Problem 1.

For the year ended 2018, the following selected items are included the trial balance of Black Bulls
Company.

Accounts receivable 5,000,000 trade

Advances to shareholders, collectible w/ in 3 months 500,000 non-trade CA
Customer’s account credit balance 50,000 current liab
Allowance for doubtful accounts 200,000 trade, deduct
Receivables from officers, collectible w/ in 5 months 200,000 non-trade, CA
Claims for rebates and tax refunds 50,000 non-trade, CA
Dividends receivable 100,000 non-trade, CA
Accrued interest on bond investments 20,000 non-trade, CA
Advances to affiliates 50,000 non-trade, NCA
Notes receivable 1,000,000 trade
Creditor’s account debit balance 10,000 non-trade, CA
Advances to directors, due in 15 months 100,000 non-trade, NCA
Subscription receivable, collectible w/in 7months 50,000 non-trade, CA
Advances from suppliers 800,000 current liab
Accrued interest on notes receivable 50,000 trade
Accrued rent income 10,000 non-trade, CA

Based on the information provided above, compute for the following:

1. Trade Receivables under current asset – 5,850,000
2. Non-Trade Receivables under current asset – 940,000
3. Trade and other receivables – 6,790,000

Problem 2. Provided below are the receivable accounts and basis of measurement of each account of “Asta
Company”:
Face Value Present Value Current Cost Realizable value
Short-term receivables 1,000,000 1,100,000 1,200,000 900,000
Accounts Receivable 500,000 600,000 700,000 400,000
Interest bearing long-term receivables 2,000,000 2,100,000 2,200,000 2,100,000
Non-interest-bearing long-term receivables 3,000,000 2,800,000 3,100,000 2,900,000

Initially, at what should the following items be measured?

4. Short-term receivables – 1,000,000
5. Accounts Receivable – 500,000
6. Interest-bearing long-term receivables – 2,000,000
7. Non-interest-bearing long-term receivables – 2,800,000

Problem 3. Prepare the journal entries for each transaction using the two methods in accounting doubtful accounts
expense
Transaction Allowance Method Direct Write-off Method
8. Accounts of 30,000 DAE 30,000 No entry
are considered ADA. 30,000
doubtful of collection

9. The accounts are ADA 30,000 DAE 30,000

subsequently AR. 30,000 AR. 30,000
discovered to be
worthless or
uncollectible

10 The same accounts AR 30,000 AR 30,000

that are previously ADA 30,000 DAE 30,000
written off are
unexpectedly Cash 30,000 Cash 30,000
recovered or collected AR. 30,000 AR 30,000

Problem 4. F Company provided the following information relating to current operations:

Accounts receivable, January 1 4,000,000

Accounts receivable collected 8,400,000
Cash sales 2,000,000
Inventory, January 1 4,800,000
Inventory, December 31 4,400,000
Purchases 8,000,000
Gross margin on sales 4,200,000

11. What is the balance of accounts receivable on December 31? 6,200,000

Problem 5. Katherine Company provided the following information for the current year:

January 1 December 31
Accounts receivable 1,200,000
Allowance for doubtful accounts 60,000
Sales 8,000,000
Cash collected from customers 7,000,000

The cash collections included recovery of P10,000 from a customer whose account had been written off as
worthless in prior year. During the year, it was necessary to recognize doubtful accounts expense of P100,000 and
write off worthless customers’ accounts of P30,000. At year-end, a customer settled an account by issuing a 12%,
six month note for P400,000.

12. What is the net realizable value of accounts receivable on December 31? 1,640,000

Problem 6. M Company provided the following accounts abstracted from the unadjusted trial balance at year-
end:

Debit Credit
Accounts Receivable 5,000,000
Allowance for doubtful accounts 40,000
Net credit sales 20,000,000

The entity estimated that 3% of the gross accounts receivable will become uncollectible.

13. What amount should be recognized as doubtful accounts expense for the current year? 190,000

Problem 7. L Company provided the following data for the current year:

Allowance for doubtful accounts – January 1 180,000

Sales 9,500,000
Sales returns and allowances 800,000
Sales discounts 200,000
Accounts written off as uncollectible 200,000

The entity provided for doubtful accounts expense at the rate of 3% of net sales.

