INTERMEDIATE ACCOUTNING 1

PROBLEM 1

Clark Co. sold its products to a customer on July 1, 2023. The item had a list
price of P5,000,000; trade discounts of 10% and 5% were granted by Clark to
the buyer. The credit terms of the sales were 2/10, n/30. Two days after, the
customer returned items worth P500,000 because of wrong specifications. Full
payment was received by the company on July 11.

Prepare the necessary journal entries on the book of Clark using:

1. Gross method
2. Net method
3. Suppose the buyer paid Clark on July 31, prepare the journal entry on the
said date using a) the gross method and b) the net method.

PROBLEM 2

An analysis of the accounts receivable of Vaughn Inc. shows the following

information:
Age Balance %
Collectible
Current P4,000,000 99
1 to 30 days past due 3,000,000 97.5
31 to 60 days past due 1,800,000 96
61 to 90 days past due 1,200,000 90
91 to 120 days past due 1,000,000 80
121 to 180 days past 600,000 60
due
181 to 360 days past 400,000 40
due
More than 360 days past 150,000 0
due

Before any adjustments were made, Vaughn’s allowance for doubtful accounts had
a balance of P100,000.

Prepare the journal entry to adjust Vaughn’s allowance for doubtful accounts.

PROBLEM 3

Luke Co. accumulated P7,500,000 McAndrew Bank credit card receipts on August
1, 2023. These receipts were forwarded to the bank on that date and Luke
received the payment from the bank less a 4% service charge.

1. Prepare the journal entries needed on the books of Luke.

2. Suppose that Luke deposits the McAndrew Bank credit card receipts to a current
account, and Luke’s account is immediately increased by such deposits.
Prepare the entries needed on the books of Luke.

Page 1 of 5 M.S.M.C.
INTERMEDIATE ACCOUTNING 1
PROBLEM 4

Dylan Corp., a company that operates on a calendar-year basis, has been approved
of a loan from Manila Bank on July 1, 2023, for P10,000,000. The loan, which
matures on June 30, 2024, bears an interest of 10% per annum. According to the
agreement, Dylan pledged P16,000,000 of its accounts receivable as a security
for the loan.

1. Prepare the entries needed on the books of Dylan to record the loan, to
accrue interest expense, and to record the payment of the loan.
2. Prepare the notes on Dylan’s financial statements that should be disclosed
in relation to the note and the corresponding pledged receivables.

PROBLEM 5

The following transactions relate to Stalla Inc. in 2023:

August 1 Assigned P6,000,000 of accounts receivable to Manila
Universal Bank under a non-notification basis. The bank
advanced 75% of the face value of the receivables less a
service charge of P2,500. Stalla signed a promissory note
agreeing to pay monthly interest of 1% of the unpaid balance
of the loan.
4 Issued a P60,000 credit memo for sales allowance granted to a
customer whose account was assigned
9 Collected 50% of the face value of the assigned accounts.
Sales discounts of 3% were granted to 60% of the face value
of the collected accounts
31 Remitted the collection to Manila along with the monthly
interest
Sept. 1 Issued credit memo amounting to P80,000 to a customer whose
account was assigned for merchandise returned
29 Collected P2,000,000 of assigned accounts
30 Remitted the amount due to manila to pay the loan balance
plus interest due

Prepare the necessary journal entries.

PROBLEM 6

The following transactions relate to Rhea Co. in 2023:

October 31 Rhea Corp. assigned P4,000,000 of its assigned accounts to
Makati National bank under a notification basis. The bank
forwarded 80% of the face value of the assigned accounts,
less 0.25% of the face value of the assigned accounts as
service charge. The loan is evidenced by a promissory note
which provides for a monthly interest of 1.5% of the unpaid
balance of the loan.
November 30 Received notice from Makati that 60% of the assigned
accounts was collected. 2.5% sales discount was granted to
half of the accounts collected. Rhea paid the interest to
Makati.
December 31 Received notice from Makati stating that P1,500,000 of the
assigned accounts were collected. Final settlement was made
by the bank for the excess collections together with the
uncollected assigned accounts.
Page 2 of 5 M.S.M.C.
INTERMEDIATE ACCOUTNING 1

Prepare the necessary journal entries.

PROBLEM 7

Palacios Corp. factored its accounts receivable having a face value of

P1,000,000 and net realizable value of P900,000 for P850,000 on December 31,
2023.

Prepare the entry to record the transaction.

PROBLEM 8

Citi Inc. factored accounts receivable from different customers to Hunter

Financials amounting to P10,000,000 immediately after the shipment of the goods
on July 1, 2023. The credit terms of the sale are 3/10, n/30. Hunter charged a
commission of 5% based on the gross amount of the receivable factored, and
withheld 30% of the face value of the accounts assigned to cover sales returns
and allowances.
On July 5, Citi granted credit worth P400,000 to a customer whose account was
factored for goods that were damaged.

