Receivables

THE INTEGRATED REVIEW Far Eastern University – Manila

APPLIED AUDITING H2: “Trade and Other Receivables” Case 1 Starboy Company has the following data relating to accounts receivable for the year ended December 31, 2020: Accounts receivable, January 1, 2020 480,000 Allowance for doubtful accounts, January 1, 2020 19,200 Sales during the year, all on account, terms: 2/10, 1/15, n/30 2,400,000 Cash received from customers during the year 2,560,000 Accounts written off during the year 17,600 An analysis of cash received from customers during the year revealed that P1,411,200 was received from customers availing the 10-day discount period, P792,000 from customers availing the 15-day discount period, P4,800 represented recovery of accounts written off, and the balance was received from customers paying beyond the discount period. Starboy’s year end balance of allowance for doubtful accounts was estimated to be 5% of the outstanding accounts receivable as at December 31, 2020, based on the aging of the accounts. 1) What was the balance of accounts receivable as at December 31, 2020? A. 265,600 B. 270,400 C. 288,000

D.

307,200

2) How much was Starboy’s doubtful accounts expense for the year ended December 31, 2020? A. 8,000 B. 7,120 C. 7,360 D. 2,320

Case 2 3) Presented below are unaudited balances of selected accounts of Drain Company as of December 31, 2020: Debit Credit Cash 500,000 Accounts receivable 1,300,000 Allowance for uncollectible accounts 8,000 Sales (net) 6,750,000 Additional information: Goods amounting to P50,000 were invoiced for the account of a customer recorded in January 2, 2021 with terms of net 60 days, FOB Shipping point. The goods were shipped to customer on December 30, 2020. The bank returned on December 29, 2020, a customer’s check for P5,000 marked “No sufficient funds” but no entry was made. What is the correct balance of accounts receivable account at December 31, 2020? A. 1,355,000 B. 1,347,000 C. 1,305,000 D. 1,350,000

Case 3 4) JSC Company reported accounts receivable P8,000,000 on December 31, 2020 and allowance for doubtful accounts P1,000,000 on January 1, 2020. During the year, accounts P400,000 were written off and recoveries written off totaled P100,000. Table factors for three periods Amount Uncollectible Under 30 days 5,000,000 10% 31 – 180 days 1,500,000 20% 181 – 360 days 1,000,000 50% More than one year 500,000 100% What amount should be reported as doubtful accounts expense for the current year? A. 1,800,000 B. 1,100,000 C. 1,000,000



D.

1,400,000



J. S. Cayetano

Case 4 5) On December 31, 2024 Escriva Company estimated the allowance for doubtful accounts using the year0end aging of accounts receivable. The following data for are available: Allowance for doubtful accounts, January 1, 2024 250,000 Provision for uncollectible accounts recorded during 2024 (2% on credit sales of P30,000,000) 600,000 Uncollectible accounts written off 150,000 Recovery of accounts previously written off 80,000 Estimated uncollectible accounts per aging, December 31, 2024 900,000 What is the year-end adjustment to doubtful accounts expense? A. 120,000 B. 720,000 C. 900,000

D.

600,000



Case 5 6) On December 31, 2019, the balance of accounts receivable of Jalena Company was P6,000,000 and the January 1, 2019 balance of allowance for doubtful accounts was P800,000. The following data were gathered: Credit Sales Write offs Recoveries 2016 9,000,000 400,000 30,000 2017 13,000,000 600,000 70,000 2018 15,000,000 700,000 120,000 2019 20,000,000 650,000 150,000 Doubtful accounts are provided for a percentage of credit sales. The accountant calculates the percentage annually by using the experience of the three years prior to the current year. How much should be reported as allowance for doubtful accounts on December 31, 2019? A. 1,100,000 B. 800,000 C. 1,300,000 D. 1,250,000

Case 6 7) Bred Company sold goods to wholesalers on terms of 5/15, net 30. The entity has no cash sales but 50% of customers take advantage of the discount based on past experience. The entity used the gross method of recording sales. An analysis receivable on December 31, 2023 revealed the following: Age Amount Collectible 0 – 15 days 5,000,000 100% 16- 30 days 2,000,000 90% Over 30 days 1,000,000 700,000 What amount should be reported as net realizable value of accounts receivable? A. 7,875,000 B. 7,375,000 C. 7,500,000

D.

