Auditing Problems Compilation Of Questions Receivables (1) 2j3c17

CEDRICK P. DELA ROSA Easy 1. Orr Company prepared an aging of s receivable on December 31, 2016 and determined that net realizable value of the s receivable was P 2,500,000. Allowance for doubtful s on Jan.1

280,000

s written off as uncollectible

230,000

s Receivable on December 31

2,700,000

Uncollectible s recovery

50,000

What amount should be recognized as doubtful s expense for the current year? (Problem 19-1, Practical ing 1, Valix , 2016) 2. Seiko Company reported the following balances after adjustment at year-end:

s Receivable Net Realizable Value

2016

2015

5,250,000 5,100,000

4,800,000 4,725,000

During 2016, the entity wrote off s totalling P 160,000 and collected P 40,000 on s written off in previous year. What amount should be recognized as doubtful s expense for the year ended Dec. 31,2016? (Problem 19-2, Practical ing 1, Valix, 2016)

3. Roanne Company used the allowance method of ing for uncollectible s. During the current year, the entity had charged P800,000 to bad debt expense, and wrote off s receivable of P 900,000 as uncollectible. What was the decrease in working capital? (Problem 19-3, Practical ing 1, Valix, 2016)

Moderate

1. Tara Company provided the following information pertaining to s receivable on Dec.31,2016: Days Outstanding uncollectible

Estimated Amount

0 – 60

Estimated

1,200,000

1%

61 – 120

900,000

2%

Over 120

1,000,000

60,000

3,100,000

During the current year, the entity wrote off P70,000 in s receivable and recovered P 40,000 that had been written off in prior years. On January 1,2016, the allowance for uncollectible s was P100,000. Under the aging method, what amount of allowance for uncollectible s should be reported on Dec. 31, 2016? (Problem 19-6, Practical ing 1, Valix, 2016)

2. Delta Company sold goods to wholesaler on 2/15, net 30. The entity had no cash sales but 50% of the customer took advantage of the discount. The entity used the gross method of recording sales and s receivable. An analysis of the trade s receivable at year-end revealed the following: Age 0 -15 days 16- 30 days 31-60 days Over 60 days

Amount 2,000,000 1,400,000 400,000 200,000

Collectible 100% 95% 90% 50%

4,000,000 What amount should be reported as allowance for doubtful s at the year-end? (Problem 19-8, Practical ing 1, Valix, 2016)

3. On January 1 ,2016, Jamin Company had a credit balance of P 260,000 in the allowance for uncollectible s. Based on past experience, 2% of credit sales would be uncollectible.

During the current year, the entity wrote off P 325,000 of uncollectible s. Credit sales for the year totaled P 9,000,000. On December 31, 2016, what amount should be reported as allowance for uncollectible s? (Problem 19-10, Practical ing 1, Valix, 2016)

Difficult

1. Kalibo Bank loaned P 5,000,000 to Catician Company on January 1, 2014. The of the loan require principal payments of P 1,000,000 each year for 5 years plus interest at 8%. The first principal and interest payment is due on January 1, 2015. Caticlan Company made the required payments during 2015 and 2016. However, during 2016 Caticlan Company began to experience financial difficulties, requiring Kalibo Bank to reassess the collectability of the loan. On December 31, 2016, Kalibo Bank has determined that the remaining principal payment will be collected buy the collection of interest is unlikely. Kalibo Bank did not accrue the interest in December 31, 2016. What is the loan impairment loss on December 31, 2016? What is the interest income for 2017? (Problem 25-2, Practical ing 1, Valix, 2016) 2. On December 31, 2016, Oregon Bank recorded an investment of P 5,000,000 in a loan grated to a client. The loan has a 10% effective interest rate payable annually every Dec. 31. The principal is due in full at maturity on December 31, 2019. Unfortunately, the borrower is experiencing significant financial difficulty and will have difficult time in making full payment. The bank projected the entire principal will be paid at maturity and 4% or P200,000 will be paid annually on December 31 of the next three years. There is no accrued interest on December 31, 2016. What is the loan impairment loss for 2016? (Problem 25-6, Practical ing 1, Valix, 2016)

3.

On December 31, 2016, London Bank granted a P 5,000,000 loan to a borrower with 10% state rate payable annually and maturing in 5 years. The loan was discounted at the market interest rate of 12%. Unfortunately, the financial condition of the borrower worsened because of lower revenue. On December 31, 2018, the bank determined that the borrower would pay back only P 3,000,000 of the principal at maturity. However, it was considered likely that the interest would continue to be paid on the P 5,000,000 loan. What is the amount of cash paid to the borrower on December 31, 2016? What is the carrying amount of the loan receivable on December 31, 2018? (Problem 25-7, Practical ing 1, Valix, 2016)

Chastyn V. Ramos Easy: 1. Banaba Co. reported the following information at the end of its first year of operation, December 31, 2016: Bad debt expense for 2016 Uncollectible s written off during 2016 Net realizable value of s receivable

271,000 35,400 895,000

What is the s receivable balance in December 31, 2016? Source: Auditing Problems (Gerardo S. Roque) 2. The following information pertains to ACACIA, INC. for the year ended December 31, 2016: Credit sales during 2016

4,450,000

Collection of s written off in prior periods

170,000

Worthless s written off in 2016

191,000

Allowance for doubtful s, Jan. 1, 2016

155,000

Acaqcia, Inc provides for doubtful s based on 1 1/2% of credit sales What is the balance of the allowance for doubtful s at December 31, 2016? Source: Auditing Problems (Gerardo S. Roque) 3. Mahogany company’s analysis and aging of its s receivable at December 31, 2016, disclosed the following: s receivable s estimated to be uncollectible (per aging) Allowance for bad debts (per books)

460,000 95,000 103,000

What is the net realizable value of Mahogany’s receivables at December 31, 2016?

Source: Auditing Problems (Gerardo S. Roque) Moderate: 1. The following information is from Gumamela Corp.’s first year of operations: a. Machine purchased

450,000

b. Ending merchandise inventory

123,000

c. Collections from customers

150,000

d. All sales are on and goods Sell at 30% above cost What is the s receivable balance at the end of the company’s first year of operations? Source: Auditing Problems (Gerardo S. Roque) 2. Sunflower Company sells a variety of imported goods. By selling on credit, Sunflower cannot expect to collect 100% of its s receivable. At December 31, 2016, Sunflower reported the following in its statement of financial position: s receivable

2,197,500

Allowance for doubtful s

( 133,500 )

s receivable, net

2,064,000

During the year ended December 31, 2016, Sunflower earned sales revenue of 537,702,500 and collected cash of 528,070,500 from customers. Assume bad debts expense for the year was 1% of sales revenue and that Sunflower wrote off uncollectible s receivable totalling 5,439,500. What is the s receivable balance at December 31, 2016? Source: Auditing Problems (Gerardo S. Roque) 3. (Refer to problem no. 2) What is the December 31, 2016, balance of the Allowance for Bad Debts ? Source: Auditing Problems (Gerardo S. Roque) Difficult:

1. The following amounts are shown on the 2016 and 2015 financial statements of San Francisco Co.: 2016

2015

?