On July 11, Citi was informed that the full payment, less applicable discount,
was received by Hunter from a certain customer whose account was factored. The
invoice price of the goods paid by such customer amounted to P3,500,000.

On July 31, Citi received a notification from Hunter stating that the remaining
factored accounts were collected with no additional returns or allowances.
Accordingly, the final settlement was made with Hunter.

Prepare the necessary journal entries to be recorded in the books of Citi.

PROBLEM 9

On September 1, 2023, Ezekiel Co. sold its used equipment originally acquired
for P6,000,000 and having a carrying amount of P4,800,000 to Jedson Co. Ezekiel
received a 3-year note receivable from Jedson having a face value of P5,000,000.

Prepare the journal entries to record the receipt of the note under the
following independent situations:
1. The fair value of the asset is P5,200,000. The fair value of the note
cannot be measured reliably.
2. The note bears an annual interest of P12%. The fair value of the equipment
cannot be measured reliably.

Page 3 of 5 M.S.M.C.
INTERMEDIATE ACCOUTNING 1
PROBLEM 10

On January 1, 2023, Donna Corp. sold merchandise having a cost of P2,000,000

to Jack Corp. for P6,000,000. Upon the delivery of the goods, Jack paid a 20%
down payment to Donna and signed a 3-year noninterest-bearing note for the
balance. The prevailing interest rate on similar notes on the date of the sale
was P8%.

Prepare the journal entries on the books of Donna in 2023, as well as the
amortization table from 2023 to 2025 under the following independent
situations:
1. The principal is to be paid in three equal annual instalments. The first
instalment was received on December 31, 2023.
2. The whole principal is to be paid on December 31, 2025.

PROBLEM 11

On January 1, 2023, Jem Inc. sold merchandise costing P1,200,000 to David Inc.,
receiving a three-year, noninterest-bearing note receivable. Interest on
similar notes on the date of the transaction was 10%.

Prepare the journal entries on the books of Jem in 2023, as well as the
amortization table for the whole duration of the note given the following
independent assumptions:
1. The note is to be paid in three equal annual instalments. The first
instalment is to be received on December 31, 2023.
2. The note is to be paid in six equal semi-annual instalments every January
1 and July 1. The first instalment was received by Sheff on the date of
the sale.

PROBLEM 12

On January 1, 2023, Carter Co. received a four-year, 10% note having a face
value of P4,000,000 for the sale of its equipment which had a cost and a
carrying amount of P5,000,000 and P3,500,000, respectively. The prevailing
market interest rate on similar notes on the date of the transaction was 8%.

Prepare the journal entries on the books of Carter on January 1, 2023, and the
receipt of the first interest payment, as well as the amortization table for
the note given the following independent situations:
1. Interest is paid every Dec. 31.
2. Interest is paid every June 30 and Dec. 31.

PROBLEM 13

On January 1, 2023, Emilia Co. received a 10% note from a customer upon the
sale of its inventory. The inventory had a cost of P1,500,000, and was sold at
a list price of P5,000,000. The payment terms call for four equal payments of
the principal and interest on the outstanding balance of the note every December
31, starting December 31, 2023. The effective rate on the note is 7%.

Prepare the necessary entries in 2023, as well as the amortization table for
the note.

Page 4 of 5 M.S.M.C.
INTERMEDIATE ACCOUTNING 1
PROBLEM 14

Alhambra Inc. discounted a P1,800,000, 10-month, 10% note dated May 1, 2023,
it received from a customer to Mason Financials on August 1. The note was
discounted at 14%.

Prepare the journal entries needed on the books of Alhambra on August 1 and on
the date of the note’s maturity given the following independent assumptions:
1. The note was paid by the maker.
2. The note was dishonoured by the maker. Alhambra paid the whole maturity
value of the note plus protest fees of P2,500. The maker paid Alhambra 10
days after the maturity, including interest of 18% from the date of the
note’s maturity.

PROBLEM 15

Granada Inc. discounted its own note having a face value of P2,400,000 at 12%
for one year with Palomino Bank on July 1, 2023. Prepare the necessary journal
entries on the books of Granada in 2023.

PROBLEM 16

Pilipino Bank granted a loan to Celia Co. 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. The related data to the loan are:

Principal amount P4,000,000

Origination fees received from 342,100
Celia Co.
Direct origination cost 150,000
incurred

After considering the origination fees charged against the Celia Co. and the
direct origination cost incurred, the effective rate in the loan is 12%.

Prepare the necessary journal entries in 2023.

Page 5 of 5 M.S.M.C.