Chapter 4

Problem 14
A

Problem 15
1. C
2. D
Problem 16
1. A
2. D
3. B
Problem 17
1. B
2. C
3. C
Problem 18
1. A
2. B
 CHAPTER 5
Problem 1

a. Past experience indicates that 75% of all sales are credit sales and that an average
2% of credit sales may prove uncollectible.
Credit sales (5,000,000 x 75%) 3,750,000
Doubtful accounts (3,750,000 x 2%) 75,000
Doubtful accounts expense 75,000
Allowance for doubtful accounts. 75,000

b. One percent of gross sales may prove uncollectible.

Doubtful accounts (5,000,000 x 1%) 50,000
Doubtful accounts expense. 50,000
Allowance for doubtful accounts 50,000

c An analysis of the aging of trade receivables indicates that accounts receivable in the
amount of P80, 000 may prove uncollectible.
Required allowance 80,000
Less: Credit balance of allowance. 20,000
Doubtful accounts expense 60,000
Doubtful accounts expense. 60,000
Allowance for doubtful accounts 60,000

d. The policy is to maintain an allowance for doubtful accounts equal to 10% of the
outstanding accounts receivable.
Required allowance (500,000 x 10%) 50,000
Less: Credit balance of allowance. 20,000
Doubtful accounts 30,000
Doubtful accounts expense. 30,000
Allowance for doubtful accounts 30,000
Problem 2

Required:

a. Prepare journal entries pertaining to accounts receivable.

1. Sales on account, 2/30,

Accounts receivable. 7,000,000
Sales. 7,000,000

2. Collections from customers within the discount period.

Cash. 2,450,000
Sales discount. 50,000
Accounts receivable 2,500,000

3. Collections from customers beyond the discount period

Cash. 3,900,000
Accounts receivable 3,900,000

4. Accounts receivable written off as worthless

Allowance for doubtful accounts 30,000
Accounts receivable 30,000

5. Recovery of accounts previously written off not included in the above collections.
Accounts receivable 10,000
Allowance for doubtful accounts 10,000
Cash 10,000
Accounts receivable 10, 000
6. Credit memo for sales return
Sales returns 70,0000
Accounts receivable. 70,0000

b. Prepare the adjustment for doubtful accounts at year-end if the entity uses the
percentage of accounts receivable method consistently.

Doubtful accounts 40, 000

Allowance for doubtful accounts 40,000

Rate = 40,000/1,000,000 = 4%
Allowance for doubtful accounts (1,500,000 X 4%. ) 60,000
Less: Allowance before adjustment 20,000
Doubtful accounts expense. 40,000

C. What is the net realizable value of accounts receivable at year-end?

Accounts receivable 1,500,000

Allowance for doubtful accounts. 60,000
Net realizable value 1,440,000

Problem 4

a. Prepare journal entries to record the transactions.

1. Accounts receivable 2,600,000
Sales (3,070,000 – 470,000) 2,600,000
2. Cash (2,455,000 – 1,455,000) 1,000,000
Accounts receivable 1,000,000
3. Cash 1,455,000
 Sales Discount 45,000
Accounts receivable 1,500,000
4. Allowance for doubtful accounts 20,000
Accounts receivable 20,000
5. Cash 470,000
Sales 470,000
6. Sales return and allowance 55,000
Accounts receivable 55,000
7. Sales return and allowance 10,000
Cash 10,000
8. Accounts receivable 5,000
Allowance for doubtful accounts 5,000
Cash 5,000
Accounts receivable 5,000

b. Prepare the adjustment for doubtful accounts if the entity provides for doubtful
accounts equal to 2% of net credit sales.
Credit sales 2,600,000
Sales discount (45,000)
Sales return and allowances (55,000)
Net credit sales 2,500,000
Doubtful accounts (2,500,000 x 2%)
Doubtful accounts expense 50,000
Allowance for doubtful accounts 50,000

c. Determine the net realizable value of accounts receivable at year-end.