14. What is the allowance for doubtful accounts at year-end? 235,000

Problem 8. On January 1, 2015 E company reported accounts receivable P2,070,000 and allowance for doubtful
accounts P80,000. The entity provided the following data:

Credit Sales Writeoffs Recoveries

2012 11,100,000 260,000 22,000
2013 12,250,000 295,000 37,000
2014 14,650,000 300,000 36,000
2015 15,000,000 310,000 40,000

The collections from customers during the year totaled P14,000,000 excluding recoveries.

Doubtful accounts are provided for as a percentage of credit sales. The entity calculated the percentage annually
by using the experience of the three years prior to current year.

15. What is the net realizable value of accounts receivable on December 31, 2015? 2,650,000

16. What amount should be reported as doubtful accounts expense for 2015? 300,000

17. What amount should be reported as allowance for doubtful accounts on December 31, 2015? 110,000

Problem 9. “Di Na Muli” Company reported the following data at year-end:

Sales 8,000,000
Accounts Receivable 2,000,000
Allowance for doubtful accounts – January 1 100,000
Accounts Written off 130,000
Recovery of accounts previously written off 20,000

The company uses the following method in estimating doubtful accounts:

a. Percentage of sales – the estimate is 3%
b. Percentage of accounts receivable – The estimate is 8%
c. Aging – The estimate is P200,000

18. Using Percentage of sales method, how much is Net Realizable Value of Accounts receivable?
a. 1,760,000 b. 1,770,000 c. 1,950,000 d. 2,000,000
19. Using Percentage of AR method, how much is the doubtful accounts expense?
a. 160,000 b. 210,000 c. 270,000 d. 170,000
20. Using Aging method, how much is the ending balance of Allowance for Doubtful Accounts?
a. 200,000 b. 190,000 c. 210,000 d. 90,000

Problem 10. Kriz Company is a leading educational institution with student population of more than 50,000. Kriz
continuously maintains good quality education and a roster of qualified instructors. As a result, Kriz continuously
produces top graduates in several fields. As of December 31, 2010, Kriz has an outstanding receivable balance of
P23,250,000 broken down into: 0-60 days outstanding, P9,000,000; 61-120 days outstanding, P6,750,000; and
over 120 days outstanding, P7,500,000. Estimated percent uncollectible of these accounts is 2%, 4% and 10%,
respectively. Kriz wrote off P525,000 of its receivables and recovered P300,000 from accounts previously written
off in prior year. As of December 31, 2009, Kriz has an allowance for uncollectible accounts of P650,000.

21. Base on the aging analysis, Kriz should report an allowance for doubtful accounts as of December 31, 2010 at
1,200,000

Problem 11. On December 31, 2015, Jet Company received two P1,000,000 notes receivable from customers in
exchange for services rendered. On both notes, interest is calculated on the outstanding principal balance at the
annual rate of 3% and payable at maturity.
The note from Maxx Company, made under customary trade terms, is due in nine months and note from Hart
Company is due in five years.
The market interest rate for similar notes on December 31, 2015 was 8%. The compound interest factors to
convert future value into present value at 8% follow:
Present value of 1 due in nine months .944
Present value of 1 due in five years .680

22. What is the carrying amount of notes receivable from Hart Company on December 31, 2015? 782,000
The 1,000,000 notes received from HART Company will mature in 5 years. Therefore, it is a Long-term
noninterest bearing note receivable to be measured initially at PRESENT VALUE. The Principal of 1,000,000 will
be collected at the end of 5 years or at maturity date, also the interest of 3% for 5 years will be collected at the
date of maturity (lump sum). Thus, the principal and interest are discounted to compute for the PRESENT VALUE.

Principal 1,000,000. X .680 = 680,000

Interest (1,000,000 x 3% x 5yrs) x .680 = 102,000
PRESENT VALUE 782,000

23. What is the carrying amount of notes receivable from Maxx Company on December 31, 2015? 1,000,000

The 1,000,000 notes received from MAXX Company will mature in 9 months. Therefore, the note is classified as
short term note receivable and measured initially at FACE AMOUNT/VALUE.