470,000

Allowance for Bad debts

20,000

10,000

Net Sales

2,600,000

2,400,000

COGS

1,900,000

1,752,000

s receivable

San Francisco Co.’s s receivable turnover for 2016 is 6.5 times. What is the s receivable balance at December 31, 2016? Source: Auditing Problems (Gerardo S. Roque) 2. The policy of ILANG-ILANG, INC. is to debit the bad debt expense for 3% of all new sales. The following are the company’s sales and allowance for bad debts for the past four years: Year

Sales

Year-End Balance

2013

3,000,000

45,000

2014

2,950,000

56,000

2015

3,120,000

60,000

2016

2,420,000

75,000

What are the amounts of s written off in 2014, 2015, and 2016? Source: Auditing Problems (Gerardo S. Roque) 3. Pilipinas hotel manages an extensive network of boutique hotels in the country. The company has significant receivables from three customers, 250,000 due from Tayuman hotel, 450,000 due from Malabon hotel, and 400,000 due from Batangas hotel. Pilipinas hotel has other receivables totalling 225,000.

Pilipinas determines that receivables from Malabon hotel is impaired by 75,000 and the Batangas hotel receivables is impaired by 100,000. The receivables from Tayuman hotel is not considered impaired. Pilipinas also considered that a

composite rate of 5% is appropriate to measure impairment on all ther s receivable.

After recognizing the impairment loss, what amount of receivables should Pilipinas hotel report in its statement of financial position? Source: Auditing Problems (Gerardo S. Roque)

GAGATAM, CHRISTIANETH N. AUDITING PROBLEMS EASY : VALIX 1. Jay company provided the following data relating to s receivable for the current year: s receivable, January 1 650,000 Credit sales 2,700,000 Sales returns 75,000 s written off 40,000 Collections from customers 2,150,000 Estimated future sales returns at December 31 50,000 Estimated uncollectible s at 12/31 per aging 110,000 Q: What amount should be reported as net realizable value of s receivable on December 31? 2. Frame company has an 8% note receivable dated June 30, 2016, in the original amount of ₱ 1, 500,000. Payments of ₱500,000 in principal plus accrued interest are due annually on July 1, 2017, 2018 and 2019. Q: What is the balance of note receivable on July 1, 2017? Q: In the June 30,2018 statement of financial position, what amount should be reported as a current asset for interest on the note receivable? 3. Orr Company prepared an aging of s receivable on December 31, 2016 and determined that the net realizable value of the s receivable was ₱2,500,000. Allowance for doubtful s on January 1 280,000 s written off as uncollectable 230,000 s receivable on December 31 2,700,000 Uncollectable s recovery 50,000 Q: What amount should be recognized as doubtful s expense for the current year?

MODERATE: VALIX 1. Appari Bank granted a loan to a borrower on January 1, 2016. The interest rate on the loan is 10% payable annually starting December 31, 2016. The loan matures in five years on December 31, 2020. Principal amount 4,000,000

Original fee received from borrower 350,000 Direct origination cost incurred 61,500 The effective rate on the loan after considering the direct origination cost incurred and origination fee received is 12%. Q: What is the carrying amount of the loan receivable on January 1, 2016? Q: What is the interest income for 2016? 2. On January 1, 2016. Oceanic Bank made a ₱1,000,000, 8% loan. The ₱ 80,000 interest is receivable at the end of each year, with the principal amount to be received at the end of five years. At the end of 2016, the first year’s interest of ₱ 80,000 has not yet been received because the borrower negotiated a restructuring of the loan. The payment of all of the interest for 5years will be delayed until the end of the 5 year loan term. In addition, the amount of principal repayment will be dropped from ₱1,000,000 to ₱500,000. The PV of 1 at 8% for 4 periods is .735. No interest revenue has been recognized in 2016 in connection with the loan. Q: What is the loan impairment loss on December 31, 2016? 3. On December 31, 2016, Macedon Bank has a 5year loan receivable with a face value of ₱5,000,000 dated January 1, 2015 that is due on December 31, 2019. Interest on the loan is payable at 9% every December 31. The borrower paid the interest that was due on December 31, 2015 but informal the bank that interest accrued in 2016 will be paid at maturity date. There is a high probability that the remaining interest payments will not be paid because of financial difficulty. The prevailing market rate of interest on December 31, 2016 is 10%. The PV of 1 for three periods is .772 at 9%, and .751 at 10%. Q: What is the loan impairment loss to be recognized on December 31, 2016? DIFFICULT: ROQUE Presented below are unrelated situations. Answer the questions relating to each situation. 1. ORCHIDS Company’s s receivable at December 31, 2016, had a balance of ₱1,200,000. The allowance for bad debts had a credit balance of ₱40,000. Net sales in 2016 were ₱6,704,000 (net of sales discounts of ₱56,000). An aging schedule shows that ₱150,000 of the outstanding s receivable are doubtful. Q: What is th adjusting entry for estimated bad debt expense? 2. The following selected transactions occurred during the year ended December 31, 2016: Gross sales (cash and credit)

750,000

Collections from credit customers, net of 2% cash discount

245,000

Cash sales

150,000

Uncollectible s written off

16,000

Credit memos issued to credit customers for sales returns and allowances

8,400

Cash refunds given to cash customers for sales returns and allowances

12,640

Recoveries on s receivable written off in prior years (not included in cash received stated above).

5,421

At year end, the company provides for estimated bad debt losses by crediting the allowance for Bad Debts for 2% of its net credit sales for the year. A. What is the company’s net credit sales in 2016? B. What is the bad debt expense for 2016? 3. Coconut company estimates its bad debt expense to be 3% of net sales. The company’s unadjusted trial balance at December 31, 2016, included the following s: DEBIT CREDIT Allowance for bad debts ₱8,000 Sales 2,600,000 Sales returns and allowance ₱45,000 Q: What is the company’s bad debt expense for 2016?

