Chapter 4 Chapter 4

Receivables and Related Revenues Receivables and Related Revenues

MULTIPLE CHOICE – THEORY j. Accounts Receivable 90,000
Sales 90,000
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 3 (Magnolia Company)

Problem 1 1. Accounts Payable – B 74,000

1. A Accounts Receivable - B 74,000
2. E
3. B, E 2. Accounts Receivable – L 16,200
4. A,C,D Accounts Receivable – C 16,200
5. A,C,D
6. A,C 3. No disposition yet (Customer D)
7. D
8. C,D 4. Sales 24,000
9. D Accounts Receivable – E 24,000
10. D
11. D 5. Inventory 16,500
12. A,B,C Cost of Sales 16,500
13. D
14. E 6. Sales 60,000
15. E Accounts Receivable - F 15,000
Advances from Customers 45,000
Problem 2 (Fontana Blue)
7. Sales 85,000
a. Cost of Sales 20,000 Accounts Receivable – G 85,000
Inventory 20,000
Inventory 59,000
b. Cost of Sales 18,000 Cost of Sales 59,000
Inventory 18,000
8. Sales 2,500
c. No adjustment Accounts Receivable – H 2,500
10,000 / 200 x (200 – 150) = 2,500
d. Sales 40,000
Accounts Receivable 40,000 9. Sales 180,000
Accounts Receivable – I 180,000
e. Sales 60,000
Accounts Receivable 60,000 10. Inventory 120,000
Cost of Sales 120,000
Inventory 33,600
Cost of Sales 33,600 11. Sales Returns and Allowances 5,000
Sales 5,000
f. Sales 120,000
Accounts Receivable 120,000

g. Accounts Receivable 60,000

Sales 60,000

h. No adjustment

i. Accounts Receivable 80,000

Sales 80,000

Cost of Sales 55,000

Inventory 55,000

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Chapter 4 Chapter 4
Receivables and Related Revenues Receivables and Related Revenues
Problem 4 (Blooms Company) 2. Allowance for Doubtful Accounts 4,200
Accounts Receivable – Over 120 days 4,200
Account Per client Adjustment Per audit Not due 1-60 days 61-120 days Over 120
Past due past due days past 3. Accounts Receivable – 61-90 days 4,800
due Advances from Customers 4,800
1 14,000 14,000 3,000 8,000 3,000
2 25,000 25,000 25,000 4. Allowance for Uncollectible Accounts 6,261
3 98,000 (98,000) 0 Uncollectible Accounts Expense 6,261
4 44,000 44,000 24,000 20,000
5 68,000 68,000 8,000 60,000 (b) Correct balance of Accounts Receivable P318,860
6 15,000 15,000 15,000
(c) Correct balance of Uncollectible Accounts Expense
Total 264,000 (98,000) 166,000 36,000 83,000 27,000 20,000
Per Client ( P16,050 – 2,740) P13,310
Adjustment No. 1 2,740
Age Classification Balance per audit % Uncollectible Required Allowance No. 4 (6,261)
Not due 36,000 1% 360 Per audit P 9,789
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 Problem 6 (Esau Industries, Inc.)
Total P13,370 (a) Correct balance of Trade Accounts Receivable
General Ledger Subsidiary Ledger
Notes Receivable 100,000 Balances per client P 10,536,500 P 5,635,700
Interest Income 2,000 Undelivered sales (2,732,900)
Accounts Receivable (customer 3) 98,000 Goods consigned to Automatic, Trinoma, etc. (3,260,700)
Collections received from Cebu and Davao branches (1,092,800)
Interest Receivable 750 Write off (168,000) (168,000)
Interest Income 750 Per audit P4,374,900 P4,374,900