Problem 12. Feasible Company sold to another entity a tract of land costing 5,000,000 for 7,000,000 on January
1, 2019. The buyer paid P1,000,000 down and signed a two-year promissory note for the remainder of the
purchase price plus 12% interest compounded annually. The note matures on January 1, 2021.

24. What amount should be reported as interest income for 2021? 0

25. What amount should be reported as Accrued Interest Receivable as of December 31, 2020? 1,526,400

2019

January 1
Cash 1,000,000
Notes Receivable 6,000,000
Land 5,000,000
Gain on sale of land 2,000,000

December 31 Accrued Interest Receivable 720,000

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

2020

December 31 Accrued Interest receivable 806,400

Interest Income (6,000,000 + 720,000) x 12% 806,400

2021

January 1 Cash 7,526,400

Notes Receivable 6,000,000
Accrued Interest Receivable 1,526,400

Problem 13. Gullible Company is a dealer in equipment. On December 31, 2019, the entity sold an equipment in
exchange for a noninterest bearing note requiring five annual payments of 500,000. The first payment was
made on December 31, 2020. The market interest for similar notes was 8%. The relevant present values factors
are:

PV of 1 at 8% for 5 periods .68

PV of ordinary annuity of 1 at 8% for 5 periods 3.99

26. Determine the carrying amount/amortized cost of the notes receivable on December 31, 2020. 1,654,600

NR , end 2020 (2,500,000 -500,000) 2,000,000

UII, end 2020 (505,000 – 159,600) (345,400)
Amortized cost/CA 1,654,600

27. Determine the interest income for 2021. 132,368

12/31/2019 Notes Receivable (500,000 x 5 payments) 2,500,000

Sales (500,000 x 3.99) 1,995,000
Unearned Interest Income 505,000

Date Annual Collection Interest Income Principal Present values/Amortized cost

12/31/19 1,995,000
12/31/20 500,000 159,600 340,400 1,654,600
12/31/21 500,000 132,368 367,632 1,286,968
12/31/22 500,000 102,957 397,043 889,925
12/31/23 500,000 71,194 428,806 461,119
12/31/24 500,000 38,881 461,119 0

12/31/2020
Cash 500,000
Notes Receivable 500,000

Unearned Interest Income 159,600

Interest Income 159,600

12/31/2021 Cash 500,000

Notes Receivable 500,000

Unearned Interest Income 132,368

Interest Income 132,368

Problem 14. On January 1, 2019, Enigma Company sold an equipment costing 500,000 which had a carrying
amount of 350,000, receiving a 125,000 down payment and, as additional consideration, a 400,00 noninterest
bearing due on January 1,2022. There was no established exchange price for the equipment, and the note had no
ready market. The prevailing rate of interest for a note of this type at January 1, 2019 was 12%. The present
value of 1 at 12% for three periods is .7118.

28. Determine the gain on sale on January 1, 2019. 59,720

29. Determine the interest income for 2021. 42,848
30. Determine the carrying amount/amortized cost of the notes receivable on December 31, 2020. 357,152
1/1/19 282,720
Interest Income – 2019 34,166
Amortized Cost/CA – 2019 318,866

OR

Notes Receivable Balance -2019 400,000

UII, end 2019 (115,280 – 34,166) (81,114)
Amortized Cost/CA – 2019 318,866

2019

Face value of the note 400,000

Present value (400,000 x .7118) (284,720)
Unearned Interest Income 115,280

Present Value 284,720

Down Payment 125,000
Selling Price 409,720
Carrying Amount of Equip (350,000)
Gain on sale 59,720

January 1 Cash 125,000

Notes Receivable 400,000
Accumulated Depreciation (500k – 350k) 150,000
 Equipment 500,000
Gain on sale 59,720
Unearned Interest Income 115,280

Date Interest Income Unearned Interest Income Present value/Amortized cost

1/1/19 115,280 284,720
12/31/19 34,166 81,114 318,866
12/31/20 38,266 42,848 357,152
12/31/21 42,848 - 400,000

December 31 Unearned Interest Income 34,166

Interest Income 34,166

2020

December 31 Unearned Interest Income 38,266

Interest Income 38,266

2021

December 31 Unearned Interest Income 42,848

Interest Income 42,848

2022

January 1 Cash 400,000

Notes Receivable 400,000