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REPORTING
1. On May 1, 2019, Kelly Company sold to Bryer Company merchandise having a list
price of P12,000,000 on account. Kelly Company allowed trade discounts of 20%,
10% and 10%. Terms were 8/10; n/30, FOB shipping point. Kelly Company engages
On-Time Company to deliver the goods.
On May 3, 2019, Bryer Company notified Kelly Company that merchandise with a
selling price of P800,000 contained flaws that rendered it worthless.
Subsequently, Kelly Company issued a credit memo covering the worthless
merchandise.
On May 11, 2019, Kelly Company received a check for the balance due from Byer
Company
B. Assuming that the receivables were collected on May 12, 2019. Prepare the
journal entries under the following methods of recording the sale.
a. Gross Method b. Net Method
2. On December 31, 2019 the accounts receivable control account of Belle Company
had a balance of P6,150,000. An analysis of the accounts receivable account
showed the following:
3. Willow Company sells products for P650,000 during the amount of February
2019. During 2019 receivables collected totalled P320,000. P8,000 were
written – off as uncollectible and a P1,000 account previously written off
was collected.
Prepare the journal entries necessary to record the preceding information
if:
a. Bad debts are estimated at b. Bad debts are recorded as
3% of sales at the time of sale they actually occur
5. On December 31, 2019, before any adjustments, the balances in Mack Company’s
Accounts Receivable account has a debit balance of P1,300,000 and allowance
for bad debts had a credit balance of P50,000.
The year end balance reported in the balance sheet for the Allowance for bad
debts will be based on the aging of schedule shown below:
Days Outstanding Amount % of Collectability
1-30 days past due P850,000 .98
31-60 days past due 260,000 .95
61-90 days past due 100,000 .90
91-120 days past due 50,000 .80
Over 120 days past due 40,000 .50
Total receivables written-off during the year totalled P30,000; while total
recoveries of previously written-off accounts during the year totalled P9,000.
a. The adjusted Allowance for bad debts on December 31, 2019
b. The amount to be reported as bad debts expense for 2019
Actual credit sales and uncollectible accounts for the previous years:
Year Net Credit Sales Uncollectible Accounts
2016 P1,100,000 32,000
2017 1,200,000 40,000
2018 1,350,000 55,750
Determine the bad debt expense for 2019 and the related allowance at December
31, 2019 under
8. On October 1, 2019, Marvel Company sold land costing P3,000,000 and received
in exchange a note with face amount of P4,250,000 and a maturity date of
October 1, 2024. It bears an interest rate of 8% which approximates the current
interest rates in the market. Marvel Company uses the calendar year for
reporting purposes
a. Selling price of the land
b. Note receivable amount reported in the current section of the 2019
statement of financial position
c. Interest income to be reported in 2020
10. Captain America sold an equipment on January 2, 2019. The agreed price was
P3,000,000. A P1,000,000 down payment was received, and Captain America Company
accepted a mortgage note for the balance. The note shall carry a 10% rate of
interest (computed on the unpaid balance) for 5-year period. Equal payments
are to be made at the end of each year beginning December 31, 2019. Captain
America Company’s accounting period ends on December 31.
a. Annual collection
b. Interest income 2016 and 2017
c. Notes receivable reported in the current section of the December 31, 2017
statement of financial position.
12. On January 1, 2016, Iron Man Company sold a parcel of land which it has
acquired previously for P300,000 and received in exchange a non-interest
bearing note whose face value amounted to P900,000. The note shall be collected
every December 31, as follows P200,000 in 2016; P300,000 in 2017; and P400,000
in 2018. The effective interest rate for a similar note was 6%. Iron Man
Company uses calendar the calendar year for reporting purposes.
a. Gain or loss on the sale of land
b. Notes receivable reported in the non-current portion in the December 31,
2016 statement of financial position
c. Interest income for 2018
13. On January 1, 2016, Flash Company sold used equipment to Barry Company and
received a non-interest bearing note requiring payment of P40,000 annually
for 8 years. The first payment is due on December 31, 2016 and the prevailing
rate of interest for this type of note at date of issuance was 8%. The
equipment’s carrying amount on January 1, 2016 was P185,000. Flash uses
calendar the calendar year for reporting purposes.
a. The gain or loss on the sale of the equipment is
b. The amount credited to notes receivable account to record the collection
on December 31, 2016
c. Interest income for 2018
14. On January 1, 2016, Thor Company sold Asgard Company goods costing P110,000
and received a note having a face amount of P250,000. The note requires Asgard
Company, the buyer to pay five equal annual instalment starting January 1,
2016. No interest rate was stipulated in the note. A note of a similar
characteristic would bear a market rate of 8%. Collection of the note is
reasonably assured. Thor Company uses calendar the calendar year for reporting
purposes.
a. Initial recording to notes receivable on January 1, 2016
b. Interest income for 2017
15. On January 1, 2016, Aqua Man Company sold goods costing P275,000 to Atlantis
Company. As payment, Atlantis Company gave Aqua Man Company a P700,000 face
value note. The note bears an interest rate of 4% and shall be repaid in 4
annual instalments of P175,000, plus interest based on the outstanding
balance. The first payment is due on December 31, 2016. The market price of
the land is not reliably determinable. Prevailing interest rate for a note of
this type is 12%
a. Amount recorded as sales
b. Interest income for 2017