Uncollectible Accounts Expense 5,370

(b) Correct balance of Allowance for Uncollectible Accounts
Allowance for Doubtful Accounts 5,375
Age Before Adjustment Per Audit % Uncollectible Required
13,370 – 8,000 = 5,370
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
Problem 5 (Balimbing, Inc.) 61-90 days 267,320 267,320 10% 26,732
 90 days 898,620 (168,000) 730,620 30% 219,186
Age Per Client Adjustment Per Audit % Uncollectible Required P 325,530
Allowance
Under 60 days 175,000 175,000 1% 1,750.00 Allowance for Uncollectible Accounts, Per Client P281,255
61- 90 days 80,000 4,800 84,800 3% 2,544.00 Additional write off ( 168,000)
91 – 120 days 42,000 (2,740) 39,260 6% 2,355.60 Additional provision 212,275*
Over 120 days 24,000 (4,200) 19,800 25% 4,950.00 Balance per audit P325,530
Total P321,000 (2,100) 318,860 11,599.00
(c) Correct balance of Uncollectible Accounts Expense:
Per client P3,425,625
Required Allowance P11,599 Additional provisions as a result of audit 212,275
Balance of allowance before final adjustment Per Audit P3,637,900
22,060 – 4,200 17,860
Adjustment P 6,261 Audit Adjustments:
(a) Adjusting entries: Sales 2,732,900
Accounts Receivable 2,732,900
1. Uncollectible Accounts Expense 2,740
Accounts Receivable – 91 – 120 days 2,740 Sales 3,260,700
Accounts Receivable 3,260,700

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Receivables and Related Revenues Receivables and Related Revenues

Allowance for Uncollectible Accounts 168,000 Accounts Receivable 60,600

Accounts Receivable 168,000 Trade Notes Receivable 60,000
Interest Income 600
Uncollectible Accounts Expense 212,275
Allowance for Uncollectible Accounts 212,275 Receivable from Officers 800,000
Compensation Expense 66,055
Trade Notes Receivable 800,000
Problem 7 Discount on Notes Receivable from Officers 66,055

(a) Retained Earnings 20,000 Discount on Notes Receivable from Officers (66,055 x 11/12) 60,550
Allowance for Uncollectible Accounts 20,000 Interest Income 60,550

Percentage of uncollectible accounts = Net wiriteoffs up to 2016 Net credit sales up to 2016 Depreciation Expense – Equipment 26,667
= 160,000 / 10,000,000 = 1.6% Accumulated Depreciation – Equipment 26,667
10% x P400,000 x 8/12
Required allowance, beginning of 2017 = 1.6% x 1,250,000 = 20,000
Accumulated Depreciation – Equipment 186,667
(b) Allowance for uncollectible accounts, beginning P 20,000 Notes Receivable – Non-current 200,000
Write off (83,000) Loss on Sale of Equipment 53,893
Recoveries 5,000 Discount on Notes Receivable 40,560
Balance before yearend adjustment P58,000 debit balance Equipment (400,000 – 250,000) 200,000
Required allowance: Trade Notes Receivable 200,000
Rate = 238,000/ 14,000,000 = 1.7%
1.7% x 1,460,000 24,820 Face P200,000
Uncollectible Accounts Expense, 2017 P82,820 PV = 200,000 x .7972 159,440
Discount P 40,560

Problem 8 (Smith, Inc.) Discount on Notes Receivable 6,378

Interest Income (159,440 x 12% x 4/12) 6,378
(a) Schedule of Trade Notes Receivable
Maker Due Date Per Client Adjustment Per Audit # of Days Interest Rate Accrued Interest Receivable 4,953
Accrued Interest Interest Income 4,953
Avon Co. 3/30/18 P100,000 (100,000) -- (5,553 – 600 interest income recorded in audit adj. no. 3)
Sara Lee 1/30/18 250,000 (250,000) -- 60 8% P 3,333.
Triumph 7/2//17 60,000 (60,000) -- 60 6% 600
President 01/31/18 800,000 (800,000) -- Problem 9 (Glowing Candles)
Mondragon 1/12/18 60,000 -- 60,000 108 9% 1,620
Elizabeth 8/31/19 200,000 (200,000) -- -- (a) Non-current Portion of Long-Term Receivables
Notes Receivable from Sale of Division P1,000,000
Total P770,000 (710,000) P60,000 P5,553
Notes Receivable from Sale of Patents
Face P2,000,000
(b) Adjusting Entries: Less: Discount on Notes Receivable
Liability on Discounted Notes 100,577
(285,400 – 34.292) 251.108 1,748,892
Trade Notes Receivable 100,000 Notes Receivable from Sale of Land 11,236,748
Gain on Sale of Notes Receivable 577 Total P16,557,854
Principal P100,000 (b) Current Portion of Long-term Receivables:
Interest for the entire term 3,333
Notes Receivable from Sale of Division, including interest
Discount (103,333 x 8% x 4/12) ( 2,756) Receivable of P135,000 P1,135,000
Proceeds from discounting P 100,577 Notes Receivable from Sale of Land, including interest
Carrying value, date of discounting 100,000
Receivable of P746,667 (2763,252 + 746,667) 3,509,919
Gain on sale of notes P 577 Total P4,069,919
Subscription Receivable – Preference Share 250,000
Trade Notes Receivable 250,000