8,000,000



Case 7 8) Maps Inc. prepared an aging of its accounts receivable at December 31, 2020 and determined that the amortized carrying amount of the receivables was P250,000. Additional information is available as follows: Allowance for bad debts at 1/1/2020 – credit balance 28,000 Accounts written off as uncollectible during 2020 23,000 Accounts receivable at 12/31/2020 270,000 Uncollectible accounts recovered during 2020 5,000 For the year ended December 31, 2020, Maps’ bad debts expense would be A. 10,000 B. 15,000 C. 20,000

D.

23,000





Case 1 On January 1, 2017, Suba Company sold a transportation equipment with a historical cost of P1,000,000 and accumulated depreciation of P300,000 in exchange for cash of P100,000 and a noninterest bearing note receivable of P800,000 due on January 1, 2020. The prevailing rate of interest for this type of note is 12%. 9) How much is the interest income in 2017? A. 68,331 B. 76,532

C.

85,714

10) How much is the carrying amount of the receivable on December 31, 2018? A. 800,000 B. 569,424 C. 637,755

96,000

D.

714,286



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D.



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J. S. Cayetano

Case 2 On January 1, 2021 Nonstop Company sold a building for P5,000,000 to Icecream Company. Icecream Company paid P500,000 down and signed a noninterest bearing note for the balance which is payable in three equal annual installments every December 31 of each year. The carrying amount of the building is P4,200,000. Assume prevailing interest rate for a note of this type is 12%. The present value of an ordinary annuity of 1 for three periods is 2.4018. 11) How much is the gain or loss on sale of building? A. 597,300 B. 97,300 C. 800,000 D. 300,000 12) How much is the interest income for the year 2021? A. 600,000 B. 492,324

C.

432,324

D.

540,000

13) How much is the carrying amount of notes on December 31, 2021? A. 3,000,000 B. 3,602,700 C. 2,535,024

D.

4,035,024

14) How much is the current portion of notes on December 31, 2021? A. 1,500,000 B. 1,067,676 C. 1,195,797

D.

1,339,227



Case 3 On January 1, 2022, Hotel Company sold machinery with historical cost of P3,000,000 and accumulated depreciation of P900,000 in exchange for a 3-year, P2,100,000 noninterest bearing note receivable due in equal semi-annual payments every July 1 and December 31 starting on July 1, 2022. The prevailing rate of interest for this type of note is 10%. 15) How much is the interest income in 2022? A. 88,825 B. 177,649

C.

128,964

16) How much is the carrying amount of the receivable on December 31, 2022? A. 1,241,083 B. 982,378 C. 1,690,051

D.

164,591

D.

1,594,388



Case 4 On December 31, 2020, You Bring Out The Best In Me Like No One Else Can Do Company finished consultation services and accepted in exchange a promissory note with a face value of P200,000, due date of December 31, 2023, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. The following interest factors are provided: Table factors for three periods 5% 10% Future value of 1 1.15763 1.33100 Present value of 1 0.86384 0.75132 Future value of ordinary annuity 3.15250 3.31000 Present value of ordinary annuity 2.72325 2.48685 17) What is the amount of consultation service revenue to be present in the company’s income statement? A. 24,869 B. 150,264 C. 175,133 D. 200,000 18) What is the amount of interest income for the year 2021? A. 17,513 B. 10,000

C.

19) What is the carrying value of notes at of December 31, 2022? A. 190,909 B. 182,645 C.

20,000

D.

7,513

175,133

D.

200,000



Case 5 20) On January 1, 2022, Lovestruck Company sold machinery costing P2,000,000 with accumulated depreciation of P950,000 in exchange for a 3-year, 3%, P900,000 note receivable. Principal is due in three equal annual installments. Interest on the outstanding principal balance are also due annually and are to be collected together with the periodic collections on the principal. The prevailing interest rate for this type of note is 12%. How much is the carrying amount of the receivable on December 31, 2022? A. 530,261 B. 1,000,562 C. 673,531 D. 789,361

Case 6 21) On January 1, 2017, Hope Company sold machinery costing P3,000,000 with accumulated depreciation of P1,100,000 in exchange for a 3-year, P900,000 interest bearing note receivable due as follows: Date Amount of installment December 31, 2017 400,000 December 31, 2018 300,000 December 31, 2019 200,000 Total 900,000



