Chapter 4

Chapter 4
Receivables and Related Revenues

MULTIPLE CHOICE THEORY
1. D
6. D
2. C
7. B
3. C
8. B
4. B
9. A
Problem 1 (Fontana Blue)

a.
Cost of Sales
Inventory
20,000
b.
Cost of Sales
Inventory
18,000
18,000
c.
No adjustment
d.
Sales
20,000
40,000
Accounts Receivable
e.
40,000
Sales
60,000
Accounts Receivable
60,000
Inventory
33,600
Cost of Sales
f.
33,600
Sales
120,000
Accounts Receivable
g.
120,000
Accounts Receivable
Sales
60,000
60,000
h.
No adjustment
i.
Accounts Receivable
Sales
80,000
Cost of Sales
Inventory
55,000
Accounts Receivable
Sales
90,000
j.
80,000
55,000
90,000
Problem 2 (Magnolia Company)

1.
2.
Accounts Payable B
Accounts Receivable - B
74,000
Accounts Receivable L
Accounts Receivable C
16,200
3.
No disposition yet (Customer D)
4.
Sales
74,000
16,200
24,000
Accounts Receivable E
24,000
38
5. D
10. D
Chapter 4
5.
Inventory
16,500
Cost of Sales
6.
16,500
Sales
60,000
Accounts Receivable - F
Advances from Customers
7.
Sales
15,000
45,000
85,000
Accounts Receivable G
Inventory
85,000
59,000
Cost of Sales
8.
Sales
9.
Sales
59,000
2,500
Accounts Receivable H
10,000 / 200 x (200 150) = 2,500
180,000
Accounts Receivable I
10.
180,000
Inventory
120,000
Cost of Sales
11.
2,500
120,000
Sales Returns and Allowances

Sales
5,000
5,000
Problem 3 (Blooms Company)

Account
1
2
3
4
5
6
Total
Per client
12,000
22,000
97,600
20,000
55,000
7,500
215,300
Adjustment
Per audit
(98,800)
(98,800)
Age Classification
Not due
1-60 days past due
61-120 days past due
Over 120 days past due
Total
Notes Receivable
Interest Income
Accounts Receivable
Not due
12,000
22,000
0
20,000
55,000
7,500
116,000
1-60 days
Past due
3,000
22,000
8,000
2,220
52,780
7,500
68,280
27,220
Balance per audit

27,220
68,280
11,000
10,000
1%
2%
5%
50%
2,400
97,600
Interest Receivable
Interest Income
500
500
39
Over 120
days past
due
1,000
% Uncollectible
100,000
(customer 3)
61-120 days
pastdue
10,000
10,000
11,000
10,000
Required Allowance
272.20
1,365.60
550.00
5,000.00
P7,187.80
Chapter 4
Uncollectible Accounts Expense
Allowance for Doubtful Accounts
7,188 5,000 = 2,188
2,188
2,188
Problem 4 (Balimbing, Inc.)

Age
Under 60 days
61- 90 days
91 120 days
Over 120 days
Total
Per Client
175,000
80,000
42,000
24,000
P321,000
Adjustment
Per Audit
% Uncollectible
175,000
84,800
39,260
19,800
318,860
4,800
(2,740)
(4,200)
(2,100)
1%
3%
6%
25%
Required Allowance
Balance of allowance before final adjustment
22,060 4,200
Adjustment
P11,599
17,860
P 6,261
(a)
Adjusting entries:
1.

Accounts Receivable 91 120 days
2,740
2.
Allowance for Doubtful Accounts

Accounts Receivable Over 120 days
4,200
Accounts Receivable 61-90 days

Advances from Customers
4,800
Allowance for Uncollectible Accounts

6,261
3.
4.
Required
Allowance
1,750.00
2,544.00
2,355.60
4,950.00
11,599.00
2,740
4,200
4,800
6,261
(b)
Correct balance of Accounts Receivable
P318,860
(c)
Correct balance of Uncollectible Accounts Expense

Per Client ( P16,050 2,740)
Adjustment No. 1
No. 4
Per audit
P13,310
2,740
(6,261)
P 9,789
Problem 5 (Esau Industries, Inc.)

