Exercise 10 – 1

Tamar Enterprises was experiencing every year uncollectible accounts of 5% of Accounts Receivable.
The credit sales for 2021 amounted to P10, 000,000 and the balances of accounts receivable and
allowance for bad debts as of December 31, 2021 are P5, 000,000 and P200, 000 respectively.

Instruction: Prepare journal entry to record bad debts.

1. Percentage of Receivable

Bad debts expense 50,000

Allowance for bad debts 50,000

Required (5,000,000 x 5%) 250,000

Per books (200,000)
Adjustments 50,000
======

Bad debts expense for the period = P50,000

Allowance for bad debts as of December 31 = P250, 000 (200,000 + 50,000)

Accounts Receivable 5,000,000

Less: Allowance for bad debts 250,000
NRV 4,750,000

2. Percentage of Sales, 1%

Bad debts expense 100,000

Allowance for bad debts 100,000

Required (10,000,000 x 1%) 100,000

======

Bad debts expense for the period = P100,000

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Allowance for bad debts as of December 31 = P300,000 (200,000 + 100,000)

Accounts Receivable 5,000,000

Less: Allowance for bad debts 300,000
NRV 4,700,000

Exercise 10 – 2

Instruction: Based on the data given:

1. Compute the interest of the following notes upon maturity:
2. Compute for the maturity value.
3. Determine the maturity date.

PRINCIPAL INTEREST RATE TERM OF THE DATE OF THE

NOTE NOTE
1. 1,500,000 15% 120 days August 12, 2021
2. 2,520,000 10% 6 months February 20, 2021
3. 2,950,000 8% 1 year September 28, 2021
4. 3,000,000 12% 180 days April 15, 2021
5. 750,000 16% 90 days October 24, 2021

PRINCIPAL INTEREST MATURITY MATURITY DATE

VALUE
1. 1,500,000 75,000 1,575,000 Dec 10, 2021
2. 2,520,000 126,000 2,646,000 Aug 20, 2021
3. 2,950,000 236,000 3,186,000 Sept 28, 2022
4. 3,000,000 180,000 3,180,000 Oct 12, 2021
5. 750,000 30,000 780,000 Jan 22, 2022

Term of the note 120 180 90

Aug 31-12 -19 April 15 (30-15) 15 Oct. 24 (31-24) 7
Sept -30 May 31 Nov. 30
Oct -31 June 30 Dec. 31
Nov -30 July 31 Jan 22
Dec 10 Aug 31
=== Sept 30
Oct. 12

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Exercise 10 – 3

Trex Company issued a P2,000,000, 120 – day, 15% note on September 28, 2021 to Tracy
Enterprises for cash.

Required: Prepare journal entries to record:

a. Issuance of the note by the maker
b. Receipt of the note by the payee
c. Payment of the note by the maker at maturity date
d. Receipt of payment of the note by the payee at maturity date.

MAKER PAYEE

a. Cash 2,000,000 b. Notes Receivable 2,000,000

Notes Payable 2,000,000 Cash 2,000,000

c. Notes Payable 2,000,000 d. Cash 2,100,000

Interest Expense 100,000 Notes Receivable 2,000,000
Cash 2,100,000 Interest Income 100,000

Interest = P2M x 15% x 120/360

P100,000

Exercise 10 – 4
3
 Jessa Marketing received a note from Shannie on February 20, 2021 with the following
description:

Face Amount 3,000,000

Term of the note 120 days
Date of the note 02-20-2021
Interest rate 15%
Date of discounting at the bank 4-15-2021
Rate of discount charged by the bank 15%

Required:
1. Determine the maturity date - June. 20, 2021

Term of the note: 120 days

Date: Feb. 20 (28-20) 8
March 31
April 30
May 31
June 20

2. Compute for the maturity value – 3,150,000

Interest = P3,000,000 x 15% x 120/360 = P150,000

Maturity Value = P3,000,000 + P150,000

P3,150,000

3. Determine the discount period – 66 days

From April 15, 2021 – June 20

April (30-15) 15 days

May 31
June 20 20

66

4. Compute for the discount – P86,625

Discount = P3,150,000 x 15% x 66/360 = P86,625

5. Compute for the proceeds received by the company – 3,063,375

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 Maturity Value P3,150,000
Less: Discount 86,625
Proceeds P3,063,375

6. Give the journal entry to record the receipt of the proceeds at the date of discounting

Cash 3,063,375
Loss on Notes Discounting 4,125
Notes Receivable 3,000,000
Interest Income (3,000,000 x 15% x 54/360) 67,500

Exercise 10 – 5
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 On June 15, 2021 Amy received a P4,500,000, 10% 180-day note from Vicente dated June 15,
2021. The note was discounted at the rate of 15% on October 31, 2021 at the bank.

Prepare journal entries:

1. In the books of the maker
a. Upon issuance of the note
b. Discounting of the note
c. Payment
2. In the books of the payee
a. Receipt of the note
b. Discounting
c. Collection

MAKER PAYEE

1a) Cash 4,500,000 2a) Notes Receivable 4,500,000

Notes Payable 4,500,000 Cash 4,500,000

b) no entry b) Cash 4,642,312.50

Loss on notes discounting 30,187.50
Notes Receivable 4,500,000
Interest Income 172,500

MV = (4.5M x10%x180/360) + P4.5M = P4,725,000

Maturity date = June 15 = (30-15) 15+31+31+30+31+30+12 = December 12, 2021

Earned period = June 15 – Oct 31 = 15+31+31+30+31 = 138 days

Discount period = 180 – 138 = 42

Discount = P4,725,000 x 15% x 42/360 = P82,687.50

Proceeds = P4,725,000 – 82,687.50 = P4,642,312.50

Carrying Amount = (P4.5M x10%x138/360) + P4.5M = P4,672,500

Loss on discounting = P P4,672,500 - P4,642,312.50 = P30,187.50

c) Notes Payable 4,500,000 d. no entry

Interest Expense 225,000
Cash 4,725,000