Dianna P. Pastrana Easy 1. COCONUT CO. estimates its bad debt expense to be 3% of net sales. The company’s unadjusted trial balance at December 31, 2016, included the following s: Debit

Credit

Allowance for bad debts

P8,000

Sales Sales returns and allowances

2,600,000 P45,000

What is the company’s bad debt expense for 2016? (A Examination Reviewer: AUDITING PROBLEMS 2016-2017 Ed. By Gerardo S. Roque, Problem 2-8, page 154) 2. Jay Company provided the following data relating to s receivable for the current year: s receivable, January 1 Credit Sales

650,000 2,700,000

Sales returns

75,000

s written off

40,000

Collections from customers Estimated future sales returns at December 31 Estimated uncollectible s at 12/31 per aging

2,150,000 50,000 110,000

What amount should be reported as net realizable value of s receivable on December 31? (Practical Financial ing Volume 1 by Conrado Valix and Christian Aris Valix, Problem 18-2, page 211) 3. Ladd Company provided the following data for the current year: Allowance for doubtful s- January 1 Sales

180,000 9,500,000

Sales returns and allowances

800,000

Sales discounts

200,000

s written off as uncollectible

200,000

The entity provided for doubtful s expense at the rate of 3% of net sales. What is the allowance for doubtful s at year-end? (Practical Financial ing Volume 1 by Conrado Valix and Christian Aris Valix, Problem 19-11, page 231)

Moderate On January 1, 2014, MELON CORP. loaned P3,000,000 to Debtor Company. Under the loan agreement, Debtor Company is to make an annual principal payment of P600,000 for 5 years plus interest at 8%. The first principal and interest payment is due on January 1, 2015. The required payments were made by Debtor Company for 2015 and 2016. However, during 2016, Debtor Company began to face financial difficulties, requiring Melon Corp. to reevaluate the collectability of the loan. On December 31,206, Melon Corp. determines that it will be able to collect the remaining principal, but is unlikely that the interest will be collected. The following present value factors are taken from the table of the present values: Present value of 1 at 8% for: 1 period

0.92593

2 periods

0.85734

3 periods

0,79383

1. What is the present value of the expected future cash flows as of December 31, 2016? 2. What is the amount of loan impairment on December 31, 2016? 3. Assuming that Melon Corp.’s assessment of the collectability of the loan has not changed, what amount of interest income should be recognized for 2017? (A Examination Reviewer: AUDITING PROBLEMS 2016-2017 Ed. By Gerardo S. Roque, Problem 2-23, page 195)

Difficult Problem 1: On January 2, 2016, a tract of land that originally cost P800,000 was sold by Vietnam Rose Company. 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 Present value factor of 1 for 2 periods Present value factor of 1 for 1 period Present value of an ordinary annuity Of 1 for 3 periods

0.75132 0.82645 0.90909 2.48685

1. What amount of gain on sale of land should be recognized on January 2, 2016? (A Examination Reviewer: AUDITING PROBLEMS 2016-2017 Ed. By Gerardo S. Roque, Problem 2-20, page 189)

Problem 2: YOKOHANA BANK loaned P5,500,000 to Bargain Company on January 1, 2016. The initial loan repayment include a 10% interest rate plus annual principal payments of P1,100,000 on January 1 each year. Bargain made the required interest payment in 2016 but did not make the P1,100,000 principal payment nor the P550,000 interest payment for 2017. Yokohana is preparing its annual financial statements on December 31, 2017. Bargain is having financial difficulty, and Yokohana has concluded that the loan is impaired. Analysis of Bargain’s financial condition on December 31,2017, indicates the principal payments will be collected, but the collection of interest is unlikely. Yokohana did not accrue the interest on December 31, 2017. The projected cash flows are: December 31, 2018

P1,750,000

December 31, 2019

2,000,000

December 31, 2020

1,750,000 5,500,000

2. What is the loan impairment loss on December 31, 2017? 3. What is the interest income to be reported by Yokohana Bank in 2018? (A Examination Reviewer: AUDITING PROBLEMS 2016-2017 Ed. By Gerardo S. Roque, Problem 2-22, page 193)

OSTULANO, ELGENEROSE B. EASY: 1.

In the December 31, 2018 statement of financial position of Mildred Company, the current receivables consisted of the following: Trade s receivable 930,000 Allowance for uncollectible s ( 20,000) Claim against shipper for goods lost In transit (November 2018) 30,000 Selling price of unsold goods sent by Mildred on consignment at 130% of cost (not included in Mildred’s ending inventory) 260,000 Security deposit on lease of warehouse Used for storing some inventories 300,000 Total 1,500,000

On December 31, 2018, what total amount should be reported as trade and other receivables under current assets? 2.

The following information pertains to Jasmine Co.: Credit sales for the year ended Dec 31, 2018 Credit balance in allowance for bad debts – Jan 1, 2018 Bad debts written off during 2018

450,000 10,800 18,000

According to past experience, 3% of Jasmine’s credit sales have been uncollectible. After provision is made for bad debt expense for the year ended December 31, 2018, the allowance for uncollectible s balance would be? 3.

The following information pertains to Honey Co.’s s receivable at December 31, 2018: Days Estimated Outstanding Amount % Uncollectible 0 – 60 120,000 1% 61 – 120 90,000 2% Over 120 100,000 6%

During 2018, Honey wrote off P7,000 in receivables and recovered P4,000 that had been written off in prior years. Honey’s December 31, 2018, allowance for uncollectible s was P22,000. Under the aging method, what amount of allowance for uncollectible s should Honey report at December 31, 2018? MODERATE: 1.

Volter Company sold s receivable without recourse for P530,000. Volter received P500,000 cash immediately from the factor. The remaining P30,000 will be received once the factor verifies that none of the s receivable is in dispute. The s receivable had a face amount of P600,000. Volter had previously established an allowance for bad debts of P25,000 in connection with these s. What is the loss on factoring that will be recognized by Volter Company?

For questions 2 & 3:

Sad Co. is a dealer in equipment. On December 31, 2018, Smile Co. sold an equipment in exchange for a noninterest bearing note requiring five annual payments of P500,000. The first payment was made on December 31, 2019. The market interest for similar notes was 8%. The relevant present value factors are: PV of 1 at 8% for 5 periods PV of an ordinary annuity of 1 at 8% for 5 periods 2. 3.

0.68 3.99

In its December 31, 2018 statement of financial position, what should Smile Co report as note receivable? What interest income should be reported for 2019?

HARD: For questions 1 – 3: Smile Bank loaned P5,000,000 to Dream Company on January 1, 2017. The of the loan require principal payments of P1,000,000 each year for 5 years plus interest at 8%. The first principal and interest payment is due on January 1, 2018. Dream Company made the required payments during 2018 and 2019. However, during 2019 Dream Company began to experience financial difficulties, requiring Smile to reassess the collectibility of the loan. On December 31, 2019, Smile Bank has determined that the remaining principal payment will be collected but the collection of the interest is unlikely. Smile Bank did not accrue the interest on December 31, 2019. The present value of 1 at 8% is as follows: For one period For two periods For three periods 1. 2. 3.

What is the loan impairment loss on December 31, 2019? What is the interest income to be reported by Smile Bank in 2020? What is the carrying amount of the loan receivable on December 31, 2020?

Reference: Practical ing One by Valix Intermediate Financial ing Part 1A by Millan

0.926 0.857 0.794

Harriet A. Ramos AUDITING PROBLEMS IN RECEIVABLES EASY Problem 1

(Practical Financial ing Volume 1, Valix, 2016 Edition pg. 210)

Roxy Company provided the following information relating to s receivable for the current year: s Receivable

1,300,000

Credit Sales

5,400,000

Collections from customers, excluding recovery

4,750,000

s written off

125,000

Collection of s written off in prior year (customer credit was not reestablished)

25,000

Estimated s receivables per aging of receivables at December 31

165,000

What is the balnce of s receivable, before allowance for doubtful s on December 31? a. b. c. d.

