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FINANCIAL ING REVIEW
s Receivable
Problem 1 (3-8) On January 1, 2016, Pau Company sold a piece of land with a carrying amount of Php12,000,000 in exchange for a 5% promissory note with face amount of Php15,000,000. The note is payable in annual installment of Php5,000,000 plus accrued
interest on the outstanding balance. The first installment is due on December 31, 2016. There is no established cash price for the land and the note has no ready market. The prevailing interest rate for a note of this type is 10%.
Required: a. b.
Prepare an amortization table (2016 to 2018) Prepare all entries to record the transactions from January 1, 2016 to December 31, 2018
The note is interest-bearing, but the rate of interest of the note (5%) is unreasonably lower than the prevailing rate (10%) for similar obligation. The present value of the note is determined as follows: 5 M + (5% x 15 M) = 5,750,000 x 0.9091 P5,227,325 5 M + (5% x 10 M) = 5,500,000 x 0.8264 4,545,200 5 M + (5% x 5 M) = 5,250,000 x 0.7513 3,944,325 Total P13,716,850
Problem 2 (3-6) On January 1, 2016, Mari Company sold a tract of land that was acquired several years ago for Php5,600,000. Mari Company received a three-year, non-interest bearing note for Php12,000,000 in exchange for land . There is no readily available market value for the land but the current market rate of interest for comparable notes is 15%. The note is payable in equal annual installments of Php4,000,000 every December 31, starting December 31, 2016. Present value of 1 for three periods at 15% is 0.6575. Present value of an ordinary annuity of 1 for three periods at 15% is 2.2832. Required: a. What is the amount of interest revenue recognized in Mari Company’s income statement from 2016 to 2018? b. What is the carrying amount of the note at December 31, 2016 and 2017? c. What amounts of the note shall be classified as current assets and non-current assets at December 31, 2016 and 2017?
FV PV (4,000,000 x 2.2832)
Php
12,000,000 9,132,800 --------------------------2,867,200 ===============
Discount on Notes receivable
Notes Receivable Land Gain on sale of land (9,132,800-5,600,000) Discount on Notes Receivable Effective Interest 1/12016 2016 2017 2018
12,000,000 5,600,000 3,532,800 2,867,200
Principal Carrying Value
9,132,800x15%=1,369,920 4,000,000 6,502,720x15%= 975,408 4,000,000 3,478,128x15%= 521,719 521,872
9,132,800 6,502,720 3,478,128 -
Problem 3 (3-4): Camil Company completed the following transactions during the year 2016: Jan
14
Wrote off the of Mayet Company for Php20,000 that arose from sale in July 2015.
July
31
Received a Php24,000, 90-day 10% note from Pau Company for merchandise sold.
Aug
15
Received a Php40,000 cash plus Php30,000 note from Bulacan Company for merchandise sold. The note is dated August 15 and bears interest at 12%, and matures in 120 days.
Nov
1
Completed a Php40,000 credit card sale with a 4% fee. Cash is received Immediately from the credit card company.
Nov
4
Pau Company refuses to pay the note that was due to Camil Company.
Nov
5
Completed a Php18,000 credit card sale with a 5% fee. The amount due from the credit card company was received on November 9.
Nov
15
Received the full amount of Php20,000 from Mayet Company that was previously written off on January 14.
Dec
13
Received payment of principal plus interest from Bulacan Company for the August 15 note.