(a) Correct balance of Trade Accounts Receivable
General Ledger
P 10,536,500
(2,732,900)
(3,260,700)
Balances per client

Undelivered sales
Goods consigned to Automatic, Trinoma, etc.
Collections received from Cebu and Davao branches
Write off
Per audit
(168,000)
P4,374,900
40
Subsidiary Ledger
P 5,635,700
(1,092,800)
(168,000)
P4,374,900
Chapter 4
(b) Correct balance of Allowance for Uncollectible Accounts
Age
Before
Adjustment
Adjustments
Current
P 4,067,320
(1,092,800)
31-60 days
402,440
61-90 days
267,320
898,620
(168,000)
> 90 days
Per Audit
% Uncollectible
2,974,520
402,440
267,320
730,620
2%
5%
10%
30%
Allowance for Uncollectible Accounts, Per Client

Additional write off
Additional provision
Balance per audit
P281,255
( 168,000)
212,275*
P325,530
(c) Correct balance of Uncollectible Accounts Expense:

Per client
Additional provisions as a result of audit
Per Audit
P3,425,625
212,275
P3,637,900
Required
Allowance
P 59,490
20,122
26,732
219,186
P 325,530
Audit Adjustments:
Sales
2,732,900
Accounts Receivable
Sales
2,732,900
3,260,700
Accounts Receivable

Accounts Receivable
168,000

212,275
3,260,700
168,000
212,275
Problem 6 (Smith, Inc.)

Maker
Due Date
Avon Co.
Sara Lee
Triumph
President
Mondragon
Elizabeth
Total
3/30/13
1/30/13
7/2//12
4/04/12
1/12/13
8/31/13
(b)
(a) Schedule of Trade Notes Receivable

Adjustment
Per Audit
# of Days
Accrued
P100,000
(100,000)
-250,000
(250,000)
-60
30,000
(30,000)
-60
800,000
(80,000)
-60,000
-60,000
108
200,000
(200,000)
--P770,000
(710,000)
P60,000
Per Client
Adjusting Entries:
Liability on Discounted Notes
Trade Notes Receivable
Gain on Sale of Notes Receivable
Interest Rate
8%
6%
P 3,333.
300
9^
1,620
P5,253
100,577
100,000
577
41
Accrued
Interest
Chapter 4
Principal
Interest for the entire term
Discount (103,333 x 8% x 4/12)
Proceeds from discounting
Carrying value, date of discounting
Gain on sale of notes
P100,000
3,333
( 2,756)
P 100,577
100,000
P
577
Subscription Receivable Preference Share

250,000
Accounts Receivable
Interest Income
30,000
30,000
300
Receivable from Officers

Compensation Expense
Discount on Notes Receivable from Officers
800,000
66,055
800,000
66,055
Discount on Notes Receivable from Officers (66,055 x 11/12)

Interest Income
60,550
Depreciation Expense Equipment

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

Notes Receivable Non-current
Loss on Sale of Equipment
Discount on Notes Receivable
Equipment (400,000 250,000)
186,667
200,000
53,893
Face
PV = 200,000 x .7972
Discount
250,000
60,550
26,667
40,560
200,000
200,000
P200,000
159,440
P 40,560

Interest Income (159,440 x 12% x 4/12)
6,378
6,378
Interest Receivable
4,953
Interest Income
(5,253 300 interest income recorded in audit adj. no. 3)
4,953
Problem 7 (Glowing Candles)

