CASH AND CASH EQUIVALENTS

TRADE AND OTHER RECEIVABLES

The following data pertain to Lincoln Corporation on
December 31, 2012: John Corp. has the following data relating to accounts
Current account at Metrobank P1,800,000 receivable for the year ended December 31, 2012:

Current account at Allied Bank (100,000)
Payroll account
Foreign bank account (in equivalent
pesos)
Savings deposit in a closed bank
Postage stamps
Employee’s post dated check
IOU from employees
Credit memo from a vendor for a
purchase return
Traveler’s check
Money order
Petty cash fund (P4,000 in currency
and expense receipts for P6,000)
Accounts receivable, January 1, 2012 P480,000
Allowance for doubtful accounts,
500,000
January 1, 2012 19,200
Sales during the year, all on account,
800,000 terms 2/10, 1/15, n/60 2,400,000
Cash received from customers during
150,000 the year 2,560,000
Accounts written off during the year 17,600
1,000
An analysis of cash received from customers during
4,000 the year revealed that P1,411,200 was received from
10,000 customers availing the 10-day discount period,
P792,000 from customers availing the 15-day
discount period, P4,800 represented recovery of
20,000 accounts written-off, and the balance was received
from customers paying beyond the discount period.
50,000
The allowance for doubtful accounts is adjusted so
30,000 that it represents certain percentage of the
outstanding accounts receivable at year end. The
required percentage at December 31, 2012 is 125%
10,000
of the rate used on December 31, 2011.

Pension fund 2,000,000 The doubtful accounts expense for the year ended
December 31, 2012 is
DAIF check of customer 15,000

Customer’s check dated 1/1/13 80,000

Time deposit – 30 days 200,000

Money market placement (due 500,000
6/30/13)
Treasury bills, due 3/31/13
(purchased 12/31/12) 200,000

Treasury bills, due 1/31/13

(purchased 2/1/12) 300,000 LOANS AND RECEIVABLES – LONG-TERM

Use the following information for the next two questions.

The cash and cash equivalents as of December 31,
2012 is
Money Bank granted a loan to a borrower on January 1,
2012. The interest rate on the loan is 10% payable
annually starting December 31, 2012. The loan matures
in five years on December 31, 2016. The data related to
the loan are:

BANK RECONCILIATION
Principal amount P4,000,000
Assume all other reconciling items are listed.
Checks and charges recorded by bank in Direct loan origination cost 61,520
June, including a June service charge of
P600 P344,300 Indirect loan origination cost 26,400
Service charge made by bank in May
Origination fee received from borrower 350,000
and recorded in the books in June 400
Total of credits to Cash in all journals
during June 396,040
Customer’s NSF check returned as a 1. The effective interest rate of the loan is
Bank charge in June (no entry made
on the books) 2,000
Cutomer’s NSF check returned in May
and redeposited in June (no entry made
on the books in May/June) 5,000
Outstanding checks at June 30 265,200
Deposits in transit at June 30 12,000 2. The carrying amount of the loan receivable on
What was the total of outstanding checks at the beginning December 31, 2012 is
of June?
RECEIVABLE FINANCING

The Hinoba-an Department Store wishes to discount two INVESTMENT IN EQUITY INSTRUMENTS
notes receivable arising from the sale of merchandise in
order to meet some maturing obligations. Both notes On December 31,2016, Chernobyl Co. Purchased equity
have a face amount of P50,000 each and are due in one securities classified as FVTOCI. Data are as follows:
year. Note A is a non-interest bearing note while Note B Fair value
is to be paid with an interest of 12%. The bank rate in
discounting notes is 12%. Assuming that the notes were Sec. Cost 12/31/11 12/31/12
discounted ten months prior to maturity, the proceeds
from both notes discounted is A P900,000 P880,000 P 780,000

B 1,100,000 1,120,000 1,240,000

C 2,000,000 1,920,000 1,720,000

On December 31, 2018, Chernobyl transferred its

investment in security B from FVTOCI to FVTPL. How
much should be recognized as component of equity as of
INVESTMENT IN DEBT INSTRUMENTS December 31, 2018 related to these securities?

Use the following information for the next two questions.

