Problem 1- Classification

The accounts receivable of FRANCO COMPANY were stated at P1,467,000 in a balance sheet
submitted to a banker for credit. You are called upon to audit the report and, upon
analysis, the asset was found to consist of the following items:

Due from customers on open account P 1,125,000

Acknowledged claim for damages 22,500
Due from consignee at billed price – cost price
being P22,500 30,000
Investment in and advances to affiliated company 150,000
Loans to officers and employees 13,500
Deposits with municipalities – bids for contracts 67,500
Unpaid capital stock subscriptions 60,000
Advances to creditors for merchandise purchased
but not received 24,000
Cash advanced to salesmen for traveling expenses 4,500
Allowance for doubtful accounts ( 30,000)
P1,467,000

The amount of P1,125,000 due from customers was the remaining balance after deducting
accounts with credit balances of P6,000.

During your examination, you noted that on December 31, the company assigned P300,000
of customers’ accounts to secure a 17%, P240,000 note payable. A 1% commission based
on the accounts assigned was charged and deducted from the cash received. The client
recorded this transaction by a debit to cash and a credit to notes payable.

Questions

1. How much is the Accounts Receivable (gross) balance at December 31?

2. The total current non-trade receivable balance at December 31 is:
3. The liability for the accounts receivable – assigned is:
4. The total non-trade receivable balance at December 31 is:

Problem 2- Ending Balance

The following selected transactions occurred during the year ended December 31, 2020 of
DOMINGO COMPANY:

Gross sales (cash and credit) P 900,736.80

Collections from credit customers, net of 2% cash discount 294,000.00
Cash sales 180,000.00
Uncollectible accounts written off 19,200.00
Credit memos issued to credit customers for sales ret./allow. 10,080.00
Cash refunds given to cash customers for sales ret./allow. 15,168.00
Recoveries on accounts receivable written-off in prior years
(not included in cash received stated above) 6,505.20

At year-end, the company provides for estimated bad debts losses by crediting the
Allowance for Bad Debts account for 2% of its Accounts Receivable Ending Balance for the
year. The allowance for bad debts at the beginning of the year is P19,327.20.

Questions

1. How much is the DOMINGO COMPANY’s gross sales?

2. DOMINGO COMPANY’s credit sales at December 31, 2020 is:
3. How much is the DOMINGO COMPANY’s net credit sales?
4. The Bad Debts Expense of DOMINGO COMPANY at December 31, 2020 is:
5. The Accounts Receivable of DOMINGO COMPANY at December31, 2020 is:
6. The Allowance for Bad Debts of DOMINGO COMPANY at December 31, 2020 is:

Problem 3- Audit of Receivables

You are examining the financial statements of MATIAS CORPORATION for the year ended
December 31, 2020. During the audit of the accounts receivable and other related
accounts, certain information was obtained.

The December 31, 2020 debit balance in the Accounts Receivable control account is
P197,000.

The only entries in the Bad Debts Expense account were: a credit for P324 on December
31, 2020, because Marlisa Company remitted in full for the accounts charged off October
31, 2020, and a debit on December 31 for the amount of the credit to the Allowance for
Doubtful Accounts.
The Allowance for Doubtful Accounts schedule is presented below:
Debit Credit Balance
January 1, 2020 P 3,658
October 21, 2020, Uncollectible;
Marlisa Co., - P324; Abonales Co.,
- P 820; Cherryl Co., - P564 P 1,508 2,150
December 31, 2020, 5% of P197,000 P 9,850 12,000

An aging schedule of the accounts receivable as of December 31, 2020 and the decision are
shown in the table below:

Age Net Debit Balance Amount to which the Allow.

is to be adjusted after adjust.
and corrections have been made

0 – 1 month P 93,240 1 percent

1 – 3 months 76,820 2 percent
3 – 6 months 22,180 3 percent
over 6 months 6,000 Definitely uncollectible, P1,000;
P2,000 is considered 50% uncollec-
tible; the remainder is estima-
ted to be 80% collectible.

There is a credit balance in one account receivable (0-1 month) of P2,000; it represents an
advance on a sales contract. Also, there is a credit balance in one of the 1-3 months
accounts receivable of P500 for which merchandise will be accepted by the customer.

The ledger accounts have not been closed as of December 31, 2020. The Accounts
Receivable control account is not in agreement with the subsidiary ledger. The difference
cannot be located, and the auditor decides to adjust the control to the sum of the
subsidiaries after corrections are made.