Accounts receivable 625,000
Allowance for doubtful accounts (60,000)
Net realizable value 565,000

Problem 5
a. Prepare journal entries to record the transactions.
Accounts receivable 7,935,000
Sales 7,935,000

Cash 4,410,000
Sales Discount 90,000
Accounts receivable 4,500,000

Cash 2,475,000
Sales Discount 25,000
Accounts receivable 2,500,000

Accounts receivable 15,000

Allowance for doubtful accounts 15,000
Cash 15,000
Accounts receivable 15,000

Cash 1,100,000
Accounts receivable 1,100,000

Allowance for doubtful accounts 55,000

Accounts receivable 55,000

Sales return 30,000

Accounts receivable 30,000

b. Prepare the adjustment for doubtful accounts if the entity follows the percentage of
accounts receivable consistently.
Doubtful accounts expense 30,000
Allowance for doubtful accounts 30,000

Rate (60,000/1,500,000) 4%
Required allowance (4% x 1,250,000) 50,000
AlloWance before adjustment (60,000 + 15,000 – 55,000) 20,000
Doubtful accounts 30,000

c. Determine the net realizable value of accounts receivable at year-end.

Accounts receivable 1,250,000
Allowance for doubtful accounts (50,000)
Net realizable value 1,200,000

Problem 6
a. What is the required allowance for doubtful accounts at year-end?
Amount Percent uncollectible Required Allowance
Not yet due 1,700,000
1-30 days past due 1,200,000 5% 60,000
31-60 days past due 100,000 25% 25,000
61-90 days past due 150,000 50% 75,000
Over 90 days past due 120,000 100% 120,000
3,270,000 280,000

b. How much would be the doubtful accounts expense for the current year?
Required Allowance 280,000
Allowance for Doubtful Accounts (170,000)
Doubtful accounts 110,000
c. What is the adjusting entry for the doubtful accounts expense for the current year?
Doubtful accounts expense 110,000
Allowance for doubtful accounts 110,000

d. What is the net realizable value of accounts receivable at year-end?

Accounts receivable, end 3,270,000
Allowance for doubtful accounts, end (280,000)
Net realizable value 2,990,000
 CHAPTER 6

Problem 1
2021
Jan. 1 Cash 1,000,000
Notes receivable 6,000,000
Land 5,000,000
Gain on sale of land 2,000,000

Dec. 31 Accrued interest receivable 720,000

Interest income (6,000,000 x 12%) 720,000

2022
Dec. 31 Accrued interest receivable 806,400
Interest income (6,720,000 x 12%) 806,400

2023
Jan. 1 Cash 7,526,400
Notes receivable 6,000,000
Accrued interest receivable 1,526,400
Problem 2
Face amount of note 600,000
Present value – cash sale price (540,000)
Unearned interest income 60,000
Cost of sale price 540,000
Cost of computer -400,000
Gross income 140,000
2021
Note receivable 600,000
Sales 540,000
Unearned interest income 60,000
Cash 200,000
Note receivable 200,000

Unearned interest income 30,000

Interest income 30,000

Note receivable Fraction

Interest income
2021 600,000 6/12 30,000
2022 400,000 4/12 20,000
2021 200,000 2/12 10,000
1,200,000 60,000

PROBLEM 3
2021
Jan. Cash 100,000
Note receivable 900,000
Electrical generator 700,000
Gain on sale of generator 120,540
Unearned interest income 179,460
To record the sale of electrical generator.

Dec. Cash 300,000

Note receivable 300,000
To record the first installment collection.

Unearned interest income 86,465

Interest income 86,465
To record the interest income for 2021
Problem 4
Face amount of note 2,500,000
Sale price (500,000 x 3.99) 1,995,000
Unearned interest income 505,000
1.
2021
Note receivable 2,500,000
Sales 1,955,000
Unearned interest income 505,000
To record the sale of equipment.
2022
Cash 500,000
Note receivable 500,000
To record the first installment collection.