Required: Prepare journal entries to record the transactions on Camil Company’s books. July 14
31 Aug. 15
Nov. 1
Nov. 4
5 Nov. 9
Nov. 15 Nov.15 Dec. 13
Allowance for Doubtful s s Receivable-Moret Co. Notes Receivable Sales Cash Notes Receivable Sales Cash Credit Card Service Charge Sales 4% x 40,000 = 1,600 s Receivable-Pau Company Notes Receivable Interest Revenue 24,000 x .10 x 90/360 = 600 s Receivable-Credit Card Sales Cash Credit Card Service Charge s Receivable-Credit Card 5% x 18,000 = 900 s Receivable-Moret Co. Allowance for Doubtful s Cash s Receivable-Moret Co. Cash Notes Receivable Interest Revenue 30,000 x 12% x 120/360 = 1,200
20,000 20,000 24,000 24,000 40,000 30,000 70,000 38,400 1,600 40,000 24,600 24,000 600 18,000 18,000 17,100 900 18,000 20,000 20,000 20,000 20,000 31,200 30,000 1,200
Problem 4 (3-10) The statement of financial position of Honda Inc. shows the s Receivable balance at December 31, 2016 as follows: s receivable Allowance for doubtful s
Php 900,000 18,000
During 2017, transactions relating to the s were as follows: 1. Sales on , Php9,600,000. 2. Cash received from collection of current receivable totaled Php7,840,000 after discounts of Php160,000 were allowed for prompt payment. 3. Credit memo issued to customers for sales returns , Pho120,000. 4. Customers’ s of Php40,000 were ascertained worthless and written off. 5. Recovered Php10,000 of s written off prior to 2017. 6. Received a 90-day, 12% note for Php50,000 from a customer on an overdue . 7. s receivable of Php1,400,000 have been pledged to a bank on a loan of Php800,000. Collections of Php300,000 were made on these receivables (not included in the collections previously given) and applied as partial payment to the loan. 8. Based on assessment of the impairment of receivables, it is estimated that allowance for doubtful s should be Php118,000 at December 31. 9. Recorded the accrued interest on the note in no. 6. The note was dated December 1, 2017. Required:
Prepare journal entries to record the foregoing transactions. After preparing the journal entries , determine the amortized cost of the s receivable at December 31, 2017. a.
s receivable Sales
9,600,000 9,600,000
b.
Cash 7,840,000 Sales discounts 160,000 s receivable c. Sales returns 120,000 s receivable d. Allowance for uncollectible s 40,000 s receivable e. s receivable 10,000 Allowance for uncollectible s Cash 10,000 s receivable f. Notes receivable 50,000 s receivable g. Cash 800,000 Notes payable-bank Cash 300,000 s receivable Notes payable-bank 300,000 Cash h. Uncollectible s expense 130,000 Allowance for uncollectible s 18,000 – 40,000 + 10,000 = 12,000 debit 118,000 + 12,000 = 130,000 i. Interest receivable 500 Interest revenue 50,000 x 12% x 30/360 s receivable (900,000+9,600,000–8,000,000–120,000 - 40,000–50,000–300,000) P1,990,000 Less Allowance for uncollectible s 118,000 Amortized cost of s receivable P1,872,000
8,000,000 120,000 40,000 10,000 10,000 50,000 800,000 300,000 300,000 130,000
Problem 5 (3-14) Pau Company has an Allowance for doubtful s balance of Php68,000 at January 1, 2017. During 2017, s totaling Php94,000 were written off. s written off in prior years amounting to Php14,000 were recovered during the year. At December 31, 2017, an aging of its s receivable showed: Amount Probability of Collections Not yet due Php 340,000 100% 1-30 days past due 240,000 95% 31-60 days past due 20,000 75% 61-90 days past due 30,000 50% Over 90 days past due 24,000 10% Additional s to be written off 6,000 Required: Show computations for the following: a. Doubtful s expense for the year 2017. b. Allowance for doubtful s as of December 31, 2017. c. Amortized Cost of s Receivable at December 31, 2017. (a)
Allowance for Uncollectible s, January 1, 2017 s written off Recovery of s previously written off Additional s written off Allowance for Uncollectible s, December 31, 2017 before adjustments (debit balance) Required balance in Allowance based on aging (5% x 240,000) + (25% x 20,000) + (50% x 30,000) + (90% x 24,000) Required adjustment/Uncollectible s Expense for 2017 (b)