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Chapter 4 Chapter 4
Receivables and Related Revenues Receivables and Related Revenues
(c) Interest Income from Long-term Receivables Gain on Sale of Land (400,000 -346,100) 400,000
On NR from Sale of Division Loss on Sale of Land 346,100
January 1, 2017 – March 31, 2017 P3,000,000 x 9% x 3/12 P67,500 Discount on Notes Receivable 746,100
April 1, 2017 – December 31, 2017 P2,000,000 x 9% x 9/12 135,000
Total P202,500 Discount on Notes Receivable 150,260
Interest Income 150,260
On NR from Officer 2,253,900 x 10% x 8/12
P6,000,000 x 9% P540,000
On NR from Sale of Patents Interest Receivable 25,000
P1,714,600 x 8% x 3/12 P 34,292 Interest Income 25,000
On NR from Sale of Land
P2,240,000 x 4/12 P746,667 (b) Carrying value of notes:
Total interest income P1,523,459
Current Assets:
Note Receivable from Company A
(c) Gain on Sale of land (P20,000,000 – P15,000,000) P 5,000,000 P550,000 – (P1,743,445 x 10%) P119,345
Note Receivable from Company C, including
Gain on Sale of Patents Accrued interest of P25,000 325,000
Selling Price P2,000,000 x .8573 P1,714,600 Total P444,345
Carrying value of the patents on 10/01/14
Carrying value 1/01/14 P1,800,000 Non-current Assets:
Amortization up to 10/01/14 Note Receivable from Company A (P1,743,445 – P119,345) P1,624,100
450,000 x 9/12 (337,500) 1,462,500 Note Receivable from Company B 2,404,160
Gain on sale of patents P 252,100 Total Non-current Receivables P4,028,260

Note Receivable from Sale of Land (d) Impairment Loss

Date Periodic Payment Payment Applied to Balance of Principal, end Notes Receivable from Company A
Interest Principal Face P2,000,000
09/01/17 P 14,000,000 Interest Receivable (still unrecorded) P2,000,000 x 10% 200,000
09/01/18 P5,003,252 P 2,240,000 P 2,763,252 11,236,748 Carrying value of note P2,200,000
09/01/19 5,003,252 1,797,880 3,205,372 8,031,376 PV of future cash flows P550,000 x 3.1699 1,743,445
Impairment loss P 456,555
Problem 10 (Goliath Company)
Interest Income:
Notes Receivable from Company B From Company A P200,000
Initial amortized cost = 3,000,000 x .7513 = P2,253,900 From Company B 150,260
Face P3,000,000 From Company C 25,000
Less: Discount on Notes Receivable Total P375,260
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, 12/31/14 P2,404,160 Problem 11 (MARINA CORPORATION )

Notes Receivable from Company C Corrections:

Face P1,000,000
Interest Receivable 1,000,000 x 10% x 3/12 25,000 Info # 7: On December 1, the corporation received payment from Germany Company for one of the
Carrying value of the note P1,025,000 P15,000 notes (instead of P8,000).