The prevailing rate of interest for this type of note is 10%. How much is the carrying amount of the receivable on December 31, 2017? A. 467,354 B. 438,016 C. 376,345 D. 428,346 Page 3 of 11 H2: “Trade and Other Receivables”



J. S. Cayetano

Case 7 22) On December 31, 2023, Foster Corporation sold for P750,000 an old machine having an original cost of P1,350,000 and a book value of P600,000. The terms of the sale were as follows: P150,000 downpayment P150,000 payable on December 31 each of the next four years

The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What is the amount of interest income should be reported in the statement of comprehensive income for the year ended December 31, 2026? A. 12,385 B. 24,748 C. 34,172 D. 43,736

Case 8 23) On July 1, 2022, Joy Company sold a parcel of land to Ash Company for P400,000 under an installment sale contract. Ash Company made a P120,000 cash down payment on July 1, 2022 and signed a four-year 10% note for the P 280,000 balance. The equal annual payments of principal and interest on the note shall be P88,332 payable on July 1 of each year from 2023 through 2026. The fair value of the land at the date of sale was P400,000. The cost of the land to Joy Company was P300,000. Collection of the remaining note installments is reasonably assured. Interest income for 2023 is A. 10,983 B. 21,967 C. 24,983 D. 28,000



Case 1 BDO, a financing entity granted a loan to a borrower on January 1, 2023. The interest on the loan is 10% payable annually starting December 31, 2023. The loan matures in three years on December 31, 2025. After considering the origination fee charged against the borrower and the direct origination cost incurred, the effective rate on the loan is 12%. Principal amount 4,000,000 Origination fee charged against the borrower 342,000 Direct origination cost incurred 150,000 24) What is the carrying amount of the loan receivable on January 1, 2023? A. 4,192,000 B. 3,808,000 C. 4,150,000

D.

3,658,000

25) What is the interest income for 2023? A. 419,200 B. 380,800

D.

480,000

C.



456,960

Case 2 On December 31, 2023, Dharlene Company has a 5-year loan receivable with a face amount of P6,000,000 dated January 1, 2022 that is due on December 31, 2026. Interest on the loan is payable at 9% every December 31. The borrower paid the interest that was due on December 31, 2022 but informed the bank that interest accrued in 2023 will be paid at maturity date. There is a high probability that the remaining interest payments will not be paid because of financial difficulty. The prevailing market rate of interest on December 31, 2023 is 10%. The PV of 1 for three periods is 0.77 at 9% and 0.75 at 10%. 26) What is the loan impairment loss for 2023? A. 1,635,000 B. 1,504,200

C.

1,504,200

D.

1,500,000

27) What is the interest income for 2024? A. 540,000 B. 600,000

C.

453,222

D.

490,500





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J. S. Cayetano



Case 3 On January 1, 2021, Canvas Company loaned Vascom Company amounting to P2,000,000 and received a two-year, 6%, P2,000,000 note. The note calls for annual interest to be paid each December 31. Canvas collected the 2016 interest on schedule. However, on December 31, 2022, based on the Vascom’s recent financial difficulties, Canvas expects that the 2022 interest, which was recorded in the books, will not be collected and that only P1,200,000 of the principal will be recovered. The P1,200,000 principal amount is expected to be collected in two equal installments on December 31, 2019 and December 31, 2026. The prevailing interest rate for similar note as of December 31, 2022 is 8%. Questions: Based on the above and the result of your audit, answer the following: (present value factor to 4 decimal place) 28) The present value of the expected future cash flows as of December 31, 2022 is A. 955,380 B. 2,079,060 C. 1,009,260 D. 950,920 29) The loan impairment loss in 2022 is A. 1,164,620 B. 990,740

C.

1,110,740

D.

40,940

30) How much is the interest income for the year 2023? A. 60,556 B. 124,744

C.

57,323

D.

0

D.