s Receivable, December 31, 2017 Less Allowance for Uncollectible s Net amortized cost
P 68,000 (94,000) 14,000 (6,000) (P18,000)
53,600 P71,600 P654,000 71,600 P582,400
500
Problem 6 (3-13) The balances of selected s taken from the December 31, 2016 statement of financial position of Pau Company are as follows: s receivable Allowance for doubtful s
Php 674,000 24,000
The following transactions affecting s receivable occurred during the year ending December 31, 2017 (in summary): Sales (all on , : 2/10, 1/15, n/60) Php 3,000,000 Cash received from customers 3,200,000 From customers paying within the 10-day discount period 1,764,000 From customers paying within the 15-day discount period 990,000 From recovery of s written off 6,000 From customers paying beyond the discount period ? s receivable written off as worthless 22,000 Credit memorandum for sales returns 12,000 Based on assessment of the collectability of the s, impairment loss recognized on s receivable is Php30,000. Required: Compute s Receivable and Allowance for Doubtful s at December 31, 2017. s Receivable, December 31, 2016 Sales on during 2017 Cash received from customers Cash discounts allowed: (1,764,000 ÷ 98%) x 2% ] (990,000 ÷ 99%) x 1% Recovery of s written off s written off as worthless Credit memoranda for sales returns s Receivable, December 31, 2014
P 674,000 3,000,000 (3,200,000) P36,000 10,000
(46,000) 6,000 (22,000) (12,000) P 400,000
Allowance for Uncollectible s, December 31, 2016 Recovery of s written off s written off as worthless Impairment loss on receivables Allowance for Uncollectible s, December 31, 2017
P 24,000 6,000 (22,000) 30,000 P 38,000
The computation may also be conveniently done through T-s, as follows: s Receivable Balance, beg 674,000 Collections Sales on 3,000,000 Cash discounts Recovery 6,000 Write off Sales returns Total 3,680,000 Total Balance, end 400,000
Write off
Total
Allowance for Uncollectible s 22,000 Balance, beg Recovery Impairment 22,000 Total Balance, end
Problem 7 (3-15) The financial statements of Mari Company reported the following selected s. s receivable, January 1, 2017 Allowance for doubtful s, Jan. 1, 2017 Sales during 2017 Cash collected from customers
Php
2,400,000 120,000 20,000,000 17,440,000
3,200,000 46,000 22,000 12,000 3,280,000
24,000 6,000 30,000 60,000 38,000
The cash collected from customers included a Php40,000 recovery from a customer whose was written off in prior year. On November 15, a customer settled his overdue by issuing a 15%, 4-month note for Php800,000. During 2017, s of Php200,000 were written off as worthless. Analysis of the s receivable at December 31, 2017 revealed that Php1,200,000 were considered pas due. Management’s estimate of probable loss on past due s is 20% and on current at 5%. Required: 1. 2. 3.
Adjusted balance of Allowance for Doubtful s at December 31, 2017. Doubtful s expense for year 2017. Net Realizable Value of s Receivable, December 31, 2017. a)
s Receivable, January 1 Sales during 2017 Cash collected from customers Recovery of s previously written off Note received in settlement of an s written off as worthless s Receivable, December 31 s Receivable, December 31 Past due s Current s/Not yet past due Adjusted balance of Allowance for Uncollectible s 20% x1,200,000 past due s 5% x 2,800,000 current s Total Adjusted Allowance for Uncollectible s, Dec. 31, 2017 s written off during the year as worthless Recovery of s previously written off Allowance for Uncollectible s, January 1, 2014 Uncollectible s Expense for year 2014 s Receivable Less Allowance for Uncollectible s Amortized cost of s receivable, December 31, 2014
(b)
(c)
P 2,400,000 20,000,000 (17,440,000) 40,000 ( 800,000) ( 200,000) P 4,000,000 P 4,000,000 1,200,000 P 2,800,000 P 240,000 140,000 P 380,000 P380,000 200,000 (40,000) (120,000) P420,000 P4,000,000 380,000 P3,620,000
Problem 8 (3-20) Mari Company completed the following selected transactions during 2017: May
1
Assigned s of Php4,000,000 to Kapamilya Bank under a notification basis. Kapamilya Bank made an advance of 75% and deducted a 6% finance charge based on the amount advanced.