(a) Audit Adjustments:

Interest Receivable 200,000 (1) Audit Adjustments:
Interest Income 200,000
a. Interest Expense 625
Impairment Loss ( Bad Debts) 456,555 Trade Notes Receivable - Balanga 625
Restructured Notes Receivable 1,743,445 Balanga Company’s note
Interest Receivable 200,000
Notes Receivable – Company A 2,000,000 b. Accounts Receivable 48,000
Impairment Loss – Notes Receivable (or Uncollectible Accounts Expense) 32,000

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Chapter 4 Chapter 4
Receivables and Related Revenues Receivables and Related Revenues
Trade Notes Receivable – Caloocan 80,000 Germany Company = 45,000 x 12% x 60/360 900
Total P 3,840
c. Notes Receivable – Officers 75,000
Trade Notes Receivable – Tomas Dee 75,000
MULTIPLE CHOICE - PROBLEMS
Interest Receivable 300
Interest Revenue 300 1. C 5. C 9. D 13. D 17. C 21. A
75,000 x 8% x 138/360 = 2,300 2. B 6. A 10. B 14. B 18. A 22. A
2,300 – 2,000 = 300 3. B 7. C 11. A 15. B 19. A 23. B
4. A 8. A 12. A 16. B 20. D 24. D
d. Accounts Receivable 51,000
Interest Expense 340
Trade Notes Receivable – Eager Corp. 50,000 Computations
Interest Revenue 1,000
Interest Receivable 340 1. P523,000 + P224,000 + P75,000 + P27,000 = P849,000
2-5 2. Accounts Receivable 3. Inventories 4. Sales 5. Cost of Sales
e. Trade Notes Receivable – Felicity 38,000 Per Client P276,500 P425,000 P1,320,000 P842,000
Notes Payable 38,000 Adjustments : ( 8,680) 7,240 (8,680) (7,240)
(14,200) 12,500 (14,200) (12,500)
Interest Receivable 507 (10,000) (10,000)
Interest Revenue 507
(6,100) 6,100
48,000 x 8% x 60/360 = 640
(14,000) (14,000)
640 – 133 = 507
21,000 (18,200) 21,000 18,200
Interest Expense 317 Per Audit P250,620 P420,440 P1,294,120 P846,560
Interest Payable 38,000 x 10% x 30/360 317 6.
Classification Balance per audit % Uncollectible Required Allowance
f. Accounts Receivable 15,150 Nov-Dec 2014 P1,080,000 2% P21,600
Trade Notes Receivable – Germany Company 15,000 July – October 2014 650,000 10% 65,000
Interest Revenue 150 January – June 2014 420,000 25% 105,000
Prior to 1/01/14 90,000* 70% 63,000
Interest Revenue 300 Total P2,240,000 P254,600
Interest Receivable 300 Existing allowance = 154,000 – 95,000 + 15,000 + 180,000 – 60,000 194,000
45,000 x 12% x 60/360 = 900 Additional uncollectible accounts expense P 60,600
1,200 – 900 =300
7. Total uncollectible accounts expense = P 180,000 + 60,600 = P240,600
Trade Notes Receivable Interest Receivable
Per Client P 275,625 P3,673 8. Accounts receivable, net = P2,240,000 – 254,600 = P1,985,400
Adjustments:
(a) (625) 9. Carrying value of the receivable P4,480,000
(b) ( 80,000) Present value of future cash inflow = 1,120,000 x 3.0373 = 3,401,776
(c) (75,000) 300 Impairment loss P1,078,224
(d) (50,000) (340)
(e) 38,000 507 10. No impairment loss shall be recognized, the loss évent is a non-adjusting évent, which présents condition different
(f) (15,000) (300) from that as of the end of the reporting period.
Per Audit P 93,000 P3,840
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
Trade Notes Receivable: value.
Felicity Ltd. P48,000
Germany Co. 45,000 12. Carrying value of the receivable P1,120,000
Total P93,000 PV of future cash inflow = 120,000 + (1,100,000 X .8929) 1,102,190
Impairment loss P 17,810
Interest Receivable:
Tomas Dee = 75,000 x 8% x 133/360 = P 2,300 13. The non-adjusting évent requires disclosure, because even when taken alone, the loss would have a material effect on
Felicity Ltd. = 48,000 x 8% x 60/360= 640 the financial condition of 5-6.

