-Dec 2021 P1,080,000 2% P21,600
July – October 2021 650,000 10% 65,000
January – June 2021 420,000 25% 105,000
Prior to 1/01/21 90,000* 70% 63,000
Total P2,240,000 P254,600
Existing allowance = 154,000 – 95,000 + 15,000 + 180,000 – 60,000 194,000
Additional uncollectible accounts expense P 60,600

7. Total uncollectible accounts expense = P 180,000 + 60,600 = P240,600

8. Accounts receivable, net = P2,240,000 – 254,600 = P1,985,400

9. Carrying value of the receivable P4,480,000

Present value of future cash inflow = 1,120,000 x 3.0373 = 3,401,776
Impairment loss P1,078,224

10. No impairment loss shall be recognized, the loss évent is a non-adjusting évent, which présents condition different
from that as of the end of the reporting period.

11. No impairment loss shall be recognized on Company Y’s note. The interest to be collected during the extended term
equals the original interest rate of the loan ; the présent value of future cash inflow shall be equal to the loan’s carrying
value.

12. Carrying value of the receivable P1,120,000

PV of future cash inflow = 120,000 + (1,100,000 X .8929) 1,102,190
Impairment loss P 17,810

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13. The non-adjusting évent requires disclosure, because even when taken alone, the loss would have a material effect on
the financial condition of 5-6.

14. Sales = (1,900,000 – 350,000) x 150% = P2,325,000

Collections from customers (1,830,000)
Write off (15,000 – 8,000) ( 7,000)
Gross accounts receivable P 488,000

15. Past due after write off 400,000 – 80,000 P 320,000

Allowance after write off 250,000 – 80,000 170,000
Additional uncollectible accounts expense P 150,000

16. Current assets = P506,370 – 30,000 selling price of unsold goods

+ 20,000 cost of unsold goods = P496,370

17. Additional allowance required : 120,000 – (65,000 +120,000 – 80,000) = 15,000

Total uncollectible accounts expense = 120,000 + 15,000 = P135,000

18. Accounts receivable = P1,300,000 + 50,000 + 15,000 = P1,365,000

19. Required allowance = 1,365,000 x .015 = P 20,475

20. Uncollectible accounts expense = 20,475 + 8,000 = P 28,475

21. Accounts receivable = 735,000 + 4,500,000 – 4,200,000 + 16,000 – 20,200

- 250,000 = P780,800

22. (780,800 – 100,800) x 2% = P13, 600

23. 16,200 + 16,000 – 20,200 = P12,000

24. (100,800 x 10%) + (680,000 x 2%) = P 23,680

MEEMEE, Inc.
Adjusting Entries:

1. Miscellaneous Expenses 1,260

Receivables from Officers and Employees 500
Cash – Petty Cash Fund 1,760

2. Other Non-Current Financial Assets 400,625

Cash in Bank 400,000
Interest Income 625
Reclassified Security Bank SA

3. Cash in Bank – BPI SA 394

Interest Income 394

4. Accounts Receivable – 31 – 60 days overdue 12,800

Cash in Bank – BPI SA 12,800

5. Accounts Receivable – Dishonored Notes 5,500

Cash in Bank – BPI SA 5,500

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Notes Receivable Discounted 5,000
Notes Receivable 5,000

6. Cash in Bank – BPI CA Payroll 15,600

Accrued Payroll 15,600
5,200 + 10,400

7. Miscellaneous Expenses 150

Cash in Bank – BPI CA Payroll 150

8. Cash in Bank – BPI CA General 45,200

Accounts Payable 45,200

9. Accounts Payable 900

Miscellaneous Expenses 150
Cash in Bank _ BPI CA General 1,050

10. Accounts Receivable – Current 9,000

Accounts Receivable – 31- 60 days overdue 4,800
Customers’ Credit Balances 13,800

11. Receivables from Officers and Employees 2,000

Accounts Receivable – Current 2,000

12. Allowance for Bad Debts 5,000

Accounts Receivable – over 90 days 5,000

13. Accounts Receivable – Overdue Notes 15,250

Notes Receivable 15,000
Interest Income 250

14. Receivable from Officers and Employees 6,800

Notes Receivable 6,800

15. Interest Receivable 517

Interest Income 517
Creative: P10,000 x 24% x 64/360 = 427
President: P 6,800 x 25% x 19/360 = 90
Total 517

16. Allowance for Bad Debts 4,543

Bad Debts Expense 4,543

ANALYSIS OF ACCOUNTS RECEIVABLE

Age Class Per Client Adjustment Per Audit % Uncollectible Required
Allowance
Current P362,412 9,000 369,412 ½% 1,847
(2,000)
1-30 days past 202,895 4,550 207.445 1% 2,074
due
31 – 60 days 130,480 12,800 148,080 3% 4,442
past due 4,800
61 – 90 days 17,500 -- 17,500 10% 1,750
past due

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Over 90 days 11,387 (5,000) 6,387 50% 3,194
past due
Dishonored -- 5,500 20,750 20% 4,150
notes 15,250
Total required allowance P17,457
Balance of allowance 22,000
Adjustment (4,543)

Answers:
(a) Petty Cash P8,240
(b) BPI SA depository 257,794
(c) BPI CA Payroll 76,250
(d) BPI CA Gen Disb. 214,150
(e) Security Bank SA 400,625
(f) Cash 556,434
(g) Accounts Receivable (Gross) 769,574
(h) Allowance for Bad Debts 17,457
(i) Bad Debts Expense 19,457
(j) Notes Receivable 18,000
(k) Liability on Discounted Notes 8,000
(l) Interest Receivable 517
(m) Interest Income 4,586
(n) Receivables from Officers and Employees 9,700
(o) Customer Credit Balances 13,800

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