P 1,825, 000 P 1,850,000 P 1,950,000 P 1,990,000

Problem 2

(Practical Financial ing Volume 1, Valix, 2016 Edition pg. 212)

Infra Company provided the following data for the current year: Sales on Notes received to settle s

3,600,000 400,000

Provision for doubtful s

90,000

s receivable written off

25,000

Purchases on

3,900,000

Payments to creditors

3,200,000

Discounts allowed by creditors Merchandise returned by customers Collections received to settle s

260,000 15,000 2,450,000

Notes given to creditors in settlement of s

250,000

Merchandise returned to suppliers

70,000

Payment on notes payable

100,000

Discounts taken by customers

40,000

Collections received in settlement of notes

180,000

What is the net realizable value of s receivable at year-end? a. b. c. d.

605,000 890,000 825,000 670,000

Problem 3

(Practical Financial ing Volume 1, Valix, 2016 Edition pg. 214)

On December 31, 2016, Miami Company reported that the current receivables consisted of the following: Trade s receivable

930,000

Allowance for uncollectible s

( 20,000)

Claim against shipper for goods lost in transit in November

30,000

Selling price of unsold goods sent by miami on consignment at 130% of cost and not included in Miami’s ending inventory

260,000

Security deposit on lease of warehouse Used for storing some inventories Total

300,000 1,500,000

On December 31, 2016, what total amount should be reported as trade and other receivables under current assets? a. b. c. d.

940,000 1,200,000 1,240,000 1,500,000

MODERATE

Problem 1

(Practical Financial ing Volume 1, Valix, 2016 Edition pg. 225)

Tara Company provided the following information pertaining to s receivable on December 31, 2016: Days Outstanding

Estimated Amount

0-60

1,200,000

1%

900,000

2%

61-120 Over 120

Estimated uncollectible

1,000,000

60,000

During the current year, the entity wrote off P 70,000 in s receivable and recovered P 40,000 that had been written off in prior years. On January 1, 2016, the allowance for uncollectible was P 100,000. Under the aging method, what amount of allowance for uncollectible s should be reported on December 31, 2016? a. 190,000 b. 100,000 c. 130,000 d. 90,000

Problem 2

(Auditing Problems, Roque, 2016-2017 Edition, pg. 195)

On January 1, 2014, MELON CORP. loaned P 3,000,000 Debtor Company. Under the loan agreement, Debtor Company is to make an annual principal payment of P 600,000 for 5 years plus interest at 8%. The first principal and interest payment is due on January 1, 2015. The required payments were made by Debtor Company for 2015 and 2016. However, during 2016, Debtor Company began to face financial difficulties, requiring Melon Corp. determines that it will be able to collect remaining principal, but it is unlikely that the interest will be collected. The following present value factors are taken from the table of present values: Present value of 1 at 8% for: 1 period

0.92593

2 periods

0.85734

3 periods

0.79383

What is the present value of the expected future cash flows as of December 31, 2016? a. b. c. d.

P 1,800,000 P 2,146,260 P 1,669,962 P 1,428,894

Problem 3

(Practical Financial ing Volume 1, Valix, 2016 Edition pg. 242)

Sigma Company began operations on January 1, 2015. On December 31, 2015, the entity provided for doubtful s based on 1% of annual credit sales. On January 1, 2016, the entity changed the method of determining the allowance for doubtful s by aging of s receivable. Days past invoice date

Percent uncollectible

0-30

1%

31-90

5%

91-180

20%

Over 180

80%

In addition, the entity wrote off all s receivable that were over 1 year old. The following additional information related to the years ended December 31, 2016 and 2015. 2016

2015

Credit Sales

3,000,000

2,800,000

Collections, including recovery

2,915,000

2,400,000

27,000

none

7,000

none

0-30

300,000

250,000

31-90

80,000

90,000

91-180

60,000

45,000

Over 180

25,000

15,000

s written off Recovery of s previously written off Days past invoice date at December 31

1. What is the allowance for doubtful s on December 31, 2015? a. 28,000 b. 24,000 c. 26,000 d. 0

2. What is the allowance for doubtful s on December 31, 2016? a. 30,000 b. 39,000 c. 29,150 d. 27,000

3. What amount should be reported as doubtful s expense for 2016? a. 39,000 b. 31,000 c. 38,000 d. 11,000

DIFFICULT Problem 1

(Auditing Problems, Roque, 2016-2017 Edition, pg. 146)

CALACHUCHI CORP.’s s receivable subsidiary ledger shows the following information:

BALANCE CUSTOMER Aruy, Inc.

Naku Co.

Syak Corp.

Trip Co.

Uy Co.

Xak Corp.

INVOICE

DEC. 31, 2016

DATE

P 35,180

12/06/16

P 14,000

12/29/16

21,180

09/27/16

12,000

08/20/16

8,920

12/08/16

20,000

10/25/16

10,600

11/17/16

23,140

10/09/16

22,000

12/12/16

19,200

12/02/16

12,400

09/12/16

17,400

20,920

30,600

45,140

31,600

17,400

AMOUNT

The estimated bad debts rates below are based on Calachuchi Corp.’s receivable collection experience.

Age of s

Rate

0 – 30 days

1%

31 – 60 days

1.5%

61 – 90 days

3%

91 – 120 days

10%

Over 120 days

50%

The allowance for bad debts had a debit balance of P 5,500 on December 31, 2016, before adjustment. 1. The company’s s receivable under “61 – 90 days” category should be a. P 32,600

c. P 44,600

b. P 44, 320

d. P 42,000

2. The company’s s receivable under “91 – 120 days” category should be a. P 38,320

c. P 29,400

b. P 40,000

d. 12,000

3. The allowance for bad debts to be reported in the statement of financial position at December 31, 2016, is a. P 9,699

c. P 4,199

b. P 15,199

d. P 5,500

Problem 2

(Auditing Problems, Roque, 2016-2017 Edition, pg. 166)

The folloqing information is based on a first audit of SABILA COMPANY. The client has not prepared financial statements for 2014, 2015, or 2016. During these years, no s have been written off as uncollectible, and the rate of gross profit on sales has remained constant for each three years.

Prior to January 1, 2014, the client used the accrual method of ing. From January 1, 2014, to December 31, 2016, only cash receipts and disbursements records were maintained.

When sales on were made, they were entered in the subsidiary s receivable ledger. No general ledger postings have been made since December 31, 2013.