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Chapter 4 Chapter 4
Receivables and Related Revenues Receivables and Related Revenues
6. Cash in Bank – BPI CA Payroll 15,600
14. Sales = (1,900,000 – 350,000) x 150% = P2,325,000 Accrued Payroll 15,600
Collections from customers (1,830,000) 5,200 + 10,400
Write off (15,000 – 8,000) ( 7,000)
Gross accounts receivable P 488,000 7. Miscellaneous Expenses 150
Cash in Bank – BPI CA Payroll 150
15. Past due after write off 400,000 – 80,000 P 320,000
Allowance after write off 250,000 – 80,000 170,000 8. Cash in Bank – BPI CA General 45,200
Additional uncollectible accounts expense P 150,000 Accounts Payable 45,200

16. Current assets = P506,370 – 30,000 selling price of unsold goods 9. Accounts Payable 900
+ 20,000 cost of unsold goods = P496,370 Miscellaneous Expenses 150
Cash in Bank _ BPI CA General 1,050
17. Additional allowance required : 120,000 – (65,000 +120,000 – 80,000) = 15,000
Total uncollectible accounts expense = 120,000 + 15,000 = P135,000 10. Accounts Receivable – Current 9,000
Accounts Receivable – 31- 60 days overdue 4,800
18. Accounts receivable = P1,300,000 + 50,000 + 15,000 = P1,365,000 Customers’ Credit Balances 13,800

19. Required allowance = 1,365,000 x .015 = P 20,475 11. Receivables from Officers and Employees 2,000
Accounts Receivable – Current 2,000
20. Uncollectible accounts expense = 20,475 + 8,000 = P 28,475
12. Allowance for Bad Debts 5,000
21. Accounts receivable = 735,000 + 4,500,000 – 4,200,000 + 16,000 – 20,200 Accounts Receivable – over 90 days 5,000
- 250,000 = P780,800
13. Accounts Receivable – Overdue Notes 15,250
22. (780,800 – 100,800) x 2% = P13, 600 Notes Receivable 15,000
Interest Income 250
23. 16,200 + 16,000 – 20,200 = P12,000
14. Receivable from Officers and Employees 6,800
24. (100,800 x 10%) + (680,000 x 2%) = P 23,680 Notes Receivable 6,800

15. Interest Receivable 517

MEEMEE, Inc. Interest Income 517
Adjusting Entries: Creative: P10,000 x 24% x 64/360 = 427
President: P 6,800 x 25% x 19/360 = 90
1. Miscellaneous Expenses 1,260 Total 517
Receivables from Officers and Employees 500
Cash – Petty Cash Fund 1,760 16. Allowance for Bad Debts 4,543
Bad Debts Expense 4,543
2. Other Non-Current Financial Assets 400,625
Cash in Bank 400,000
Interest Income 625 ANALYSIS OF ACCOUNTS RECEIVABLE
Reclassified Security Bank SA Age Class Per Client Adjustment Per Audit % Uncollectible Required
Allowance
3. Cash in Bank – BPI SA 394 Current P362,412 9,000 369,412 ½% 1,847
Interest Income 394 (2,000)
1-30 days past 202,895 4,550 207.445 1% 2,074
4. Accounts Receivable – 31 – 60 days overdue 12,800 due
Cash in Bank – BPI SA 12,800 31 – 60 days 130,480 12,800 148,080 3% 4,442
past due 4,800
5. Accounts Receivable – Dishonored Notes 5,500 61 – 90 days 17,500 -- 17,500 10% 1,750
Cash in Bank – BPI SA 5,500 past due
Over 90 days 11,387 (5,000) 6,387 50% 3,194
Notes Receivable Discounted 5,000 past due
Notes Receivable 5,000 Dishonored -- 5,500 20,750 20% 4,150
notes 15,250

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Receivables and Related Revenues
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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