1,134,005

31) What is the carrying amount of the loan as of December 31, 2024? A. 473,465 B. 534,005 C. 1,736,032



Case 1 At the beginning of November, Phoenix Inc. assigned P4,000,000 out of its P10,000,000 outstanding accounts receivable to Dragonfire Bank in consideration of a P3,000,000, 12% loan. Dragonfire charged the company 5% of the loan principal as service charge. By the end of November, Phoenix collected P500,000 cash from the assigned accounts net of a P30,000 sales discount. By the end of December, Phoenix collected another P900,000 from the assigned accounts after P50,000 sales discount. the company wrote-off P100,000 of the assigned accounts as worthless. The agreement with Dragonfire calls for monthly remittance of customer collections for the month. The collections will cover both interest and loan principal. 32) How much is the accounts receivable assigned balance on December 31, 2021? A. 2,420,000 B. 2,500,000 C. 2,580,000

D.

4,000,000

33) How much is the equity in accounts receivable assigned at December 31, 2021? A. 1,655,300 B. 1,600,000 C. 764,700

D.

820,000



Case 2 Thunder Company factored P6,000,000 of accounts receivable to Dragon Finance Company at the end of current year. Control was surrendered by Thunder. The factor assessed a fee of 3% and retained a holdback equal to 5% of the accounts receivable. In addition, the factor charged 15% interest computed on a weighted average time to maturity of the accounts receivable of 54 days. 34) What is the amount of cash initially received from the factoring? A. 5,296,850 B. 5,386,850 C. 5,476,850

D.

5,556,850

35) What amount should be recognized as loss on factoring? A. 180,000 B. 313,150

D.

613,150

C.

133,150



Case 3 On August 31, 2023, an entity discounted with recourse a note at the bank at discount rate of 15%. The note was received from the customer on August 1, 2023 for 90 days with face amount of P9,000,000 and an interest rate of 12%. The discounting transaction is accounted for as secured borrowing. The customer paid the note to the bank on October 30, 2023, the date of maturity. 36) What is the interest expense to be recognize on August 31, 2023? A. 90,000 B. 51,750 C. 231,750 37) The entry on October 30, 2023 will include A. Debit note receivable discounted P9,000,000 B. Debit liability for note receivable discounted P9,038,250

270,000

Credit cash P9,000,000 Debit liability for note receivable discounted P9M



H2: “Trade and Other Receivables”

C. D.

D.



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J. S. Cayetano



Case 4 On September 1, 2022, Wolverine Company discounted at the bank a customer’s P600,000 interest-bearing note, 6month, 10% note receivable dated May 1, 2022. The bank discounted the note at 12%. 38) How much net proceeds did Wolverine receive from this discounted note? A. 564,000 B. 576,000 C. 604,800

D.

617,400

39) Assuming the discounting is without recourse, how much gain or loss should be recognized as a result of discounting? A. 0 B. 5,200 C. 4,800 D. 2,600

Case 5 On January 1, 2021, Cactus Company sold land with carrying amount of P1,500,000 in exchange for a 9- month, 10% note with face value of P2,000,000. The 10% rate properly reflects the time value of money for this type of note. On April 1, 2021, Cactus Company discounted the note with recourse. The bank discount rate is 12%. The discounting transaction is accounted for as a secured borrowing. On October 1, 2021, the maker dishonored the note receivable. Cactus Company paid the bank the maturity value of the note plus the protest fee of P10,000. On December 31, 2021, Cactus Company collected the dishonored note in full plus 12% annual interest on the total amount due. 40) What is the amount of proceeds received by Cactus Company from the discounting of note receivable? A. 2,150,000 B. 2,021,000 C. 2,050,000 D. 1,921,000 41) What is the interest expense to be recognized by Cactus Company on April 1, 2021? A. 50,000 B. 29,000 C. 21,000

D.

25,000

42) What is the amount collected by Cactus Company from the customer on December 31, 2021? A. 2,150,000 B. 2,224,800 C. 2,160,000 D. 2,214,500

Case 6 43) The accounts receivable account on December 31, 2016 of Enkindle Company had a balance of P2,865,000. An analysis of the accounts receivable account showed the following: Accounts known to be worthless 37,500 Advance payments to creditors on purchase orders 150,000 Advances to affiliated companies 375,000 Customers’ accounts reporting credit balances arising from sales return (225,000) Interest receivable on bonds 150,000 Other trade accounts receivable – unassigned 750,000 Subscription receivable for common stock due in 30 days 825,000 Trade accounts receivable – assigned (Finance company’s equity in assigned accounts is P150,000) 375,000 Trade installment receivable due 1 – 18 months including unearned finance charges of P30,000 330,000 Trade receivables from officers due currently 22,500 Trade accounts on which post-dated checks are held (no entries were made on receipt of checks) 75,000 Total 2,865,000 How much is the total trade and other receivables presented at current asset as of December 31, 2016? A. 2,647,500 B. 2,610,000 C. 2,272,500 D. 1,822,500 end_of_lecture_