May
31
Received notice from Kapamilya Bank that Php2,000,000 assigned s had been collected, and that Kapamilya Bank charged Mari Company 12% interest. The collection is applied first to interest, and the balance is applied to principal.
June
30
Received notice from Kapamilya Bank that Php1,600,000 had been collected. Kapamilya Bank remitted to Mari Company the amount due to the latter, after deducting 12% interest on the loan balance.
Required: Prepare journal entries in the books of Mari Company to record the foregoing transactions. May 1 1
31
June 30
s Receivable Assigned s Receivable Cash (4,000,000 x 75% x 94%) Finance Charges (3,000,000 x 6%) Notes Payable (4,000,000 x 75%) Interest Expense (3.0M x 0.12 x 1/12) Notes Payable s Receivable Assigned Notes Payable Interest Expense (1,030,000 x 0.12 x 1/12) Cash s Receivable Assigned
4,000,000 4,000,000 2,820,000 180,000 3,000,000 30,000 1,970,000 2,000,000 1,030,000 10,300 559,700 1,600,000
Problem 9 (3-19) Camil Company had the following transactions during 2017: October 1
Camil Company assigned Php10,000,000 of s receivable to a bank in consideration of a loan. The bank advanced 80% of the assigned s receivable less service charge of 5% based on the amount of the loan. Customers were not notified of the assignment, thus, Camil Company continues to make the collection. 21
Camil company issued a credit memo to a customer, whose is assigned with the bank, for defective merchandise returned amounting to Pho400,000.
November
31
Assigned s of Php5,000,000 were collected, less 2% discount.
1
Remitted Php5,000,000 to the bank plus interest for one month at a rate of 12% per year.
15
Assigned s amounting to Php100,000 were found to be worthless and were written off.
December
30
Collections of Php4,000,000 were made from the assigned s.
1
Paid the balance due to the bank, plus 12% interest. The balance in the assigned s, if any, is reverted to unassigned s after the final settlement with the bank.
Required:
Journal entries to record the foregoing transactions.
Oct 1
s Receivable Assigned
10,000,000
s Receivable 1
Cash
10,000,000 7,600,000
Finance Charges
400,000
Notes Payable – Bank
8,000,000
5% x 8,000,000 = 400,000 21
Sales Returns and Allowances
400,000
s Receivable Assigned
31
Cash
400,000
4,900,000
Sales Discounts
100,000
s Receivable Assigned
5,000,000
2% x5,000,000 = 100,000
Nov. 1
Notes Payable – Bank Interest Expense (8M x 0.12 x 1/12)
5,000,000 80,000
Cash 15
Allowance for Uncollectible s
5,080,000 100,000
s Receivable Assigned 31
Cash
100,000 4,000,000
s Receivable Assigned Sept. 1
Notes Payable – Bank Interest Expense (3,000,000 x 0.12 x /12)
4,000,000 3,000,000 30,000
Cash 1
3,030,000
s Receivable
500,000
s Receivable Assigned
500,000
Problem 10 (3-16) Kapuso Bank has a Php20,000,000 loan to Camil Realty, which was invested by the latter in real estate development. Due to the economic downtrend in the real estate business, Camil Realty is experiencing declining sales and is likely to default on its obligation to Kapuso Bank. Camil Realty requests for a restructuring of its loan with Kapuso Bank. Prevailing market rate of interest for similar obligations at the time of restructuring is 8%. Accrued interest receivable on the loan at December 31, 2016 is Php2,000,000, based on stated interest rate of 10%. For each of the following alternative restructuring arrangements, determine the amount of the impairment loss to be recognized by Kapuso Bank , and give the entry in the books of the company to record impairment. (Round off present value factors to four decimal places)
