Rhogio Harry A.

Muñoz

Intermediate Accounting

Problem 1

Super Bank has a P6,000,000 loan to Duper Realty, which was invested by the
latter in real estate development. Due to the economic downtrend in the real
estate business, Duper Realty is experiencing declining sales and is likely to default
on its obligation to Super Bank. Duper Realty requests for a restructuring of its
loan with Super Bank. The prevailing market rate of interest for similar obligations
at the time of restructuring is 9%. Accrued interest receivable on the loan at
December 31, 2020 is P600,000, based on a stated interest rate of 10%.

Alternatives:

A. First Alternative
 Reduction of Principal to P5,000,000.
 Condonation of accrued interest.
 Extension of the maturity date to December 31, 2022.
 Reduction of interest rate to 8%, payable annually on December
31.
B. Second Alternative
 Condonation of accrued interest.
 The principal amount of P1,200,000 plus interest on the unpaid
principal reduced to 8%, payable annually starting December 31,
2021.
C. Third Alternative
 Payment of the accrued interest on the date of restructuring
(December 31, 2020).
 Extension of the maturity date of the loan to December 31,
2022, with interest during the extended term at 7% payable on
December 31, 2021 and December 31, 2022.
D. Fourth Alternative
 Extension of the maturity date to December 31, 2022.
 Interest at 10% on the carrying value of the loan, payable
December 31, 2021 and December 31, 2022.

Requirements:

 For each alternative, compute the impairment loss to be recognized by

Super Bank on December 31, 2020? (Round off present value factors to
four decimal places).

1st Alternative

Carrying Value = 6,000,000+ 600,000 = 6,600,000

Principal Due on Dec. 31, 2020

=5,000,000 x 0.8264= 4,132,000

Interest

=5,000,000 x .08 = 400,000

400,000 x 1.7355 = 694,200

Restricted Notes Receivable

4,132,000 + 694,200= 4,826,200

Impairment Loss= 6,600,000-4,826,200= Loss 1,773,800

2nd Alternative

Carrying Value = 6,000,000+ 600,000 = 6,600,000

PV of Future Cash Flow

(1.1)-n

1,200,000 + ( 0.08 x 6,000,000)= 1,680,000 x .9091 = 1,527,288

1,200,000 + ( 0.08 x 4,800,000)= 1,584,000 x .8264 = 1,309,017.6

1,200,000 + ( 0.08 x 3,600,000)= 1,488,000 x .7513 = 1,117,934.4

1,200,000 + ( 0.08 x 2,400,000)= 1,392,000 x .6830 = 950,736

1,200,000 + ( 0.08 x 1,200,000)= 1,296,000 x .6209 = 804,686.4

Total 5,709,662.4

Impairment Loss= 6,600,000 – 5,709,662.4 = 890,337.6

3rd Alternative

 Carryying Value = 6,000,000

Principal Due on Dec. 31, 2020

=6,000,000 x 0.8264= 4,958,400

Interest Due on Dec 31,2019 and Dec. 31,2020

=6,000,000 x .07 = 420,000

420000 x 1.7355 = 728,910

Restricted Notes Receivable= 4,958,400 + 728,910 = 5,687,310

Impairment Loss= 6,000,000- 5,687,310 = Loss 312,690

4th Alternative

Carrying Value = 6,000,000 + 600,000 = 6,600,000

Principal Due on Dec. 31, 2020

=6,600,000 x 0.8264= 5,454,240

Interest Due on Dec 31,2019 and Dec. 31,2020

=6,600,000 x .1 = 660,000

660,000 x 1.7355 = 1,145,430

Restricted Notes Receivable

5,454,240 + 1,145,430 = 6,599,670

Impairment Loss= 6,600,000-6,599,670 = Loss 330

Problem 2

Uki Company had the following transactions for inventory during 2020:

Units Unit Cost Unit Selling Price

Inventory, January 1 250 P10.50
Purchase, March 20 200   11.00
Purchase, July 5 275   11.75
Sale, May 11 120 P14.00
Sale, June 15 55   15.00
Sale, October 14 250   16.00
Inventory, December
?
31

Requirements:

 Determine the cost of ending inventory, cost of goods sold, and gross
profit under FIFO method.

Date Units Unit Cost Total Cost

Beginning 250 10.50 2,625
3/20/20 200 11.00 2,200
5/11/20 (120) 10.50 (1,680)
6/15/20 (55) 10.50 (825)
7/5/20 275 11.75 3,231.25
10/14/20 (75) 10.50 (787.5)
(175) 11 (1,925)
Ending Inventory 3,506.25

Beginning (250 x 10.50) 2,625

Purchases

3/20/20 (200 x 11) 2,200

7/5/20 (275 x 11.75) 3,231.25

Total Goods Available for Sale 8,056.25

Less: Ending Inventory 3,506.25

Cost of Good Sold 4,550

Net Sales:

5/11/20(120 x 14) 1,680

6/15/20(55 x 15) 825

10/14/20(250 x 16) 4,000 6,505

Less: COGS 4,550

Gross Profit 1,955

 Determine the cost of ending inventory, cost of goods sold, and gross
profit under Weighted average method.

Total Goods Available for Sale 8,056.25

TGAS Units 725

TGAS/Unit 11.11

Ending Inventory = 11.11 x 300 = 3,333

Cost of Good Sold = 11.11 x 425 = 4,721.75

Sales:

5/11/20(120 x 14) 1,680

6/15/20(55 x 15) 825

10/14/20(250 x 16) 4,000 6,505

Less: COGS 4,721.75

Gross Profit: 1,783.25

 Determine the cost of ending inventory, cost of goods sold, and gross
profit under Moving average method.

Date Units Unit Cost Amount Balance

Beginning 250 10.50 2,625 2,625
3/20/20 200 11.00 2,200 4,825
5/11/20 (120) 10.72 (1,286.40) 3,538.60
6/15/20 (55) 10.72 (589.60) 2,949
7/5/20 275 11.75 3,231.25 6,180.25
10/14/20 (75) 10.50 (2,810) 3,370.25
Ending
3,370.25
Inventory

5/11/20 (1,286.40)

6/15/20 (589.60)

10/14/20 (2,810)

Cost of Good Sold 4,686

Net Sales:

5/11/20(120 x 14) 1,680

6/15/20(55 x 15) 825

10/14/20(250 x 16) 4,000 6,505

Less: COGS 4,686

Gross Profit 1,819