Homework Problems

Problem 1. On December 31, 2018, ABC Co.’s “Accounts Receivable’” includes the
following:

1. Accounts Receivable, net of ₱50,000 credit balance in

customer’s accounts, including ₱3,000 accounts
receivable to customers which is definitely uncollectible. ₱300,00

2. MasterCard or Visa credit sale of merchandise to

customer 100,000

3. Overpayment to supplier for inventory purchased on

account 5,000

4. Dividend Receivables 20,000

5. Trade accounts receivable- assigned 150,000

6. Other trade accounts- unassigned 80,000

7. Accounts payable, net of 10,000 debit balance in

supplier’s account 200,000

8. Special deposit on contract bids 160,000

9. Advances to or receivables from stockholders, ( 50,000 is

collectible currently) 250,000

Based on the above data, determine:

1. Trade Receivables
2. Trade and other Receivables

Problem 2. The following information is from Doreen’s first year of operation:

Merchandise Purchased 500,000

Ending Merchandise
Inventory 150,000
Collections from customers 200,000
All sales are on account and
goods sell at 30%
above cost
3. What is the ending balance of the company’s accounts receivable?

Problem 3. On January 1, 2018, Johny Co. sells inventory with a list price of
₱200,000 on account under credit terms of 10%, 20%, 3/10, n/30.

4. Under gross method, how much should be debited to Accounts Receivable on

January 1, 2018?
5. Under net method, how much should be debited to Accounts Receivable on
January 1, 2018?
Problem 4. On January 15, 2018, Sarah Co. sold on account goods with selling price
of 300,000 with terms of 2/10, n/30. Freight costs amounted to 5,000. The goods
were received by the buyer on January 18, 2018. Sarah Co. collected the receivable on
January 25, 2018.

6. How much net cash did Sarah Co. receive from the buyer if the terms are FOB,
destination, freight prepaid?
7. How much net cash did Sarah Co. receive from the buyer if the terms are FOB
destination, freight collect?
8. How much net cash did Sarah Co. receive from the buyer if the terms are FOB
shipping point, freight prepaid?
9. How much net cash did Sarah Co. receive from the buyer if the terms are FOB
shipping point, freight collect?

Problem 5. Clara Co. operates in an industry that has a high rate of bad debts. On
December 31,2018, its unadjusted trial balance includes:

Debit Credit
Accounts Receivable 600,000
Allowance for Doubtful
Accounts 25,000
2,500,00
Sales 0
Sales Returns and
Allowances 150,000

The following analysis pertains to the accounts receivable reported in the trial balance:

Time Balance of Probability of

Outstanding A/R Collection
Under 15 days 300,000 98%
16-30 days 200,000 90%
31-45 days 50,000 80%
46-60 days 30,000 70%
61-75 days 10,000 65%
Over 75 days 10,000 0%

10. What is the appropriate balance for Allowance for Doubtful Accounts on
December 31, 2018 if Clara Co. estimates its bad debt expense based on aging?
11. Assuming the same method of estimating bad debts in number 10, compute for
the net realizable value of the Accounts Receivable
12. Clara Co. estimates its bad debt expense to be 3% of accounts receivable.
Compute for the allowance for doubtful accounts end of the year.
13. Assuming the same method of estimating bad debts in number 12, determine
its bad debt expense for the year.
14. Assuming the same method of estimating bad debts in number 12, compute for
the net realizable value of the Accounts Receivable
Problem 6. ABC Co. sells a variety of goods. By selling on credit, ABC cannot expect to
collect 100% of its accounts receivable. On December 31, 2017, ABC reported the
following in its statement of financial position:

Accounts Receivable 3,000,000

Less: Allowance for Doubtful Accounts 250,000
Accounts Receivable, net 2,750,000

During the year ended December 31, 2018, ABC Co. earned Sales Revenue of
50,000,000 and collected cash of 39,500,000. Assume that bad debt expense for the
year is 5% of sales revenue and that ABC wrote off uncollectible accounts receivable
totaling 1,250,000.

15. What is the A/R balance at December 31, 2018?

16. What is the December 31, 2018 balance of the Allowance for Doubtful
Accounts?

Problem 7. On January 1, 2018, Do Reen sold a machine with a carrying value of

₱300,000. The company receives a 12% bearing note due in 3 years with a face
amount of ₱350,000 as payment. The note requires interest to be paid annually on
December 31.
Compute for the following as of December 31,2018:

17. Gain or loss on sale of machinery

18. Interest Income
19. Noncurrent portion of the Notes Receivable

Problem 8. On January 1, 2018, ABC Co. sold its equipment with a carrying value of
₱150,000. The company receives a 10 % note due in 3 years with a face amount of
₱200,000 as payment. The note requires interest to be paid annually on December 31.

The prevailing interest rate for this type of note is 13%. The following are the present
value factors of 1 at 13%:
Present Value of 1 for 3 periods 0.69305
Present Value of an ordinary annuity of 1 for 3 periods 2.36115
20. What is the gain or loss to be recognized on the sale of the equipment?
21. What is the discount on note receivable on January 30, 2018?
22. What is the discount amortization at the end of the 3rd year (using the effective
interest method)?
Problem 9. During your audit of Sa Rah Co. for the year ended December 31, 2018,
you found the following account.

Notes Receivable
Date Debit Credit
Sept. 1 Do, 20%, due in 3 months 80,000
Oct. 1 Re, 24%, due in 2 months 300,000
1 Discounted Do at 25% 80,000
Nov. 1 Mi, 24%, due in 13 months 600,000
30 Fa, no interest due in 1 year 500,000
30 Discounted Fa at 18% 500,000
Dec. 1 La, 18%, due in 5 months 900,000
Sol, President, 12% due in 3
1 months (for cash loan given to Fa) 1,200,000

All notes are trade notes. The Do note was paid on December 1 as per notification
received from the bank. The Re note was dishonored on the due date but the legal
department has assured management of its full collectability.
Sa Rah Co. will treat the discounting as a conditional sale of note receivable.
23. At what amount on the current assets section of the Dec. 31, 2018 SFP will the
Notes receivable- trade will be carried?
24. What amount of loss on notes receivable discounting should be reported in the
2012 income statement of Sa Rah Co.?
25. What amount of interest income should be accrued on Dec 31, 2018 based on
the ledger account presented?

Problem 10. Jon Bank loaned ₱5,500,000 to Sa Rah Co. on January 1, 2018. The
initial loan repayment terms include a 10% interest rate plus annual principal
payments of ₱1,100,000 on January 1 each year. Sa Rah made the required interest
payments in 2018 but did not make the ₱1,100,000 principal payment nor the
₱550,000 interest payment for 2019. Jon Bank is preparing its annual financial
statements on December 31, 2019. Sa Rah is having financial difficulty, and Jon has
concluded that the loan is impaired.
Analysis of Sa Rah’s financial condition on December 31, 2019 indicates that the
principal payments will be collected, but the collection of interest is unlikely. Jon did
not accrue the interest on December 31, 2019.
The projected cash flows are:

12/31/2020 1,750,000
12/31/2021 2,000,000
12/31/2022 1,750,000
5,500,000

26. What is the loan impairment loss on December 31, 2019?

27. What is the interest income to be reported by Jon Bank on December 31, 2020?
28. What is the carrying amount of the loan receivable on December 31, 2021?
29. What is the interest income in 2021?
30. What is the interest income in 2022?