Alternative 1 ) Reduction of principal to Php18,000,000 ) Condonation of accrued interest ) Extension of maturity date to December 31, 2018 ) Reduction of interest rate to 8%, payable annually on December 31. Carrying value (20 M + 2M) 22,000,000 Present value of future cash inflows: Principal due on 12/31/16 (18M x 0.8264) P14,875,200 Interest for 2 years 18M x 8% = 1,440,000; 1,440,000 x 1.7355 2,499,120 17,374,320 Impairment loss P 4,625,680 Restructured Notes Receivable 17,374,320 Impairment Loss – Receivables 4,625,680 Notes Receivable 20,000,000 Interest Receivable 2,000,000
Alternative 2 ) Condonation of accrued interest ) Principal amount of Php4,000,000 plus interest on the unpaid principal reduced to 8%, payable in annual instalments to begin December 31, 2017. Carrying value (20 M + 2M) Present value of future cash inflows: 4M + (8% x 20M) = 5,600,000 x 0.9091 4M + (8% x 16M) = 5,280,000 x 0.8264 4M + (8% x 12M) = 4,960,000 x 0.7513 4M + (8% x 8M) = 4,640,000 x 0.6830 4M + (8% x 4M) = 4,320,000 x 0.6209 Impairment loss Entry: Restructured Notes Receivable Impairment Loss – Receivables Notes Receivable Interest Receivable
22,000,000 5,090,960 4,363,392 3,726,448 3,169,120 2,682,288
19,032,208 2,967,792 19,032,208 2,967,792 20,000,000 2,000,000
Entry:
Alternative 3 ) Payment of the accrued interest on the date of restructuring (December 31, 2016) ) Extension of maturity date of the loan to December 31, 2018, with interest during extended term at 7% payable on December 31, 2017 and 2018. Carrying value Present value of future cash inflows: Principal due on 12/31/16 20M x 0.8264 Interest due on 12/31/15 and 12/31/16 20M x 7% = 1,400,000; 1,400,000 x 1.7355 Impairment loss Entry: Restructured Notes Receivable Impairment Loss – Receivables Notes Receivable Cash Interest Receivable
20,000,000
16,528,000 2,429,700
18,957,700 1,042,300
18,957,700 1,042,300 20,000,000 1,400,000 1,400,000
Alternative 4 ) Extension of maturity date to December 31, 2018 ) Interest at 10% on the carrying value of the loan (Php22,000,000) payable December
31,
2017 and December 31, 2018. Carrying value Present value of future cash inflows: Principal due on 12/31/16 22M x 0.8264 Interest due on 12/31/15 and 12/31/16 22M x 10% = 2,200,000; 22,000,000 x 1.7355
22,000,000
18,180,800
3,818,100 21,998,900 -------------1,100 ==========
No Impairment loss
due to rounding off, but it hould be zero) No entry is required for the restructuring.
The present condition of Camil Realty indicates that it has the ability to meet the modified as indicated.
Problem 11 (3-23) Pau Company received from a SMC Corporation a one-year, P1,000,000 note bearing annual interest of 8%. Five months prior to maturity , Pau Company discounted the note at Kapuso Bank at 10%. Required: 1.
What were the proceeds from the note discounting?
2.
Give the entry for the discounting , assuming the note was discounted without
recourse. 3.
Give the entry for the discounting, assuming the note was discounted with
recourse. (a)
Maturity value = 1,000,000 + (1,000,000 x .08) = 1,080,000 Proceeds = 1,080,000 – (1,080,000 x 0.10 x 5/12) = 1,035,000 (b) Interest Receivable Interest Revenue 1,000,000 x 8% x 7/12
Cash Loss on Sale of Notes Receivable Notes Receivable Interest Receivable
46,667 46,667
1,035,000 11,667 1,000,000 46,667
Problem 12 (3-26) Mari Company finances some of its current operations by factoring its s receivable to Kapuso Finance Company. On July 1, 2016, the company factored Php4,000,000 of its s receivable to Kapuso Finance Company. Purchase price was 85% of the receivables factored. Kapuso Finance Company withheld 5% of the purchase price as protection against sales returns and allowances. Sales returns recorded by Mari Company on the factored s receivable totalled Php60,000; the balance of the factor’s holdback was settled by Kapuso Finance Company on August 31, 2016.
Required: 1.
What was the net cash received by Mari Company from this factored s?
2.
