Receivables

ACCOUNTING 17NB A17NB_003B RECEIVABLES

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PROBLEMS 1. Marivic Company provide some information on their financial records on December 31, 2012 Account Receivable Jan.1 P 1,920,000 Collection of Account receivable 6,420,000 Bad Debt 200,000 Inventory, January 1 2,880,000 Inventory, December 31 2,640,000 Accounts Payable, January 1 1,000,000 Accounts Payable, December 31 1,500,000 Cash Sales 1,200,000 Purchases 4,800,000 Gross Profit on Sales 2,160,000 What is the ending balance of accounts receivable on December 31, 2012? A. P 1,680,000 B. P 2,880,000 C. P 3,210,000 D. P 4,080,000 2. Egypt Company had the following information relating to its accounts receivable for the year 2006. Accounts receivable – January 1 2, 000, 000 Credit sales 10, 000, 000 Collection from costumers, excluding the recovery of the accounts written off 8, 000, 000 Accounts written off as worthless 100, 000 Sales returns 500, 000 Recovery of accounts written off 50, 000 Estimated future sales returns on December 31 150, 000 Estimated uncollectible accounts on December 31, per aging 300, 000 What is the net realizable value of accounts receivable on December 31, 2006? A. 3, 400, 000 B. 3, 100, 000 C. 2, 950, 000 D. 2, 900, 000 3. El Salvador Company determined that the net realizable value of its accounts receivable at December 31, 2006 based on an aging of accounts receivable was P5, 200, 000. Additional information is as follows: Allowance for uncollectible accounts-1/1/2006 500, 000 Uncollectible accounts written off during 2006 400, 000 Uncollectible accounts recovered during 2006 100, 000 Accounts receivable-December 31, 2006 6, 000, 000 What should be the uncollectible accounts expense for 2006? A. 800, 000 B. 400, 000 C. 600, 000 Page | 1

D. 700, 000

4. Estonia Company operates in an industry that has a high rate of bad debts. On December 31, 2006, before any year-end adjustments, the account receivable balance was P8, 000, 000 and its allowance for doubtful accounts balance was P400, 000.The year- end balance reported for the allowance for doubtful accounts is based on the following schedule: Time Outstanding Accounts Receivable Percent Uncollectible Under 30 days 5, 000, 000 5% 31-180 days 1, 500, 000 10% 181-360 days 1, 000, 000 30% More than one year 500,000 100% The accounts which have been outstanding for more than one year and 100% uncollectible would be written off immediately. What should be the doubtful accounts expense for the year ended December 31, 2006? A. 700, 000 B. 800, 000 C. 500, 000 D. 300, 000 5. The following accounts were abstracted from Finland Company’s unadjusted trial balance at December 31, 2006. Debit Credit Accounts receivable 5, 000, 000 Allowance for doubtful accounts 100, 000 Net credit sales 20, 000, 000 Finland estimates that 5% of accounts receivable will become uncollectible. The doubtful accounts expense for the year ended December 31, 2006 should be: A. 1, 000, 000 B. 1, 100, 000 C. 250, 000 D. 350, 000 6. Georgia Company obtained a one- year loan of P5, 000, 000 from a bank on October 1, 2006. The loan was discounted at 12%. The company signed a note and pledged its accounts receivable of P5, 000, 000 as collateral for the loan. In relation to the loan, Georgia should report note payable on December 31, 2006 at: A. 4, 400, 000 B. 4, 450, 000 C. 4, 550, 000 D. 5, 000, 000 7. On December 1, 2006 Ghana Company assigned on a non-notification basis accounts receivable of P5, 000, 000 to a bank in consideration for a loan of 80% of the accounts less a 5% service fee on the accounts assigned. Ghana signed a note for the bank loan. On December 31, 2006, Ghana collected assigned accounts of P2, 000, 000 less discount of P200, 000. Ghana remitted the collections to the bank in partial payment for the loan. The bank applied first the collection to the interest and the balance to the principal. The agreed interest is 1% per month on the loan balance. In its December 31, 2006 balance sheet. Ghana should report note payable as a current liability at: Page | 2