Unearned interest income 159,600

Interest income (1,995,000 x 8%) 159,600
To record the interest income for 2022

2. Note receivable (2,500,000 – 500,000) 2,000,000

Unearned interest income (505,000 – 159,600) (345,400)
Carrying amount – 12/31/2022 1,654,600

3. Interest income for 2023 (1,654,600 x 8%) 132,368

Problem 5
2021
Jan. Cash 125,000
Note receivable 400,000
Accu. Depreciation 150,000
Equipment 500,000
Gain on sale of equipment 59,720
Unearned interest income 115,280
To record the sale of equipment.

Dec. Unearned interest income 34,166

Interest income 34,166
To record the interest income for 2021.
2022
Unearned interest income 38,266
Interest income 38,266
To record the interest income for 2022.
2023
Unearned interest income 42,848
Interest income 42,848
To record the interest income for 2023.
2024
Cash 400,000
Note receivable 400,000
To record the collection of notes receivable

Problem 7
1. Accrued interest receivable 5/12(100,000 x 12%) 5,000 (b
Problem 8
1. Note receivable (1,500,000 – 500,000) 1,000,000 (b)
2. d. 0
Problem 9
1. b. 1,747,200
Problem 10
1. Face amount (500,900 x 5) 2,504,500
Present value of note 1,948,500
Unearned interest income 556,000 (b)

2. Interest income for 2021 (1,948,500 x 9%) 175,365 (a)

Problem 19
1. A
2. D
3. D
4. B
5. B
6. B
7. D
8. D
9. D
10. D
 CHAPTER 7

Problem 1
2021
Jan.1
Loan receivable 4,000,000
Cash 4,000,000

Cash 342,100
Unearned interest income 342,100

Unearned interest income 150,000

Interest income 150,000

Dec.31
Cash 400,000
Interest income 400,000

Unearned interest income 56,948

Interest income 56,948
2022
Dec. 31
Cash 400,000
Interest income 400,000

Unearned interest income 63,782

Interest income 63,782
2023
Dec 31
Cash 400,000
Interest income 400,000
 Unearned interest income 71,370
Interest income 71,370
31
Cash 4,000,000
Loan receivable 4,000,000

Problem 2
Requirement 1
Compute the carrying amount of the loan receivable on January 01, 2021
Origination fee received 350,000
Direct origination cost ( 61,500)
Unearned interest income 288,500

Note receivable 4,000,000

Unearned interest income (288,500)
Carrying amount – 1/1/2021 3,711,500

Requirement 2
Prepare a table of amortization for the loan receivable.

Date 10% Interest 12% Interest Amortization Carrying

Received Income Amount

01/01/2021 3,711,500

12/31/2021 400,000 445,380 45,380 3.756,880

12/31/2022 400,000 450,826 50,826 3,807,706

12/31/2023 400,000 456,925 56,925 3,864,361

12/31/2024 400,000 463,756 63,756 3,928,287

12/31/2025 400,000 471,613 71,613 4,00,000

Requirement 3
Prepare the journal entries for 2021 and 2022

2021 Jan. 1 Loan Receivable 4,000,000

Cash 4,000,000

Cash 350,000
Unearned Interest Income 350,000

Unearned Interest Income 61,500

Cash 61,500

Dec. 31 Cash 400,000

Interest Income 400,000

Unearned Interest Income 45,380

Interest Income 45,380

2022 Dec. 31 Cash 400,000

Interest Income 400,000

Unearned Interest Income 50,826

Interest Income 50,826
Problem 3
Requirement 1
2021
1-Jan Loan receivable 3,000,000
Cash 3,000,000
1-Jan Direct Origination Cost 260,300
Cash 260,300
Cash 100,000
Direct Origination Cos 100,000

31-Dec Cash 240,000

Interest income 240,000
Interest income 50,382
Direct Origination Cost 50,382

2022
31-Dec Cash 240,000
Interest income 240,000
Interest income 53,405
Direct Origination Cost 53,405