As a result of your examination, the correct data shown in the table below are available:

12/31/13

12/31/16

P 15,400

P 28,200

1,200

1,800

s Receivable balances: Less than one year old One to two years old Two to three years old

800

Over three years old

2,200

Total s receivable

P 16,600

P 33,000

Inventories

P 11,600

P 18,800

s Payable for inventory purchased

P 5,000

P 11,000

Cash received on s receivable in:

2014

2015

2016

Applied to: Current year collections s of the prior year s of two years prior Total

Cash Sales

P 148,800

P 161,800

P 208,800

13,400

15,000

16,800

600

400

2,000

P 162,800

P 177,200

P 227,600

P 17,000

P 26,000

P 31,200

P 141,200

P 173,800

Cash disbursement for inventory purchased P 125,000

1. The company’s sales revenue for the three-year period amounted to a. P 658,200 b. P 74,200

c. P 625,400 d. P 415,300

2. What is the aggregate amount of purchases for the three-year period?

a. P 131,000 b. P 440,000

c. P 434,000 d. P 446,000

3. What is the company’s gross profit ratio in each of the three-year period? a. 33.33% b. 28.35%

Problem 3

c. 35.16% d. 31.15%

(Auditing Problems, Roque, 2016-2017 Edition, pg. 176)

PILIPINAS HOTEL manages an extensive network of boutique hotels in the country. The company has significant receivables from three customers, P 250,000 due from Tayuman Hotel, P 450,000 due from Malabon Hotel, and P 400,000 due from Batangas Hotel. Pilipinas has other receivables totaling P 225,000. Pilipinas determines that the receivable from Malabon Hotel is impaired by P 75,000 and the Batangas Hotel receivable is impaired by P 100,000. The receivable from Tayuman Hotel is not considered impaired. Pilipinas also determines that a composite rate of 5% is appropriate to measure impairment on all other s receivable. After recognizing the impairment loss, what amount of receivables should Pilipinas Hotel report in its statement of financial position? a. P 1,325,000

c. P 1,150,000

b. P 1,126,250

d. P 1,137,500

LARA, JIMEREZEL Easy (From Practical Financial ing Volume 1 by Conrado T. Valix) 1) Problem 18-1 (AIA Adapted) IH8U Company provided the following information relating to s receivable for the current year: s receivable on January 1

1,300,000

Credit sales

5,400,000

Collections from customers, excluding recovery

4,750,000

s written off

125,000

Collection of s written off in prior year (customer credit was not reestablished)

25,000

Estimated uncollectible receivables per aging of receivables at December 31

165,000

What is the balance of s receivable, before allowance for doubtful s on December 31? 2) Problem 18-2 (AIA Adapted) Walwal Company provided the following data relating to s receivable for the current year: s receivable, January 1 Credit sales Sales returns s written off Collections from customers Estimated future sales returns at December 31 Estimated uncollectible s at 12/31 per aging

650,000 2,700,000 75,000 40,000 2,150,000 50,000 110,000

What amount should be reported as net realizable value of s receivable on December 31? 3) Problem 18-5 (AIA Adapted) On December 31, 2018, Golden State Company reported that the current receivables consisted of the following: Trade s receivable

930,000

Allowance for uncollectible s Claim against shipper for goods lost in transit in November Selling price of unsold goods sent by Miami on consignment at 130% of cost and not included in Golden State’s ending inventory Security deposit on lease of warehouse used for storing some inventories. Total

(20,000) 30,000

260,000 300,000 1,500,000

On December 31, 2018, what total amount should be reported as trade and other receivables under current assets? MODERATE (From Practical Financial ing Volume 1 by Conrado T. Valix) 1) Problem 18-6 (AIA Adapted) Hope Company provided the following information relating to current operations: s receivable, January 1 s receivable collected Cash sales Inventory, January 1 Inventory, December 31 Purchases Gross margin on sales

4,000,000 8,400,000 2,000,000 4,800,000 4,400,000 8,000,000 4,200,000

What is the balance of s receivable on December 31? 2) Problem 23-4 (AIA Adapted) On January 1, 2016, Gin Company sold goods to Kid Company. Kid signed a noninterest-bearing note requiring payment of P600,000 annually for seven years. The first payment was made on January 1, 2016. The prevailing rate of interest for this type of note at date of issuance was 10%. Period Present value of 1 at 10% Present value of ordinary annuity of 1 at 10% 6 .56 4.36 7 .51 4.87 What amount should be recorded as sales revenue in January 2016? 3) Problem 18-7 (PHILA Adapted)

Jamaica Company revealed a balance of P8,200,000 in the s receivable control at year-end. An analysis of the s receivable showed the following: s known to be worthless Advance payments to creditors on purchase orders Advances to d entities Customers’ s reporting credit balances arising from sales returns Interest receivable on bonds Trade s receivable-unassigned Subscription receivable due in 30 days Trade s receivable-assigned Trade installements recivable due 1-18 months including unearned finance charge of 50,000 Trade s receivable from officers, due currently Trade s on which postdated checks are held And no entries were made on receipt of checks Total

100,000 400,000 1,000,000 (600,000) 400,000 2,000,000 2,200,000 1,500,000 850,000 150,000 200,000 8,200,000

What amount should be reported as trade s receivable at year-end? DIFFICULT (Practical Financial ing Volume 1 by Conrado T. Valix) 1) Problem 24-1(IFRS) Jolo Bank granted a loan to a borrower on January 1, 2016. The interest rate on the loan is 10% payable annually starting December 31, 2016. The loan matures in five years on December 31, 2020. Principal amount Origination fee received from borrower Direct origination cost incurred

4,000,000 350,000 61,500

The effective rate on the loan after considering the direct origination cost incurred and origination fee received is 12%. What is the carrying amount of the loan receivable on January 2016? What is the interest income for 2016? What is the carrying amount of the loan receivable on December 31, 2016?

2) Problem 24-2 (IFRS) International Bank granted a loan to a borrower on January 1, 2016. The interest on the loan is 10% payable annually starting December 31, 2016. The loan matures in three years on December 31, 2018. Principal amount Origination fee charged against borrower Direct origination cost incurred

4,000,000 342,100 150,000

After considering the origination fee charged against the borrower and the direct origination cost incurred, the effective rate on the loan in 12%. What is the carrying amount of the loan receivable on January 1, 2016? What is the interest income for 2016? 3) Problem 25-3 (IAA) On January 1, 2016, Oceanic Bank made a P1,000,000, 8% loan. The P80, 000 interest is receivable at the end of each year, with the principal amount to be received at the end of five years. At the end of 2016, the first year’s interest of P80, 000 has not yet been received because the borrower is experiencing financial difficulties. The borrower negotiated a restructuring of the loan. The payment of all of the interest for 5 years will be delayed until the end of the 5-year loan term. In addition, the amount of principal repayment will be dropped from P1, 000,000 to P500, 000. The PV of 1 at 8% for 4 periods is .735. No interest revenue has been recognized in 2016 in connection with the loan. What is the loan impairment loss on December 31, 2016? What is the interest income for 2017?