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

Notes Receivable from Sale of Division
Notes Receivable from Officer
Notes Receivable from Sale of Patents
Face
Less: Discount on Notes Receivable
(202,810 23,916)
Notes Receivable from Sale of Land
Total
42
P 500,000
4,000,000
P1,000,000
178,894
821,106
11,236,748
P16,557,854
Chapter 4
(b)
(c)
Current Portion of Long-term Receivables:

Notes Receivable from Sale of Division, including interest
Receivable of P60,000
Notes Receivable from Sale of Land, including interest
Receivable of P746,667 (2763,252 + 746,667)
Total
P560,000
3,509,919
P4,069,919
Interest Income from Long-term Receivables

On NR from Sale of Division
January 1, 2012 April 30, 2012 P1,500,000 x 9% x 8/12
May 1, 2010 December 31, 2010 P1,000,000 x 9% x 4/12
Total
P90,000
30,000
P120,000
On NR from Officer
P4,000,000 x 9%
P360,000
On NR from Sale of Patents

P797,190 x 12% x 3/12
On NR from Sale of Land
P2,240,000 x 4/12
Total interest income
(d)
P 23,916
P746,667
P1,250,583
Gain on Sale of land (P20,000,000 P15,000,000)
P 5,000,000
Gain on Sale of Patents

Selling Price
P1,000,000 x .79719
Carrying value of the patents on 10/01/12
Carrying value 1/01/12
Amortization up to 10/01/12
160,000 x 9/12
Gain on sale of patents
Date
Periodic Payment
09/01/12
09/01/13
09/01/14
P797,190
P800,000
(90,000)
Note Receivable from Sale of Land

Payment Applied to
Interest
Principal
P5,003,252
5,003,252
P 2,240,000
1,797,880
710,000
P 87,190
Balance of Principal, end
P 2,763,252
3,205,372
Problem (Goliath Company)

Notes Receivable from Company B
Initial amortized cost = 3,000,000 x .7513 =
P2,253,900
Face
Less: Discount on Notes Receivable
Initial discount P3,000,000 P2,253,900 =
Interest earned P2,253,900 x 10% x 8/12
Carrying value, 12/31/12
P3,000,000
P746,100
= 150,260
Notes Receivable from Company C

Face
Interest Receivable 1,000,000 x 10% x 3/12
Carrying value of the note
595,840
P2,404,160
P1,000,000
25,000
P1,025,000
43
P 14,000,000
11,236,748
8,031,376
Chapter 4
(a)
Audit Adjustments:
Interest Receivable
Interest Income
200,000
200,000
Impairment Loss ( Bad Debts)

Restructured Notes Receivable
Interest Receivable
Notes Receivable Company A
456,555
1,743,445
200,000
2,000,000
Gain on Sale of Land (400,000 -346,100)

Loss on Sale of Land
400,000
346,100
746,100

Interest Income
2,253,900 x 10% x 8/12
150,260
Interest Receivable
Interest Income
(b)
150,260
25,000
25,000
Carrying value of notes:

Current Assets:
Note Receivable from Company A
P550,000 (P1,743,445 x 10%)
Note Receivable from Company C, including
Accrued interest of P25,000
Total
P119,345
325,000
P444,345
Non-current Assets:
Note Receivable from Company A (P1,743,445 P119,345)
Note Receivable from Company B
Total Non-current Receivables
(d) Impairment Loss
Notes Receivable from Company A
Face
Interest Receivable (still unrecorded) P2,000,000 x 10%
Carrying value of note
PV of future cash flows
P550,000 x 3.1699
Impairment loss
P1,624,100
2,404,160
P4,028,260
P2,000,000
200,000
P2,200,000
1,743,445
P 456,555
Interest Income:
From Company A
From Company B
From Company C
Total
P200,000
150,260
25,000
P375,260
MULTIPLE CHOICE - PROBLEMS
1.
2.
3.
4.
C
B
B
A
5.
6.
7.
8.
C
A
C
A
9. D
10. B
11. A
12. A
13. D
14. B
15. B
16. B
44
17.
18.
19.
20.
C
A
A
D
21.
22.
23.
24.
P780,800
P13,600
B
P23,680
Chapter 4
Computations
1.
2-5
P523,000 + P224,000 + P75,000 + P27,000 = P849,000