Questions
1. The adjusted balance of accounts receivable of MATIAS CORPORATION at December 31,
2020 is:
2. The adjusted write-off of accounts receivable balance of MATIAS CORPORATION at
December 31, 2020 is:
3. The adjusted allowance of bad debts account of MATIAS CORPORATION at December 31,
2020 is:
4. The bad debts expense per book of MATIAS CORPORATION at December 31, 2020 is:
5. The adjusted bad debts expense of MATIAS CORPORATION at December 31, 2020 is:
The entry to adjust the account of Marlisa Company is:
6. The entry to reconcile the accounts receivable control ledger to subsidiary ledger is:
7. The net realizable value of accounts receivable of MATIAS CORPORATION at December
31, 2020 is:

Problem -4 Audit of Notes- No Present Value

During your audit of the LEILANI COMPANY for the calendar year 2020, you find the
following accounts:
NOTES RECEIVABLE
Sept. 1 Samson, 12%, due in 3 mos. 36,000 36,000
Nov. 1 Hazel, 15%, due in 6 mos. 90,000 126,000
Nov. 1 Salazar, no interest, due in one
Year 75,000 201,000
Nov. 30 Rosa, Co. 12%, due in 13 mos. 15,000 216,000
Dec. 1 Rona, 15%, due in 15 mos. 36,000 252,000
Dec. 2 Anito, President, 18%, due in 3
mos. 18,000 270,000

NOTES RECEIVABLE DISCOUNTED

Sept. 1 Samson note, discounted at 36,000 36,000
15%
Nov. 1 Salazar note, discounted at 75,000 111,000
15%

INTEREST EXPENSE
Sept. 1 Samson note 310.50 310.50
Nov. 1 Salazar note 11,250.00 11,560.50

All notes are trade notes receivable unless otherwise specified. The Samson note was paid
December31, 2020. Interest income is credited only upon receipt of cash.

Questions

1. The accrued interest income at December 31, 2020 is:

2. The interest expense at December 31, 2020 is:
3. The Notes Receivable at December 31, 2020 is:
4. The Notes Receivable – discounted at December 31, 2020 is:
5. How much is the proceeds in the discounting of notes receivable for the year?
Problem 5- Factoring
UY FINANCE CORPORATION purchases the accounts receivable of other companies on a
without recourse, notification basis. At the time the receivables are factored, 15% of the
amount factored is charged to the client as commission and recognized as revenue in UY’S
books. Also, 10% of the receivables factored is withheld by Uy as protection against sales
returns or other adjustments. This amount credited by Uy to the client Retainer account.
At the end of each month, payments are made by Uy to its clients so that the balance in the
Client Retainer account is equal to 10% of unpaid factored receivables. Based on Uy’s bad
debt loss experience, an allowance for bad debts of 5% of all factored receivables is to be
established, Uy makes adjusting entries at the end of each month.

On January 3, 2020, Jannette Company factored its accounts receivable totaling

P1,000,000. By January 31, P800,000 on these receivables had been collected by Uy.

Questions

1. The commission earned of Uy Finance Corporation from Jannette Company’s accounts

receivable factored is:
2. The proceeds received by Jannette Company on the accounts factored is:
3. How much is the Client Retainer account of Uy Finance Corporation at January 31, 2020
is:
4. How much is the bad debts expense of Uy Finance Corporation at January 31, 2020
is:
5. Assuming a weighted Average Interest of 12% for 30 days how much is the cash
proceds

Problem 6- Present Value

On January 2, 2020, a tract of land that originally cost P800,000 was sold by MAYLENE
CORPORATION. The company received a P1,200,000 note as payment. It bears interest
rate of 4% and is payable in 3 annual installments of P400,000 plus interest on the
outstanding balance. The prevailing rate of interest for a note of this type is 10%. The
present value table shows the following present value factors of 1 at 10%:

Present value factor of 1 for 3 periods 0.75132

Present value factor of 1 for 2 periods 0.82645
Present value factor of 1 for 1 period 0.90909
Present value of an ordinary annuity of 1 for 3 periods 2.48685

Questions

1. The gain on sale of land on January 2, 2020 is:

2. The interest income on the note receivable for the year ended December 31, 2020 using
effective interest method is:
3. How much cash will MYLENE CORPORATION received from notes receivable?