On April 1, 2012, Purefoods Company purchased as a

short-term investment a P1,000,000 face value 8% bond
for P905,000 including accrued interest. The bonds were
designated as held for trading. The commission to
acquire the bonds was P5,000. The bonds are dated
January 1, 2012 and mature on January 1, 2017, and pay
interest semi-annually on January 1 and July 1. On
December 31, 2012, the bonds had a market value of
P920,000. On April 1, 2013, Purefoods sold the bonds
for a total consideration of P950,000.
What amount should Purefoods report as unrealized gain
in its 2012 income statement?
Information about House of Cards Co.’s portfolio of AFS
securities is:
Aggregate cost- December 31, 2018 P9,000,000
Unrealized gains- December 31, 2018 500,000
Unrealized losses- December 31, 2018 2,000,000
Net realized gains during 2018 300,000
On Jan. 1, 2018 HOC reported an unrealized loss of
P400,000 as a component of equity. In its December 21,
2018 equity, HOC should report what amount of net
unrealized loss?

How much is the gain from the sale of short-term
investment in debt securities on April 1, 2013?
INVESTMENT IN ASSOCIATES
On July 1, 2014, Cleopatra acquired 25% of the shares of
Marcus for P1M. At that date, the equity of Marcus was
P4M, with all the identifiable assets and liabilities being
measured at amounts equal to fair value. The table below
shows the profit ans losses made by Marcus during
2014-2018:

On January 1, 2011, YOU TOO Corporation purchased Year Profit(Loss)

P1,000,000 10% bonds designated as held-to-maturity. 2014 200,000
The bonds were purchased to yield 12%. Interest is 2015 (2,000,000)
payable annually every December 31. The bonds 2016 (2,500,000)
mature on December 31, 2015. On December 31, 2011 2017 160,000
the bonds were selling at 99. On December 31, 2012, 2018 300,000
YOU TOO sold P500,000 face value bonds at 101. The 1. How much “share of profit of associate” should
bonds were selling at 103 on December 31, 2013. Cleopatra report in its 2017 profit or loss?

How much is the realized gain on sale of the investment in

bonds in 2012?

2. How much “share of profit of associate” should

Cleopatra report in its 2018 profit or loss?

How much should be reported as component of equity on

December 31, 2013?
 How much should be recognized as reversal of
ACCOUNTING FOR OTHER INVESTMENTS impairment loss in 2012?

Following are selected transactions in chronological order

of Bayombong Company and its trustee in connection
with a sinking fund.

a. Cash contribution to the sinking fund,

P1,000,000.
b. Acquisition of securities at par by the trustee, DERIVATIVES AND HEDGE ACCOUNTING
P700,000. On January 2, 2012, Jones Company purchases a call
c. The trustee receives interest on the securities, option for P30,000 on Merchant ordinary shares. The
P60,000. call option gives Jones the option to buy 100,000 shares
d. The trustee pays expenses of P30,000. of Merchant at a strike price of P50 per share. The
e. The trustee sells the securities for P800,000 plus market price of a Merchant share is P50 on January 2,
accrued interest of P10,000. 2012 (the intrinsic value is therefore P0).
f. The trustee pays bonds payable of P1,000,000 On March 31, 2012, the market price for Merchant share
and interest of P100,000. is P53 per share, and the time value of the option is
g. The trustee remits the remaining cash to P20,000. What was the effect on profit of entering into
Bayombong Company. the derivative transaction for the period January 2 to
How much was remitted by the trustee to Bayombong March 31, 2012?
Company?

Assume that the market price for Merchant share is P52

On January 1, 2007, Ball, Inc. purchased a P1,000,000 per share on June 30,2012. The gain or loss on settlement
ordinary life insurance policy on its president. The policy of put option is:
year and Ball’s accounting year coincide. Additional data
are available for the year ended December 31, 2012:
Annual premium paid on 1/1/2012 P20,000
Dividend received 7/1/2012 3,000
Cash surrender value, 1/1/2012 43,500
Cash surrender value, 12/31/2012 54,000

Ball, Inc., is the beneficiary under the life insurance

policy. How much should Ball report as life insurance
expense for 2012?

IMPAIRMENT OF FINANCIAL ASSETS

Use the following information for the next two questions.

On December 31, 2009, Entity X acquired Ms. Leading

Corporation’s P1,000,000 bonds for P927,880. The
market interest rate at that time was 12%. The stated
interest rate was 10%, payable annually. The bonds
mature in five years and classified as held-to-maturity.
Unfortunately, because of lower sales, Ms. Leading’s
financial condition worsened. On December 31, 2011,
Entity X determined that it was probable that the issuer
would pay back only P600,000 of the principal at
maturity.
In 2012, Ms. Leading’s officers consulted a feng shui
expert to seek pieces of advice to improve the company’s
financial condition. Fortunately, the company’s sales
started to pick up and the credit rating of Ms. Leading
improved. At December 31, 2012, Entity X reassessed
the collectibility of the bonds and now expects to collect
P1,300,000 from Ms. Leading at maturity date.

How much should be recognized as impairment loss in

2011?