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PROBLEM 1 The financial statements of Exo Corporation included the following: December 31, 2021 Accounts receivable 3,675,000 Allowance for doubtful accounts 81,000 Sales on account Cash collected from customers

J. S. Cayetano December 31, 2022 22,500,000 21,000,000

Among the cash collections was the full recovery of an P80,000 receivable from Big Company, a customer whose account had been written off as worthless late in 2021. During 2022, it was necessary to write off uncollectible customers’ accounts totaling P101,000. On December 1, 2022, Bang Electronics, Inc., a customer, settled its account by issuing to Exo Corporation a 12%, sixmonth note for P1,300,000. At December 31, 2022, the accounts receivable included P504,000 past due accounts. After careful study of all past-due accounts, the management estimated that the probable loss contained therein was 10%. In addition, 2% of the current accounts receivable might prove uncollectible. 1) What is the balance of Accounts receivable as of December 31, 2022? A. 3,774,000 B. 3,854,000 C. 5,154,000

D.

2) What is the amount of the current accounts receivable that might prove to be uncollectible? A. 67,000 B. 63,400 C. 77,080 D.

3,674,000 65,400

3) What is the balance of the allowance for uncollectible accounts before adjustments on December 31, 2022? A. 81,000 credit B. 60,000 credit C. 20,000 debit D. 161,000 credit 4) How much increase in the allowance for uncollectible accounts is required on December 31, 2022? A. 57,400 B. 40,320 C. 137,400 D. 43,600 5) What is the balance of the allowance for uncollectible accounts after all the necessary adjusting entries on December 31, 2022? A. 60,000 B. 113,800 C. 127,480 D. 117,400 PROBLEM 2 Your audit of Dell Company’s accounts receivable and its related allowance for doubtful accounts expense revealed the following information: a. The general ledgers of Dell Company have the following balances: Accounts receivable 360,000 Allowance for doubtful accounts (1,320) Amortized cost 358,680 b. An aging of Dell Company’s accounts receivable per subsidiary ledgers, on December 31, 2024 contained the following information: Time outstanding Amount Under 30 days 240,000 30 – 60 days 48,000 61 – 120 days 36,000 120 – 180 days 24,000 Over 180 days 12,000 Total 360,000 c. Investigations revealed that 50% of the over 180-day account is definitely uncollectible and that a P12,000 customer credit balance for an advance payment for a future delivery was included in the under 30 days account. d. Based on past experiences, the company believes that the following uncollectible percentages are appropriate: Time outstanding % Under 30 days ---30 – 60 days 3% 61 – 120 days 15% 121 – 180 days 30% Over 180 days 60% e. The term of sale is 10/15, n/30. As per past experience, 20% of the customer whose accounts are still current are expected take advantage of the cash discount. f.

Also, based on past experience, you have ascertained that 5% of the current account should be provided for probable future sales returns.

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J. S. Cayetano

Questions: Based on the above and the result of your audit, answer the following: 6) What is the adjusted balance of the accounts receivable account? A. 366,000 B. 342,360 C. 360,000

D.

348,000

7) What is the correct doubtful accounts expense for the period? A. 17,640 B. 16,320 C.

22,320

D.

23,640

8) What is the allowance for doubtful accounts for the period? A. 17,640 B. 16,320 C.

22,320

D.