A. B. C. D.

2, 240, 000 2, 250, 000 3, 250, 000 2, 040, 000

8. Greece Company factored P5, 000, 000 of accounts receivable to XYZ Company on July 1, 2006. Control was surrendered by Greece XYZ assessed a fee of 5% and retains a holdback equal to 10% of the accounts receivable. In addition XYZ charged 12% computed on a weighted average time to maturity of the receivables of 30 days. Q1. Greece Company will receive and record cash of A. 4, 250, 000 B. 4, 200, 000 C. 4, 700, 685 D. 4, 200, 685 Q2. Assuming all receivables are collected. Greece Company’s cost of factoring the receivables would be: A. 250, 000 B. 299, 315 C. 49, 315 D. 0 9. Guatemala Company accepted from a costumer P5, 000, 000, 120-day, 12% note dated August 31, 2006. On September 30, 2006, Guatemala discounted the note at the National Bank. However, the proceeds were not received until October 1, 2006.In the September 30, 2006 balance sheet, the amount receivable from the bank includes accrued interest revenue of: A. 200, 000 B. 156, 000 C. 44, 000 D. 50, 000 10. Guyana Company is a dealer in equipment. On December 31, 2006, Guyana Company sold an equipment in exchange for a noninterest bearing note requiring five annual payments of P500, 000. The first payment was made on December 31, 2007. The market interest for similar notes was 8%. The relevant present value factors are: PV of 1 at 8% for 5 periods PV of an ordinary annuity of 1 at 8% for 5 periods

0. 68 3.99

In its December 31, 2006 balance sheet, what should Guyana report as note receivable? A. 2, 500, 000 B. 1, 995, 000 C. 1, 700, 000 D. 1, 495, 000 11. On December 1, 2008, Fermin Company assigned on a non-notification basis accounts receivable of P 3,000,000 to a bank in consideration for a loan of 80% of the receivables less a 5% service fee on the company collected assigned accounts P 2,000,000 and remitted the collections to the bank in partial payment for the loan. The bank applied first the collection to the interest and the balance to the principal. The interest rate is 1% per month on the outstanding balance of the loan. Page | 3

In its December 31, 2008 balance sheet, what amount of note payable should Fermin report as current liability? A. None B. P 400,000 C. P 424,000 D. P 1,024,000 12. On October 31, 2008, Renante Company engaged in the ff transactions: o Obtained a P 500,000, six-month loan from city bank, discounted at 12%. The company pledged P500,000 of accounts receivable as security for the loan. o

Factored P 1,000,000 of accounts receivable w/o recourse and a non-notification basis w/ Help Company. Help charged a factoring fee of 2% of the amount of receivables factored and withheld for 10% of the amount factored. What is the total cash received from the financing of receivables? A. P 1,320,000 B. P 1,350,000 C. P 1,380,000 D. P 1,470,000 13. Ferdinand Company has an 8% note receivable dated June 30, 2006, in the original amount of P600,000. Payments of P200,000 in principal plus accrued interest are due annually on July 1, 2007, 2008, and 2009. In its June 30, 2008 balance sheet, what amount should Ferdinand Company report as a current asset for interest on the notes receivable? A. None C. P32,000 B. P15,000 D. P48,000 14. Judie received from a customer a one-year, P375,000 note bearing annual interest of 8%. After holding the note for six months, Bruno discounted the note at Super Bank at an effective interest rate of 10%. Question 1: How much did Judie receive from the bank? A. P371,428.50 C. P392,857.50 B. P384,750.00 D. P405,000.00 Question 2: If the discounting is treated as a sale, what amount of loss on discounting should Judie recognize? A. None c) P9,750 B. P5,250 d) P20,250 Question 3: If the discounting is treated as a borrowing what amount of loss on discounting should Judie recognize? A. none C. P9,750 B. P5,250 D. P20,250 Discounting of Note Receivable – generating cash out of the note prior to maturity, the discounting may be recorded as a borrowing or as a sale. It is to be recorded as a borrowing when the payee has the option to Page | 4

repurchase the note or if the entity retains substantially all the risks and rewards of ownership of the financial asset. An entity has retained substantially all the risk and rewards of ownership of a financial asset if its exposure to the variability in the present value of the future net cash flows from the financial asset does not change significantly as a result of the transfer (example- because the company has sold the financial asset but subject to an agreement to buy it back at a fixed price or the sales price plus a tenders return. Most discounting of note receivable are treated as a sale, and a sale of financial asset requires derecognition from the accounting records since there has been a transfer of contractual rights to receive the cash flows of the financial asset, any gain or loss on de-recognition is reported in the current period income or loss. The gain or loss is determined by the difference of the net proceeds on the sale of the asset and the carrying value of the financial asset. The carrying value of the financial asset (note receivable) is the combined amount of the present value or amortized cost of the note and the accrued interest on the date of sale. If the discounting is treated as a borrowing, the financial asset (note receivable) is continually recognize in the books of the transferor until the maker settles the financial asset; recognize no amount of gain or loss on the transfer. However, the transferor must recognize an accounting liability equal to the carrying value of financial liability. 15. Bugs Co. sold to Bunny Co. a P200,000, 8%, 5-year note that require five equal annual year-end payments. This note was discounted to yield a 9% rate to Bunny. The present value factors of an ordinary annuity of P1 for five periods are as follows: 8% 3.992 9% 3.890 What should be the total interest revenue earned by Bunny on this note? a) P50,500 c) P80,000 b) P55,610 d) P90,000

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