Give the entries in the books of Mari Company to record the foregoing in the Months of July and August 2016.
s receivable factored Purchase price Purchase price of s receivable factored Less amount withheld (5% x3,400,000) Net cash received from the factored s (b) Cash Receivable from Factor Loss on Factoring s Receivable Sales Returns Receivable from Factor Cash Receivable from Factor
P4,000,000 85% P 3,400,000 170,000 P 3,230,000
3,230,000 170,000 600,000 4,000,000 60,000 60,000 110,000 110,000
(170,000-60,000 = 110,000)
Problem 13 (3-27) Pau Company manufactures and sells beauty products to retailers. During 2016, the company completed the following transactions related to receivables: a.
Sold goods, Php6,000,000 on , all under the : 2/15,n/60. The company uses the gross method to record s receivable.
b.
Total cash collected from customers on was Php4,500,000. Customers who paid Php1,764,000 paid their s within the discount period.
c.
Notes received in settlement of were Php500,000.
d.
Collected Php400,000 of notes receivable plus interest of Php32,000 (which includes the Php5,600 interest receivable at December 31, 2015).
e.
Notes receivable discounted with recourse were Php80,000. Proceeds from the discounting were Php82,800. The total maturity value of the notes is Php92,000. All of theses notes matured without notice of protest.
f.
s receivable assigned were Php600,000 on a loan for Php480,000. Service fees of Php36,000 were charged by the finance company on the assignment.
g.
Notes receivable of Php30,000 were overdue as of December 31, on which Php1,800 interest has accrued.
h.
s of Php24,000 were written off during 2016.
i.
As of December 31, Php360,000 of the assigned s had already been collected, this amount plus appropriate interest of Php6,000 had been remitted to the finance company.
j.
As of December 31, an assessment of collectability of the receivables indicated that the allowance for uncollectible s must be adjusted to a balance of Php60,000.
k.
Of the remaining notes not yet due, Php6,400 interest had accrued at December 31.
The following were the balances as of December 31, 2015: Notes receivable
Php
200,000
Interest receivable s receivable
5,600 1,200,000
Allowance fro uncollectible s
24,000
Required: 1. Prepare entries relating to the foregoing including year-end adjustments and any reversing entries at January 1. 1/1/12 (1) (2)
(3) (4)
(5)
(6)
(7)
(8) (9)
(10)
(11) (b)
Interest Revenue Interest Receivable s Receivable Sales Cash Sales Discounts (1,764,000/98%) x 2% s receivable
Notes Receivable s Receivable Cash Notes Receivable Interest Revenue Cash Liability on Discounted Notes Liability on Discounted Notes Interest expense Notes Receivable Interest revenue s Receivable Assigned s Receivable Cash Finance Charges Notes Payable s Receivable Notes Receivable Interest Revenue Allowance for Uncollectible s s Receivable Notes Payable Interest Expense Cash Uncollectible s Expense Allowance for Uncollectible s 60,000 – (24,000 –24,000 ) Interest Receivable Interest Revenue Trade and Other Receivables include the following: Notes Receivable s Receivable – Unassigned s Receivable - Assigned Interest Receivable Allowance for Uncollectible s Total
5,600 5,600 6,000,000 6,000,000 4,500,000 36,000 4,500,000
500,000 500,000 432,000 400,000 32,000 82,800 82,800 82,800 9,200 80,000 12,000 400,000 400,000 444,000 36,000 480,000 31,800 30,000 1,800 24,000 24,000 360,000 6,000 366,000 60,000 60,000 6,400 6,400 P 190,000 ? ? (60,000) P
Problem 14 (MC19) The following data are given for Toyota, Inc.: Cash Cost of sales
Php
Credit
100,000 Php
Total
900,000 Php
1,000,000
Cash received from customers
130,000
1,170,000
1,300,000
Assuming merchandise was marked to sell as follows: Cash sales, at 30% above cost and credit sales, at 40% above cost, all of which are collectible. The balance of s receivable at the end of the period was _____________. Php90,000 900,000 x 1.4 = 1,260,000; 1,260,000 – 1,170,000 = 90,000