23,640

9) What is the carrying amount of the company’s accounts receivable as of December 31, 2024? A. 330,720 B. 313,080 C. 302,040 D. 319,680 10) Assuming that the allowance for doubtful accounts had a P1,680 debit balance before any adjustments, what is the correct doubtful accounts expense? A. 25,320 B. 21,960 C. 19,320 D. 23,640

PROBLEM 3 From inception of operations to December 31, 2021, BANDILA CO. provided for uncollectible accounts receivable under the allowance method: provisions were made monthly at 2% of credit sales; bad debts written off were charged to the Allowance account; recoveries of bad debts previously written off were credited to the Allowance account; and no year-end adjustments to the Allowance account were made. Bandila’s usual credit terms are net 30 days. The balance in the Allowance for Bad Debts account was P143,000 at January 1, 2021. During 2021, credit sales totaled P15,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, P140,000 of bad debts were written off, and recoveries of accounts previously written off amounted to P43,000. BANDILA CO. installed a computer facility in November 2021 and an aging of accounts receivable was prepared for the first time as of December 31, 2021. A summary of the aging is as follows: Classification by Motion of Sale November – December 2021 July – October 2021 January – June 2021 Prior to January 2021 Total

Balance in Each Category 2,160,000 1,300,000 840,000 300,000 4,600,000

Estimated % of uncollectible 2% 10% 25% 70% 100%

Based on the review of collectability of the account balances in the “prior to January, 2021” aging category, additional receivables totaling P120,000 were written off as of December 31, 2021. The 70% uncollectible estimate applies to the remaining P180,000 in the category. Effective with the year ended December 31, 2021, BANDILA adopted a new accounting method for estimating the allowance for doubtful accounts at the amount indicated by the year –end aging analysis of accounts receivable. Questions: Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide the answers to the following: 1) What is the balance of the allowance for Bad Debts account before the change in accounting estimate? A. 300,000 B. 143,000 C. 226,000 D. 346,000 2) The journal entry for the year-end adjustment to the Allowance for Bad Debts account balance as of Dec. 31, 2016 is A. Bad Debt Expense 283,200 Allowance for Bad Debts 283,200 B. Bad Debts Expense 163,200 Allowance for Bad Debts 163,200 C. Allowance for Bad Debts 143,000 Bad Debt Expense 143,000 D. Bad Debts Expense 509,200 Allowance for Bad Debts 509,200 3) For the year ended December 31, 2021, the company’s bad debt expense would be A. 626,200 B. 283,200 C. 300,000

D.

583,200

4) The net realizable value of the company’s accounts receivable at December 31, 2021 should be A. 4,374,000 B. 3,896,000 C. 3,970,800 D. 4,090,800

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J. S. Cayetano

PROBLEM 4 You are auditing the receivable of TZUYU Inc., a supplier of office and school supplies in the Northern Luzon region. Your investigation revealed the following general ledger balances as of December 31, 2022 before any audit adjustments: Account receivable 1,250,000 Allowance for bad debt 38,500

The company proves for bad debt expense for interim reporting purposes using the income statement approach. Bad debt expense is provided as 2% of Sales for the first three quarters. Total sales for the first three quarters, from which the interim provisions were made was at P4,500,000. During the year, P56,000 of the receivables were written off, while P20,000 of previously written off accounts were recovered. The following aging of accounts receivable schedule was provided by the company accountant: Accounts receivable age Amount 1 – 15 days current 420,000 16 – 30 days current 240,000 1 – 30 days past due 210,000 31 – 60 days past due 250,000 More than 60 days past due 120,000 Of the more than 60 days past due account, P30,000 is deemed uncollectible thus has to be further written off. You sent confirmation letters to customers with significant balances. The following is a summary of the confirmation replies: Customer Amount Customer’s Reply Audit Findings Dahyun 150,000 “Our records show a The difference was due to merchandise return made by the customer balance of P135,000” on December 28. The goods were received on January 2. The related credit memo was issued and recorded by then, the return was for goods originally delivered and invoiced by the company on October 12. Jihyo

300,000

“Our records show a balance at P290,000”

The difference was due to an error made by the company preparing an invoice dated November 20. The invoice price used was at P200/unit whereas the agreed price should have been at P190/unit.

Sana

190,000

“Our records show a balance at P150,000”

The payment made by Sana for an invoice dated October 20 was posted erroneously to the subsidiary ledger of Nayeon.

Jeongyeon

255,000

“Our records indicate that the balance is at P250,000”

The invoice for the deliveries made on December 3, was erroneously posted in the subsidiary ledger at P55,000. The correct invoice amount is P50,000.

Nayeon

160,000

“Our records show a bigger balance”

Payment of Sana for an October 20 invoice was posted against the subsidiary ledger of Nayeon. All outstanding transaction with Nayeon were made in November.