2023
31-Dec Cash 240,000
Interest income 240,000
Interest income 56,513
Direct Origination Cost 56,513
Cash 3,000,000
Loan receivable 3,000,000
Requirement 2
Non-current asset:
Loan Receivable 3,000,000
Direct Origination Cost 109,918
Carrying Amount 3,109,918

Problem 4
Requirement 1
Principal amount 5,000,000
Direct origination cost incurred 457,500
Origination fee charged against the borrower -200,000
Carrying amount - Jan. 1, 2020 5,257,500

Requirement 2
10% 8%
Date Interest received Interest income Amortization Carrying amount
1-Jan-21 5,257,500
31-Dec-21 500,000 420,600 79,400 5,178,100
31-Dec-22 500,000 414,248 85,752 5,092,348
31-Dec-23 500,000 407,652 92,348 5,000,000
Loan receivable 5,000,000
Cash 5,000,000

Direct origination cost 457,500

Cash 457,500

Cash 200,000
Direct origination cost 200,000

Cash 500,000
Interest income 500,000

Interest income 79,400

Direct origination cost 79,400

Cash 500,000
Interest income 500,000

Interest income 85,752

Direct origination cost 85,752

Cash 500,000
Interest income 500,000

Interest income 92,348

Direct origination cost 92,348

Cash 5,000,000
Loan receivable 5,000,00
Problem 5
Requirement 1
31-Dec-22 (1,000,000 *.93) 930,000
31-Dec-23 (2,000,000*.86) 1,720,000
31-Dec-24 (3,000,000*.79) 2,370,000
Total percent value of loan 5,020,000

Loan receivable 6,000,000

Accrued interest (6,000,000*8%) 480,000
Total carrying amount 6,480,000
Percent value of loan 5,020,000
Impairment loss 1,460,000

2021
Impairment loss 1,460,000
Accrued interest receivable 480,000
Allowance for loan impairment 980,000
2022
Cash 1,000,000
Loan receivable 1,000,000

Allowance for loan impairment 401,600

Interest income (8% x 5,020,000) 401,600

2023
Cash 2,000,000
Loan receivable 2,000,000

Allowance for loan impairment 353,728

Interest income 353,728
 CHAPTER 8

PROBLEM 1:
March 1 Cash 2,000,000
Notes Payable bank 2,000,000

April 1 Cash 980,000

Sales Discount 20,000
Accounts Receivable 1,000,000

June 1 Cash 2,000,000

Accounts Receivable 2,000,000

Sept. 1 Notes Payable – bank 2,000,000

Interest Expense (12% x 2M x 6/12) 120,000
Cash 2,120,000

PROBLEM 2:
Requirement 1
10/1 Cash 3,600,000
Discount on note payable (10%x4M) 400,000
Notes Payable – bank 4,000,000
10/1 Interest Expense (400,000x3/12) 100,000
Discount on note payable 100,000
10/1 Notes Payable – bank 4,000,000
Cash 4,000,000
12/31 Interest Expense 300,000
Discount on note payable 300,000

Requirement 2
Current Liabilities
Notes Payable – bank (Note 3) 4,000,000
Discount on note payable (300,000)
Carrying amount 3,700,000

PROBLEM 3
May 1 Accounts receivable – assigned 800,000
Accounts receivable 800,000
May 1 Cash (640,000 – 20,000) 620,000
Service Charge 20,000
Notes Payable – bank 640,000

May 5 Sales Return 30,000

Accounts receivable – assigned 30,000

May 10 Cash 490,000

Sales discount (2%x500,000) 10,000
Accounts receivable – assigned 500,000

June 1 Notes Payable – bank 490,000

Interest Expense (2%x640,000) 12,800
Cash 502,800

June 7 Allowance for doubtful accounts 10,000

Accounts receivable – assigned 10,000

June 20 Cash 200,000

Accounts receivable – assigned 200,000
July 1 Notes Payable – bank (640k-490k) 150,000
Interest Expense (2%x150,000) 3,000
Cash 153,000

July 1 Accounts receivable 60,000

Accounts receivable – assigned 60,000