2. Accounts Receivable
3. Inventories
Per Client
P276,500
P425,000
Adjustments :
( 8,680)
7,240
(14,200)
12,500
(10,000)
(6,100)
(14,000)
21,000
(18,200)
Per Audit
P250,620
P420,440
4. Sales
P1,320,000
(8,680)
(14,200)
(10,000)
5. Cost of Sales
P842,000
(7,240)
(12,500)
6,100
(14,000)
21,000
P1,294,120
18,200
P846,560
6.
Classification
Balance per audit
Nov-Dec 2012
P1,080,000
July October 2012
650,000
January June 2012
420,000
Prior to 1/01/12
90,000*
Total
P2,240,000
Existing allowance = 154,000 95,000 + 15,000 + 180,000 60,000
Additional uncollectible accounts expense
% Uncollectible
2%
10%
25%
70%
Required Allowance
P21,600
65,000
105,000
63,000
P254,600
194,000
P 60,600
7.
Total uncollectible accounts expense = P 180,000 + 60,600 =
P240,600
8.
Accounts receivable, net = P2,240,000 254,600 =
9.
Carrying value of the receivable

Present value of future cash inflow = 1,120,000 x 3.0373 =
Impairment loss
10.
No impairment loss shall be recognized, the loss vent is a non-adjusting vent, which prsents condition different
from that as of the end of the reporting period.
11.
No impairment loss shall be recognized on Company Ys note. The interest to be collected during the extended term
equals the original interest rate of the loan ; the prsent value of future cash inflow shall be equal to the loans carrying
value.
12.
Carrying value of the receivable

PV of future cash inflow = 120,000 + (1,100,000 X .8929)
Impairment loss
13.
The non-adjusting vent 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% =

Collections from customers
Write off (15,000 8,000)
Gross accounts receivable
P2,325,000
(1,830,000)
(
7,000)
P 488,000
15.
Past due after write off

400,000 80,000
Allowance after write off 250,000 80,000
Additional uncollectible accounts expense
P 320,000
170,000
P 150,000
16.
Current assets = P506,370 30,000 selling price of unsold goods
P1,985,400
45
P4,480,000
3,401,776
P1,078,224
P1,120,000
1,102,190
P 17,810
Chapter 4
+ 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 =
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
P1,365,000
MEEMEE, Inc.
Adjusting Entries:
1.
Miscellaneous Expenses
Receivables from Officers and Employees
Cash Petty Cash Fund
1,260
500
1,760
2.
Other Non-Current Financial Assets

Cash in Bank
Interest Income
Reclassified Security Bank SA
3.
Cash in Bank BPI SA

Interest Income
4.
Accounts Receivable 31 60 days overdue

Cash in Bank BPI SA
12,800
Accounts Receivable Dishonored Notes

Cash in Bank BPI SA
5,500
Notes Receivable Discounted

Notes Receivable
5,000
5.
6.
400,625
394
Cash in Bank BPI CA
8.
Cash in Bank BPI CA

General
Accounts Payable
394
12,800
5,500
5,000
Cash in Bank BPI CA Payroll

Accrued Payroll
5,200 + 10,400
7.
400,000
625
15,600
15,600
150
Payroll
150
45,200
45,200
46
Chapter 4
9.
10.
Accounts Payable
Cash in Bank _ BPI CA General
900
150
1,050
Accounts Receivable Current

Accounts Receivable 31- 60 days overdue
Customers Credit Balances
9,000
4,800

Accounts Receivable Current
2,000
Allowance for Bad Debts

Accounts Receivable over 90 days
5,000
Accounts Receivable Overdue Notes

Notes Receivable
Interest Income
15,250
14.
Receivable from Officers and Employees