KIMBERLY LEDUNA EASY 1. Nagmahal Company provided the following information relating to current operations: s Receivable, January 1

4,000,000

s 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

What is the balance of s receivable on December 31? 2. Nasaktan Company allowance for doubtful s was P1,000,000 at the end of 2016 and P900,000 at the end of 2015. For the year ended December 31,2016, the entity reported doubtful s expense of P160,000 in the income statement. What amount was debited to the appropriate to write off uncollectible s in 2016? 3. On January 1,2016, Gumanda Company had a credit balance of 260,000 in the allowance for uncollectible s. Based on past experience, 2% of credit sales would be uncollectible s. Credit sales for the year totaled P9,000,000. What is the uncollectible s expense for the year?

MODERATE 1. NakamoveON Company used the allowance method of ing for uncollectible s. During the current year, the entity had charged P800,000 to bad debt expense, and wrote off s receivable of P900,000 as uncollectible. What was the decrease in working capital? 2. WALANGFOREVER Company provided the following information pertaining to s receivable on December 31,2016: Days outstanding

Estimated Amount

Estimated Uncollectible

0-60 61-120 Over 120

1,200,000

1%

900,000

2%

1,000,000

60,000

During the current year, the entity wrote off P70,000 in s receivable and recovered P40,000 that had been written off in prior years. On January 1,2016, the allowance for uncollectible s was P100,000. Under the aging method, what amount of allowance for uncollectible s should be reported on December 31,2016? 3. At the end of first year of operations, BITTER Company had a net realizable value of s receivable of P5,000,000. During the year, the entity recorded charges to bad debts expense of P800,000 and wrote off as uncollectible s receivable of P200,000. What is the year- end s receivable balance before the allowance for doubtful s?

DIFFICULT 1. OKAY-AKO Company accepted from a customer P100,000 face amount, 6-month, 8% note dated April 15,2016. On the same date, the entity discounted the note without recourse at a 10% discount rate. What amount of cash was received from the discounting? 2.

On July 1,2016, OKAYLANGTALAGA-AKO Company sold goods in exchange for P2,000,000, 8month, noninterest-bearing note receivable. At the time of the sale, the market rate of interest was 12%. The entity discounted the note at 10% on September 1,2016. What was the cash received from discounting?

3. On July 1,2016, OKAYNGALANG-AKO Company sold equipment to ANGKULIT-NYO Company for P1,000,000. OKAYNGALANG-AKO accepted a 10% note receivable for the entire sales price. This note is payable in two equal installments of P500,000 plus accrued interest on December 31,2016 and December 31,2017. On July 1,2017, the entity discounted the note at a bank at an interest rate of 12%. What is the amount received from the discounting of note receivable?

PETER NEIL B. MADJUS FOURTH YEAR – BSA

RECEIVABLES EASY Problem 1. (Reynaldo R. Ocampo) Your audit disclosed that on December 31, 2017, the s receivable control of Alilem Co. had a balance of P2,865,000. An analysis of the s receivable showed the following: s known to be worthless Advance payments to creditors on purchase orders Advances to d companies Customer’s s reporting credit balance arising from sales return Interest receivable on bonds Other trade s receivable – unassigned Subscription receivable due in 30 days Trade s receivable – assigned (Alilem Co.’s equity in assigned is P150,000) Trade installment receivable due 1 – 18 months including unearned finance charges of P30,000 Trade receivables from officers due currently Trade s on which post-dated checks are held (no entries were made on receipts of checks)

P 37,500 150,000 375,000 (225,000) 150,000 750,000 825,000 375,000 330,000 22,500 75,000 P2,865,000

Questions: 1. The trade s receivable as of Dec 31, 2017 is a. P1,147,500 c. P1,485,000 b. P1,522,500 d. P1,447,500 2. The net current trade and other receivables as of December 31, 2017 is a. P2,647,500 c. P2,272,500 b. P2,610,000 d. P1,822,500 3. How much of the foregoing will be presented under noncurrent assets as of Dec 31, 2017? a. P1,200,000 c. P 525,000 b. P 375,000 d. P 0

Problem 2. (Reynaldo R. Ocampo) Cabugao Company provides for doubtful s based 3% of credit sales. The following data are available for 2017. Credit sales during 2017 Allowance for doubtful s 1/10/17 Collection of s written off in prior years (customer credit was reestablished) Customer s written off as uncollectible during 2017

P 21,000,000 170,000 80,000 300,000

What is the balance in allowance for doubtful s at December 31, 2017? a. P 630,000 c. P 500,000 b. P 420,000 d. P 580,000 Problem 3. (Reynaldo R. Ocampo) The following s were taken from Cervantes Inc.’s statement of financial position at December 31, 2017. Debit Credit s receivable P 4,1000,000 Allowance for doubtful s 100,000 Net credit sales P 7,500,000 If doubtful s are 3% of s receivable, determine the bad debt expense to be reported for 2017? a. P 123,000 c. P 223,000 b. P 23,000 d. P 225,000

MODERATE Problem 1. (GERARDO S. ROQUE) The following information is from GUMAMELA CORP.’s first year of operations: 1. Merchandise purchased P 450,000 2. Ending merchandise inventory 123,000 3. Collections from customers 150,000 4. All sales are on and goods sell at 30% above cost. What is the s receivable balance at the end of the company’s first year of operations? a. P 275,100 c. P 257,200 b. P 290,500 d. P 257,100

Problem 2. (Gerardo S. Roque) On January 1, 2016, Waling-waling Co. sells its equipment with carrying value of P160,000. The company receives a non-interest bearing note due in 3 years with a face amount of P200,000. There is no establised market value for the equipment. The prevailing interest rate for a note of this type is 12%. The following are the present value factors of 1 at 12%. Present value of 1 for 3 periods Present value of an ordinary annuity of 1 for 3 periods

0.71178 2.40183

1. What is the gain or loss to be recognized on the sale of the equipment? a. P 17,644 c. P 18,044 b. P 20,200 d. P 16,406 2. What is the discount on note receivable on January 1, 2017? a. P 57,644 c. P 55,644 b. P 55,330 d. P 57,330 3. What is the discount amortization at the end of the third year (using the effective interest method)? a. P 21,428 c. P 22,300 b. P 19,620 d. P 19,206 Problem 3. (Gerardo S. Roque) On January 1, 2014, Melon Corp. loaned P3,000,000 to Debtor Company. Under the agreement, Debtor Company is to make an annual principal payment of P600,000 for 5 years plus interest at 8%. The frst principal and interest payment is due on January 1, 2015. The required payments were made by Debtor Company for 2015 and 2016, Debtor Company began to face financial difficulties, requiring Melon Corp. to reevaluate the collectibility of the loan. On December 31, 2016, Melon Corp. determines that it will be able to collect the remaining principal, but is unlikely that the interest will be collected. The following present value factors are taken from the table of present values: Present value of 1 at 8% for: 1 period 0.92593 2 periods 0.85734 3 periods 0.79383 1. What is the present value of the expected future cash flows as of December 31, 2016? a. P 1,800,000 c. P 1,669,962 b. P 2,146,260 d. P 1,428,894 2. What is the amount of loan impairment on December 31, 2016? a. P 371,106 c. P 730,038 b. P 130,038 d. P 0