Problem 15 (MC 22) Camil Company had the following information relating to its s receivable: s receivable at 12/31/15
Php
2,600,000
Credit sales for 2016
10,800,000
Collection from customers during 2016 (including recovery of Php50,000)
9,500,000
s written off 9/30/16
250,000
Collection of s written off in prior years
50,000
Estimated uncollectible receivables per aging at 12/31/16
330,000
At December 31, 2016, Camil’s s receivable before allowance for uncollectible s, should be ____________. Php3,700,000 2,600,000 + 10,800,000 + 50,000 – 9,500,000 – 250,000 = 3,700,000
Problem 16 (MC27) Camil Company prepared an aging of its s receivables at December 2016 and determined that the amortized cost of the receivables was Php500,000. Additional information is available as follows: Allowance for bad debts, 1/1/16-credit balance
Php
s written off as uncollectible during 2016 s receivable at 12/31/16 Uncollectible s recovery during 2016 What is Camil’s uncollectible expense for the year 2016? Php20,000 540,000 – 500,000 = 40,000; 40,000 + 46,000 – 56,000 – 10,000 = 20,000
56,000 46,000 540,000 10,000
Problem 17 (MC25&26) The following s were abstracted from Pau Company’s unadjusted trial balance at December 31, 2016: Debit s receivable
Php
Credit
2,000,000
Allowance for uncollectible s
16,000
Net credit sales
Php
6,000,000
Pau Company estimates that 3% of the gross s receivable outstanding will become uncollectible. 1.
After adjustments at December 31, 2016, what is the balance of the allowance for uncollectible s? Php60,000 3% x 2,000,000 = 60,000
2.
How much uncollectible s expense is reported in Pau Company’s statement of comprehensive income for year ended December 31, 2016? Php76,000 60,000 + 16,000 = 76,000
Problem 18 (MC 23) You are given the following information relating to Mari Trading, a general merchandising company: Rate of gross profit on sales s receivable, December 31, 2015
20% Php
Collections on s receivable in 2016
Cost of goods available for sale in 2016
160,000 860,000
Php
920,000
Collections on s receivable in 2016
860,000
Merchandise inventory, December 31, 2016
200,000
Assuming all sales were on , what was the company’s s receivable balance on December 31, 2016?
Problem 19 (MC24) s receivable for Mari Company at December 31, 2016 showed a balance of Php3,00,000. The allowance for uncollectible s had a Php90,000 debit balance before the year end adjustment. Sales during the year totaled Php25,000,000. An aging analysis shows that Php150,000 of the outstanding s receivable are estimated to be uncollectible. The uncollectible expense for 2016 is ____________. Php240,000
Problem 20 (MC28) Camil Company recorded uncollectible s expense of Pho40,000 during 2016. The allowance for uncollectible s had a balance of Php35,000 on December 31, 2015. During the year 2016, Camil Company wrote of Php61,000 of uncollectible receivables and recovered Php16,100 of uncollectible s written off in prior years. How much will be the allowance for uncollectible s at December 31, 2016? Php30,100
Problem 21 (MC29&30) Alexis Company has the following data relating to s receivable for the year ended December 31, 2016: s receivable, January 1, 2016
Php
960,000
Allowance for uncollectible s, Jan 1, 2016 Sales during the year, all on , : 2/10,1/15,n/30
38,400 4,800,000
Cash received from customers during the year
5,120,000
s written off during the year
35,200
An analysis of cash received from customers during the year revealed that Php2,822,400 was received from customers availing the 10-day discount period, Php1,584,000 from customers availing the 15-day discount period, Php9,600 represented recovery of s written off, and the balance was received from customers paying beyond the discount period. Alexis Company’s year-end balance of allowance for uncollectible s was estimated to be 5% of the outstanding s receivable as at December 31, 2016, based on the aging of the s. 1.
What is the s receivable balance at December 31, 2106? Php540,800
2.
