Problem 6

The Mexican Corp grants its customers 30 days credit. The company uses the allowance method
for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by
multiplying 2% by the amount of credit sales for the month. At the fiscal year-end of December
31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible
accounts is adjusted accordingly.

At the end of 2014 before any adjustments, the general ledger accounts showed balances of
accounts receivable at P1,230,000 and the allowance for bad debt at P106,000. Accounts
receivable activity for 2014 included the following:
Credit sales P 12,800,000
Write offs 82,000

The company’s controller prepared the following aging summary of year-end accounts
receivable:

Percent
Age Group Amount collectible
0-60 days 825,000 98%
61-90 days 220,000 90%
91-120 days 50,000 70%
over 120 days 128,000 60%
Total 1,223,000

It was ascertained that P40,000 from the over 120 days accounts are absolutely worthless.

1. How much is the unreconciled difference between the general ledger and the subsidiary
ledger balance of accounts receivable and how should it be accounted for:
a. 7,000; GL prevailing over SL, with the difference being charged against sales
b. 10,000; GL prevailing over SL, with the difference being charged to bad debt
expense
c. 7,000; SL prevailing over GL, with the difference being charged against sales
d. 10,000; SL prevailing over GL, with the difference being charged to bad debt
expense
2. How much is the total bad debt expense for 2014?
a. 304,700
b. 278,700
c. 280,700
d. 294,700
3. How much is the net realizable value of accounts receivable at December 31, 2014?
a. 1,123,000
b. 1,118,300
c. 1,094,300
d. 1,223,000

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Problem 7
You were assigned to audit Natasha Inc’s accounts receivable which had an unadjusted balance
per books of P755,142, net of allowance for bad debts amounting to P32,858. Your inquiries and
investigations revealed the following information:
A. The only entries in the Bad Debt expense account were:
 A credit of P1,296 on December 1, 2014, because a customer remitted in full, an
account charged off on October 31, 2014.
 A debit on December 31, for the amount of the credit to Allowance for Bad Debt
on the same date.
B. The allowance for Bad debt accounts had the following details:
Jan. 1, balance P 15,250
June 30, write off of accounts (1,296)
Aug 31, write off of accounts (3,280)
Oct 31, write off of accounts (2,256)
Dec 31, Bad debt expense (3%*788,000) 23,640
Dec 31, balance 32,858

Records revealed that the December 31, 2014 bad debt expense was debited to the bad debt
expense account and credited to allowance for bad debt for the amount shown above, while the
write offs credited to accounts receivable amounted only to P6,032. Further investigation
revealed that the correct amounts to be written off were shown in the analysis above.

C. An aging schedule of the accounts receivable as of December 31, 2014, and the decisions
are as shown in the table below:

Amount to which the allowance is to be adjusted

Age Net Debit Bal after the adjustments and corrections have been
made

0-1 month 372,960 1%

1-3 months 307,280 2%

3-6 months 88,720 3%

Definitely uncollectible, P4,000; P8,000 is
consiered to be 50% uncollectible; the remainder
over 6 months 24,000 is estimated to be 80% collectible
D. There is a credit balance in one accounts receivable (0-1 month) of P8,000; it represents
an advance on a sales contract; also there is a credit balance in one of the 1-3 months
accounts receivable of P2,000 for which merchandise will be accepted by the customer.
E. The accounts receivable control account is not in agreement with the subsidiary ledger.
The differences cannot be located, and the company’s accountant decides to adjust the
control to the sum of the subsidiaries after corrections are made.

1. What is the correct bad debt expense for the year?

a. 10,296
b. 10,640

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 c. 13,343
d. 14,640
2. What is the adjusting journal entry to record the remaining unlocated difference between
the general ledger and the subsidiary ledger after consideration of all adjustments?
a. Accounts Receivable P 5,760
Bad Debt expense P 5,760
b. Accounts Receivable P 5,760
Sales P 5,760
c. Accounts Receivable P 4,960
Sales P 4,960
d. Accounts Receivable P 9,760
Bad Debt expense P 9,760
3. What is the accounts receivable balance on December 31, 2014?
a. 793,200
b. 798,160
c. 798,960
d. 808,960
4. What is the required allowance for bad debt expense on December 31, 2014?
a. 19,057
b. 19,857
c. 29,357
d. 32,857
5. What is the accounts receivable net of allowance for bad debts?
a. 774,143
b. 779,103
c. 779,503
d. 779,903

Problem 8
On January 1, 2014, Yza Inc. gave a loan to ABC Corp. amounting to P1,000,000 and received a
three year, 6% loan. The note calls for annual interest to be paid each December 31. The
company incurred origination costs amounting to _______. The company charged P80,000 to
ABC as origination fees. As a result, the yield on the loan was at 8%.

At December 31, 2015, based on ABC’s financial crisis Yza was not able to collect the 2015
interest and that only P600,000 of the principal due on December 31, 2016 will be collected. The
P600,000 principal is expected to be collected in two equal installments on December 31, 216
and December 31, 2018.
1. What is the origination cost incurred by Yza on January 1, 2014 in relation to the loans
receivable?
a. 28,458
b. 51,542
c. 108,458
d. None
2. What is the impairment loss to be recognized in 2015?
a. 981,481
b. 532,190
c. 525,554

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 d. 542,170
3. What is the carrying value of the loans receivable from ABC on December 31, 2015?
a. 981,481
b. 532,190
c. 515,927
d. 542,170

Problem 9
On December 31, 2013, Isiah Company, a financing institution lent P4,000,000 to Psalms Corp
due 3 years after. The loan is supported by an 8% note receivable. Transaction costs incurred to
originate the loan amounted to P248,000, P372,000 was chargeable to Psalms as origination fees.
Interest on loan are collectible at the end of each year. The yield rate on the loan is 9.25%

Isiah was able to collect interest as it became due at the end of 2014. During 2015, however, due
to Psalms Corporation’s business deterioration and due to political instability and faltering global
economy, the company was not able to collect amounts due at the end of 2015. After reviewing
all available evidence at December 31, 2015, Isiah determined that it was probable that Psalms
would pay back only P3,400,000 collectible as follows:

December 31, 2017 P 1,400,0000

December 31, 2018 1,000,0000
December 31, 2019 600,0000
December 31, 2020 400,0000

As of December 31, 2015, the prevailing rate of interest of all debt instruments is 14%.

1. What is the carrying value of the loans receivable as of December 31, 2014?
a. 3,874,000
b. 3,912,345
c. 3,954,237
d. 4,000,000
2. What is the impairment loss to be recognized in the 2015 statement of comprehensive
income?
a. 1,336,188
b. 1,294,296
c. 1,094,018
d. 1,656,187
3. What is the interest income to be recognized in the 2017 statement of comprehensive
income?
a. 228,818
b. 264,570
c. 159,542
d. 242,170
4. What is the correct carrying value of the loans receivable as of December 31, 2017?
a. 2.860,219
b. 2,013,832
c. 1,724,789
d. 1,884,332

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