DIFFICULT Problem 1. (Gerardo S. Roque) YOKOHANA BANK loaned P5,500,000 to BARGAIN CO. on January 1, 2016. The Initial loan repayment include a 10% interest rate plus annual principal payments of P1,100,000 on January 1 each year. BARGAIN made the required interest payment in 2016 but did not make the P1,100,000 principal payment nor the P550,000 interest payment for 2017. Yokohana is preparing its annual financial statements on December 31, 2017. Bargain is having financial difficulty, and Yokohana has concluded that the loan is impaired. Analysis of Bargain’s financial condition on December 31, 2017, indicates the principal payments will be collected, but the collection of interest is unlikely. Yokohana did not accrue the interest on Dec. 31, 2017. The projeced cash flows are: December 31, 2018 December 31, 2019 December 31, 2020

P 1,750,000 2,000,000 1,750,000 P5,500,000

1. What is the loan impairment loss on Dec 31, 2017? a. P 941,500 c. P 0 b. P 550,000 d. P 5,500,000 2. What is the interest income to be reported by YOKOHANA BANK in 2018? a. P 501,435 c. P 455,850 b. P 326,435 d. P 550,000 3. What is the carrying value of the loan receivable on December 31, 2019? a. P 1,590,785 c. P 3,264,350 b. P 1,750,000 d. P 4,558,500 Problem 2. (Reynaldo R. Ocampo) You were able to obtain the following information from your audit of Magsingal Corporation’s s Receivable and Allowance for Doubtful s: 

From the general ledger you noted that the s Receivable has a balance of P848,000 as of December 31, 2010. Below is a transcript of the Allowance for Doutful s: Debit January 1 – Balance July 31 – Write-off P 16,000 December 31 – Provision



Credit

P48,000

Balance P20,000 4,000 P52,000

The summary of the subsidiary ledger as of December 31, 2010 was totaled as follows: Debit balances: Under one month P 360,000

One to six months Over six months

368,000 152,000 P 880,000

Credit balances: Alien P 8,000 – Ok; additional billing in Jan., 2011 T. Twister 14,000 – should have been credited to Apol* Dee Lah 18,000 – Advances on sales contract * is one to six months classification The customers’ ledger is not in agreement with the s receivable control. The client requested you to adjust the control to the subsidiary ledger after corrections are made. 

It is agreed that 1 percent is adequate for s under one month. s one to six months are expected to require a reserve of 2 percent. s over six months are analyzed as follows: Definitely bad P 48,000 Doubtful (estimated to be 50% collectible) 24,000 Apparently good, but slow (estimated to be 90% collectible) 80,000 P152,000 1. How much is the adjusted balance of s Receivable as of December 31, 2010? a. P 818,000 c. P 832,000 b. P 846,000 d. P 826,000 2. How much is the adjusted balance of the allowance for doubtful s as of December 31, 2010? a. P 30,680 c. P 30,960 b. P 31,240 d. P30,760 3. How much is the Doubtful s expense for the year 2010? a. P 74,680 c. P 74, 960 b. P 75,240 d. P 74,760

Problem 3. (Reynaldo R. Ocampo) The Vigan Company included the following in its notes receivable as of December 31, 2010: Note receivable from sale of land P 880,000 Note receivable from consultation 1,200,000 Note receivable from sale of equipment 1,600,000 In connection with your audit, you were able to gather the following transactions during 2010 and other information pertaining to the company’s notes receivable: 

On January 1, 2010, Vigan Company sold a tract of land. The land, purchased 10 years ago, was carried on Vigan Company’s books at a value of P500,000. Vigan received a noninterest – bearing note for P880,000. The note is due on December 31, 2011. There is no readily available market value for the land, but the current market rate of interest for comparable notes is 10%.



On January 1, 2010, Vigan Company finished consultation services and accepted in exchange a promissory note with a face value of P1,200,000, a due date of December 31, 2012, and a stated rate of 5% with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%.



On January 1, 2010, Vigan Company sold equipment with a carrying amount of P1,600,000 to X company. As payment, X gave Vigan Company a P2,400,000 note. The note bears an interest rate of 4% and is to be repaid in three annual installments of P800,000 (plus interest on outstanding balance). The first payment was received on December 31, 2010. The market price of the equipment is not reliably determinable. The prevailing rate of interest for notes of this type is 14%.

Questions: (Round off present value factors to four decimal places and final answers to nearest hundred) 1. The consultation service fee revenue that should be recognized in 2010 is a. P1,050,800 c. P 901,600 b. P1,095,800 d. P1,200,000 2. The gain on sale of equipment that should be recognized in 2010 is a. P331,600 c. P412,400 b. P257,280 d. P800,000 3. The noncurrent notes receivable as of December 31, 2010 is a. P2,605,706 c. P2,494,000 b. P1,825,800 d. P2,625,700 4. The current portion of long term notes receivables as of December 31, 2010 is a. P1,600,000 c. P1,468,200 b. P1,680,000 d. P 800,000 5. The interest income to be recognized in 2010 is a. P464,000 c. P459,500 b. P435,800 d. P156,000

REPOLLO, RENZ A. EASY 1. Orr Company prepared an aging of s receivable on December 31, 2018 and determined that the net realizable value of the s receivable was ₱ 2,500,000. Allowance for doubtful s on January 1 s written off as uncollectible s receivable on December 31 Uncollectible s recovery

280,000 230,000 2,700,000 50,000

What amount should recognized as doubtful s expense for the current year? (Problem 19-1, Practical ing 1, Valix, 2016)

2. At the first year of operations, Water Company had a net realizable value of s receivable of ₱ 5,000,000. During the year, the entity recorded charges to bed debt expense of ₱ 800,000 and wrote of as uncollectible s receivable of ₱ 200,000. What is the year-end s receivable balance before the allowance for doubtful ? (Problem 19-5, Practical ing 1, Valix, 2016)

3. Seiko Company reported the following balances after adjustments at year-end:

s Receivable Net Realizable Value

2018 5,250,000 5,100,000

2017 4,800,000 4,725,000

During 2018, the entity wrote off s totalling ₱ 160,000 and collected ₱ 40,000 on s written off in previous year. What amount should be recognized as doubtful s expense for the year ended December 31, 2018? (Problem 19-2, Practical ing 1, Valix, 2016)

MODERATE 1. Tara Company provided the following information pertaining to s receivable on December 31, 2018: Days Outstanding 0-60 61-120 Over 121

Estimated Amount 1,200,000 900,000 1,000,000

Estimated Uncollectible 1% 2% 60,000

During the current year, the entity wrote off ₱ 70,000 in s receivable and recovered ₱ 40,000 that had been written off in prior years. On January 1, 2018, the allowance for uncollectible s was ₱ 100,000. Under the aging method, what amount of allowance for uncollectible s should be reported on December 31, 2018? (Problem 19-6, Practical ing 1, Valix, 2016)