Notes Receivable
6,800
15.
Interest Receivable
Interest Income
Creative: P10,000 x 24% x 64/360 = 427
President: P 6,800 x 25% x 19/360 = 90
Total
517
517

Bad Debts Expense
4,543
11.
12.
13.
16.
Age Class
Per Client
Current
P362,412
1-30 days past

due
31 60 days
past due
61 90 days
past due
Over 90 days
past due
Dishonored
notes
Total required allowance
Balance of allowance
Adjustment
Answers:
(a)
Petty Cash
(b)
BPI SA depository
(c)
BPI CA Payroll
(d)
BPI CA Gen Disb.
(e)
Security Bank SA
13,800
2,000
5,000
15,000
250
6,800
517
4,543
ANALYSIS OF ACCOUNTS RECEIVABLE
Adjustment
Per Audit % Uncollectible
9,000
(2,000)
4,550
369,412
Required
Allowance
1,847
207.445
1%
2,074
148,080
3%
4,442
17,500
12,800
4,800
--
17,500
10%
1,750
11,387
(5,000)
6,387
50%
3,194
--
5,500
15,250
20,750
20%
4,150
202,895
130,480
P17,457
22,000
(4,543)
P8,240
257,794
76,250
214,150
400,625
47
Chapter 4
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
Cash
Accounts Receivable (Gross)
Bad Debts Expense
Notes Receivable
Liability on Discounted Notes
Interest Receivable
Interest Income
Customer Credit Balances
556,434
769,574
17,457
19,457
18,000
8,000
517
4,586
9,700
13,800
48

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Chapter 4 - Receivables and Related Revenues

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Receivables and Related Revenues

Problem 1 (Fontana Blue)

Problem 2 (Magnolia Company)

No disposition yet (Customer D)

Sales Returns and Allowances

Problem 3 (Blooms Company)

Balance per audit

Problem 4 (Balimbing, Inc.)

Uncollectible Accounts Expense

Allowance for Doubtful Accounts

Accounts Receivable 61-90 days

Allowance for Uncollectible Accounts

Correct balance of Accounts Receivable

Correct balance of Uncollectible Accounts Expense

Problem 5 (Esau Industries, Inc.)

Balances per client

Allowance for Uncollectible Accounts, Per Client

(c) Correct balance of Uncollectible Accounts Expense:

Allowance for Uncollectible Accounts

Uncollectible Accounts Expense

Problem 6 (Smith, Inc.)

(a) Schedule of Trade Notes Receivable

Subscription Receivable Preference Share

Receivable from Officers

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

Depreciation Expense Equipment

Accumulated Depreciation Equipment

Discount on Notes Receivable

Problem 7 (Glowing Candles)

Non-current Portion of Long-Term Receivables

Current Portion of Long-term Receivables:

Interest Income from Long-term Receivables

On NR from Sale of Patents

Gain on Sale of land (P20,000,000 P15,000,000)

Gain on Sale of Patents

Note Receivable from Sale of Land

Problem (Goliath Company)

Notes Receivable from Company C

Impairment Loss ( Bad Debts)

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

Discount on Notes Receivable

Carrying value of notes:

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

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

Accounts receivable, net = P2,240,000 254,600 =

Carrying value of the receivable

Carrying value of the receivable

Sales = (1,900,000 350,000) x 150% =

Past due after write off

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

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

Accounts receivable = P1,300,000 + 50,000 + 15,000 =

Required allowance = 1,365,000 x .015 =

Uncollectible accounts expense = 20,475 + 8,000 =

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

16,200 + 16,000 20,200 =

(100,800 x 10%) + (680,000 x 2%) =

Other Non-Current Financial Assets

Cash in Bank BPI SA

Accounts Receivable 31 60 days overdue

Accounts Receivable Dishonored Notes

Notes Receivable Discounted

Cash in Bank BPI CA