The term of sale is 5/15, n/30. Per the past experience of the company, 25% of current customers normally take advantage of cash discounts. The following are deemed appropriate regarding accounts that are doubtful of collection: Accounts receivable age % uncollectible 1 – 15 days current -16 – 30 days current 2% 1 – 30 days past due 10% 31 – 60 days past due 25% More than 60 days past due 50% Questions: Based on above data and result of your audit, answer the following: 11) What is the total unreconciled difference between the accounts receivable general ledger and subsidiary ledger? A. 5,000 B. 10,000 C. 15,000 D. 0 12) What is the correct balance of accounts receivables before any valuation balance? A. 1,200,000 B. 1,195,000 C. 1,185,000

D.

1,180,000

13) What is the correct allowance for bad debts expense as of December 31, 2022? A. 122,450 B. 122,550 C. 127,050

D.

126,050

14) What is the correct carrying amount of accounts receivables as of December 31, 2022? A. 1,082,300 B. 1,087,550 C. 1,057,550

D.

1,052,300

15) What is the correct bad debts expense for 2022? A. 173,950 B. 203,950

D.

174,050

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C.



204,050

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J. S. Cayetano

PROBLEM 5 Remix Company included the following in its notes receivable as of December 31, 2022: Notes receivable from sale of land 880,000 Notes receivable from consultation 1,200,000 Notes receivable from sale of equipment 1,600,000

The following transaction during 2022 and other information relate to the company’s note receivable: a. On January 1, 2022, Remix Company sold a tract of land to Future Company. The land, purchased 10 years ago, was carried on Remix’s books at P500,000. Remix received a noninterest-bearing note for P880,000 from Future. The note is due on December 31, 2023. There was no established exchange price for the land. The prevailing interest rate for this note on January 1, 2022 was 10%. b. On January 1, 2022, Remix Company received a 5%, P1,200,000 promissory note in exchange for the consultation services rendered. The note will mature on December 31, 2024, with interest receivable every December 31. The fair value of the services rendered is not readily determinable. The prevailing rate of interest for a note of this type was 10% on January 1, 2022. c. On January 1, 2022, Remix sold an old equipment with a carrying amount of P1,600,000, receiving P2,400,000 note. The note bears an interest rate of 4% and is to be repaid in three annual installments of P800,000 (plus interest on the outstanding balance). Remix received the first payment on December 31, 2022. There is no established market value for the equipment. The market interest rate for similar note was 14% on January 1, 2022. Questions: Round off present value factors to four decimal places and final answers to the nearest hundred: 16) What is the consultation free revenue should be recognized in 2022? A. 1,050,800 B. 1,095,8000 C. 901,600 D. 1,200,000 17) What should be reported as gain on sale of equipment? A. 331,600 B. 257,280

C.

412,400

D.

800,000

18) The amount to be reported as noncurrent notes receivable on December 31 2022 is A. 2,605,706 B. 1,825,800 C. 2,494,000

D.

2,625,700

19) The amount to be reported as current notes receivable on December 31 2022 is A. 1,600,000 B. 1,680,000 C. 1,468,200

D.

800,000

20) How much interest income should be recognized in 2022? A. 464,000 B. 435,800 C.

D.

156,000

459,500

PROBLEM 6 The balance sheet of Yuri Corp. reported the following long-term receivables as of December 31, 2020: Note receivable from sale of plant 6,000,000 Note receivable from officer 1,600,000 In connection with your audit, you were able to gather the following transactions during 2020 and other information pertaining to the company’s long-term receivables: a. The note receivable from the sale of plant bears interest at 12% per annum. The note is payable in 3 annual installments of P2,000,000 plus interest on the unpaid balance every April 1. The initial principal and interest payment was made on April 1, 2021. b. The note receivable from officer is dated December 31, 2020, earns interest at 10% per annum, and is due on December 31, 2023. The 2020 interest was received on December 31, 2021. c. The corporation sold a piece of equipment to Inozent One Company on April 1, 2021, in exchange for a P800,000 noninterest bearing note due on April 1, 2023. The note had no ready market, and there was no established exchange price for the equipment. The prevailing interest rate for the note of this type at April 1, 2021 was 12%. The present value factor of 1 for two periods at 12% is 0.797 while the present value factor of ordinary annuity of 1 for two periods at 12% is 1.690. d. A tract of land was sold by the corporation to Momay Company on July 1, 2021, for P4,000,000, under an installment sale contract, Momay signed a 4-year, 11% note for P2,800,000 on July 1, 2021, in addition to t he down payment of P1,200,000. The equal annual payments of principal and interest on the note will be P902,500 payable on July 1, 2022, 2023, 2024 and 2025. The land has an established cash price of P4,000,000, and its cost to the corporation was P3,000,000. The collection of the installments on this note is reasonably assured. Questions: Based on the above and the result of your audit, answer the following: 21) How much is the total noncurrent notes receivables as of December 31, 2021? A. 9,037,600 B. 7,037,600 C. 6,500,484