2. Beach Bank loaned Boracay Company ₱ 7,500,000 on January 1, 2014. The of the loan were payment in full on January 1, 2018 plus annual interest payment at 11%. The interest payment was made as scheduled in January 1, 2015. However, due to financial setbacks, Boracay Company was unable to make the 2016 interest payment. Beach Bank considered the loan impaired and projected the cash flow from the loan on December 31, 2015. The bank accrued the interest on December 31, 2015, but did not continue to accrue interest for 2016 due to impairment of the loan. The projected cash flows are: Date of cash flow December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020

Amount projected on Dec. 31, 2016 500,000 1,000,000 2,000,000 4,000,000

The PV of 1 at 11% is 0.90 for one period, 0.81 for two periods, 0.73 for three periods, and 0.66 for four periods. What is the loan impairment loss on December 31, 2016? (Problem 25-1, Practical ing 1, Valix, 2016)

3. On December 31, 2016, Macedon Bank has 5 year loan receivable with a face value of ₱ 5,000,000 dated January 1, 2015 that is due on every December 31, 2019. Interest on the loan is payable at 9% every December 31. The borrower paid interest that was due on December 31, 2015 but informed the bank that interest accrued in 2016 will be paid at maturity date. There is high probability that the remaining interest payment will not be paid because of financial difficulty. The prevailing market rate of interest on December 31, 2016 is 10%. The PV of 1 for three periods is 0.772 at 9% and 0.751 at 10%. What is the loan impairment loss to be recognized on December 31, 2016? (Problem 25-4, Practical ing 1, Valix, 2016) DIFFICULT 1. On December 31, 2016, Oregon Bank recorded an investment of ₱5,000,000 in a loan granted to a client. The loan has a 10% effective interest rate payable annually every December 31. The principal is due in full maturity on December 31, 2019. Unfortunately, the borrower is experiencing significant difficulty and will have difficult time in making full payment. The bank projected that the entire principal will be paid at maturity date and 4% interest of ₱200,000 will be paid annually on December 31 of the next three years. There is no accrued interest on December 31, 2016. The present value of 1 at 10% for three periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for the three periods is 2.49. a. What is the loan impairment loss for 2016? b. What is the interest income for 2017? c. What is the carrying amount of the loan receivable on December 31, 2017? (Problem 25-6, Practical ing 1, Valix, 2016)

2. An aging of Maligaya Campany’s s receivable on December 31, 2012, reveals the following information:

Time Outstanding Under 30 days 30-60 days 61-120 days 121-180 days Over 180 days Total

Amount of Receivables ₱ 80,000 16,000 12,000 8,000 4,000 ₱ 120,000

Based on past experience, the company believes that the following uncollectible percentages are appropriate: under 30 days, 1.5%; 30-60 days, 3%; 61-120 days, 15%; 121-180 days, 30%; Over 180 days, 60%. Instructions: Using the aging of s receivable variation of the balance sheet approach, prepare the adjusting entry on December 31, 2012 to record estimated bad debts, assuming that the balance in the Allowance for Doubtful s before adjustments is: a. 440 Cr b. 560 Dr (VI – 13, Auditing Problems, Cabrera, 2012-2013)

3. Harding Corp. operates in an industry that has a high rate of bad debts. On December 31, 2012, before any year-end adjustments, Harding’s s receivable balance was ₱600,000 and its Allowance for doubtful s balance was ₱25,000. The year-end balance reported in the statement of financial position for the Allowance for doubtful s will be based on the aging schedule shown as follows: Time Outstanding Under 15 days 16-30 days 31-45 days 46-60 days 61-75 days Over 75 days

Amount of A/R ₱ 300,000 200,000 50,000 50,000 10,000 10,000

Probability of Collection 0.98 0.90 0.80 0.70 0.65 0.00

Instructions: a. What is the appropriate balance for Allowance for Doubtful s on December 31, 2012? b. Show how the s receivable would be presented on the balance sheet on December 31, 2012. (VI – 14, Auditing Problems, Cabrera, 2012-2013)

Goden, Vincent Louise B. Auditiing Problems (easy)

1. Ladd Company provided the following information for the current year: Allowance for doubtful s- Jan 1 Sales

180,000 9,500,000

Sales return and allowances

800,000

Sales Discounts

200,000

s written off

200,000

The entity provided for doubtful s expense at the rate of 3 % of net sales. What is the allowance of doubtful s at year-end?

2. Barr company showed the following at year end: Allowance for doubtful s Net Sales

16,000 dr 7,100,000

The entity estimated its uncollectible receivables at 2% of net sales. What is the allowance for doubtful s at year-end?

3. Effective with the year ended Dec 31, Hall co. adopted a new ing method for estimating the allowance for doubtful s at the amount indicated by the year-end aging of s receivable. The following data are available: Allowance for doubtful s, Jan. 1

250,000

Provision for doubtful s during the current year (2% of credit sales of 10,000,000)

200,000

s written off

205,000

Estimated uncollectible s per aging on Dec. 31

220,000

After year-end adjustment, what is the doubtful expense for current year?

Moderate

4. Roth Co. received from a customer a one year, 500,000 note bearing annual interest of 8%. After holding the note for six months, the entity discounted the note without recourse at 10% What amount of cash was received from the bank?

5. Star Co. assigned 4,000,000 of s receivable as collateral for a 2,000,000 6% loan with bank. The entity also paid a finance fee of 5% on the transaction upfront. What amount should be recorded as a gain or loss on the transfer of s receivable?

6. Brooked Co. discounted its own 5,000,000 one-year note at a discount rate of 12%, when the prime rate was 10%. In reporting the note prior to maturity. What rate should be used for the recording of interest expense? Difficult 7. Appari Bank granted a loan to a borrower on Jan 1 2013. The interest rate on the loan is 10% payable annually starting Dec 31, 2013. The loan matures in 5 years on Dec 31, 2017. The data related to the loan are: Principal amount

4,000,000

Direct origination cost Origination Fee received from a borrower

61,500 350,000

The effective interest rate on the loan after considering the direct origination fee received is 12% What is the carrying amount of the loan receivable on Jan 1, 2013 8. On Dec 1, 2013, Nicole Co. gave Dawn Co a 200,000, 12% loan. Nicole Co. paid Proceeds of 194,000 after deduction of 6,000 non-refundable loan origination fee. Principal and interest are due in 60 monthly installments of 4,450, Beginning Jan 1 20114. The prepayments yield an effective interest rate of 12% at present of 200,000 and 13.4% at a present value of 194,000. What amount should be reported as accrued interest receivable on Dec 31, 2013?

9. On Dec 31, 2013, Oregon Bank recorded an investment of 5,000,000 in a loan granted to a client. The loan has a 10% effective interest rate payable annually every Dec 31. The principal is due a t maturity on Dec. 31, 2016. Unfortunately, the borrower is experiencing significant financial difficulty in making payments. The projected that the entire principal will be paid at

maturity and 4% interest or 200,000 will be paid annually in Dec 31 of the next three years. There is no accrued interest on Dec. 31 2013. What is the impairment loss for 2013?