D.

6,443,100

22) How much is the total current portion of long-term notes receivable as of December 31, 2021? A. 2,000,000 B. 2,902,500 C. 2,594,500 D. 0

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J. S. Cayetano

23) What is the correct accrued interest receivable as of December 31, 2021? A. 854,000 B. 1,091,384 C. 911,384

D.

1,008,000

24) What is the correct interest income for the year 2021? A. 360,000 B. 571,384

D.

674,000

C.

514,000

PROBLEM 7 On January 1, 2021, SNSD Company sold land that originally cost P400,000 to GG Company. As payment, GG gave SNSD Company a P600,000 note. The note bears an interest rate of 4% and is to be repaid in three annual installments of P200,000 (plus interest on the outstanding balance). The first payment is due on December 31, 2021. The market price of the land is not reliably determinable. The prevailing rate of interest for notes of this type is 14% on January 1, 2021 and 15% on December 31, 2021. SNSD made the following entries in relation to the sale of land and the related note receivable: January 1, 2021 December 31, 2021 Notes receivable 600,000 Cash 224,000 Land 400,000 Notes receivable Gain on sale of land 200,000 Interest income

200,000 24,000

SNSD reported the notes receivable in its statement of financial position at December 31, 2016 as part of trade and other receivables. Questions: Round off present value factors to four decimal places and answer the following: 25) The correct gain on sale of land is A. 103,105 B. 94,868 C. 120,061 D.

200,000

26) The correct interest income for 2021 is A. 74,230 B. 72,809

C.

70,435

D.

24,000

27) Profit for 2016 is overstated by A. 50,460 B.

C.

54,902

D.

0

28) The correct carrying amount of the notes receivable at December 31, 2021 is A. 400,000 B. 345,098 C. 368,870

D.

349,540

29) SNSD’s working capital at December 31, 2021 is overstated by A. 235,765 B. 232,936 C. 182,476

D.

0

31,130

PROBLEM 8 Showtime Co., a financing company, extended a loan to Despacito Corp. amounting to P10M on January 1, 2019 receivable 5 years after. The loan bears 12% annual interest collectible at the end of each year starting December 31, 2019. The 2019 and 2020 interests were collected as scheduled. By the end of 2021, due to financial difficulties being experienced by Despacito, Despacito failed to pay the annual interest as scheduled and Showtime Co. is doubted as to the collectability of the remaining interests and principal. After due consideration and correspondence with Despacito Company, Showtime estimated that it will be able to recover the following amounts at respective estimated dates: Amount 1,000,000 2,000,000 2,500,000 2,500,000

Expected recovery date December 31, 2022 December 31, 2023 December 31, 2024 December 31, 2025

Questions: Based on the above and the result of your audit, answer the following: 30) How much is the impairment loss on the receivables as of December 31, 2021? A. 6,855,491 B. 6,344,509 C. 5,855,491

D.

5,344,509

31) What is the correct net book value of the receivables as of December 31, 2021? A. 6,855,491 B. 6,344,509 C. 5,855,491

D.

5,344,509

32) Assuming that in December 31, 2022, amounts were received as estimated, what is the balance of the receivables as of December 31, 2022? A. 5,558,150 B. 4,225,128 C. 2,232,143 D. 2,500,000 33) Assuming that in December 31, 2023, amounts were received as estimated, what is the correct interest income to be recognized in 2023? A. 702,659 B. 666,978 C. 507,015 D. 267,857 end_of_lecture_

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