How much was Alexis Company’s doubtful expense for the year ended December 31, 2016? Php14,240
Problem 22 (MC32) During 2016, Camil Company wrote off uncollectible s of Php15,000 and recovered s of Php7,400 that had been written off in 2015. In addition the following information is available: s Receivable December 31, 2014
Php
December 31, 2015
750,000
Amortized Cost Php
1,000,000
725,000 960,000
The uncollectible expense for the year 2016 is __________. Php22,600
Problem 23 (MC31) On June 30, 2016, Alexis Company had an unadjusted credit balance of Php20,000 in its allowance for uncollectible s. An analysis of Alexis Company’s trade s receivable at that date revealed the following: Age 0-30 days
Amount % of Collectibility Php
1,200,000
95%
31-60 days
80,000
90%
Over 60 days
40,000
Php28,000
What amount should Alexis Company report as allowance for uncollectible s in its June 30, 2016 statement of financial position? Php96,000
Problem 24 (MC33) On December 31, 2014, Pau Company sold equipment to Camil Company for Php200,000. Pau Company accepted a 10% note receivable for the entire sales price. This note is payable in two equal installments of Php100,000 plus accrued interest on December 31, 2015 and December 31, 2016. On July 1, 2016, Pau Company discounted the note at a bank at a discount rate of 12%.
Pau Company’s proceeds from the discounted note were _________. Php103,400
Problem 25 (MC36) On December 31, 2016, Angel Finance Company gave Camil Company a Php4,000,000, 12% loan. Camil Company received proceeds of Php3,880,000, after deduction of non-refundable finance and other processing charges of Php120,000. Principal and interest are due in 60 monthly installments of Php89,000 beginning January 1, 2017. The repayment yields an effective interest rate of 13.4% based on the proceeds of Php3,880,000. Angel Finance Company has the intention of collecting the contractual cash flows from this loan over the full term of the loan, thus, does not elect to measure this at fair value. 1.
What amount of interest revenue should Angel Finance Company recognize for the year 2016 as a result of this loan ? Php43,326
2.
How much interest receivable should Angel Finance Company record on December 31, 2017? Php40,000
Problem 26 (MC38&39) Camil Company sold a tract of land with carrying amount of Php6,000,000 to Lacoste Company on July 1, 2016, Php2,400,000 was collected on the date of sale and the balance of Php5,600,000 is collectible in four equal annual installments of Php1,805,000, consisting of principal and 11% interest on the unpaid balance, The first annual installments is due on July 1, 2017. 1.
What amount related to the notes receivable shall be classified as current assets on December 31, 2017? Php1,189,000
2.
How much is interest income for the year ended December 31, 2017? Php550,606
Problem 27 (MC 34&35) On January 1, 2017, Angel Corporation sold equipment costing Php760,000 with accumulated depreciation of Php320,000 on the date of sale. Angel received as consideration for the sale, a Php800,000 non interest bearing note, due January 1, 2020. 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, 2017 was 10%. The present value of 1 at 10% for three periods is 0.75. 1.
In Angel’s 2017 statement of comprehensive income, how much should be reported as interest income? Php60,000
2.
What is the carrying amount of the note at Angel’s December 31, 2017 statement of financial position? Php660,000
Problem 28 (MC40) Mummy Company received from a customer a one year, Php1,000,000 note bearing annual interest of 8%. After holding the for four months, Mummy company discounted the note , with recourse, at Kapuso Bank at a discount rate of 10%. At the date of discounting, Mummy Company would receive cash of ________. Php1,008,000.
Problem 29 (MC41) Camila Company found itself in financial difficulties and decided to use its s receivable as a means of obtaining cash to continue operations. On July 1, 2017, Camila factored Php1,500,000 of s receivable for cash proceeds of Php1,390,000. No allowance for uncollectible was associated with these s.
On December 17, 2017, Camila assigned the remainder of its s receivable , Php5,000,000 as of that date, as collateral on a Php2,500,000, 12% annual interest rate loan from Kapatid Bank. Camila received Php2,500,000 less 2% finance charge. Additional information is as follows: Allowance for doubtful s expense, 12/31/2017 (before adjustment) Php64,000 Estimated uncollectible, 12/31/2017 – 3% of s receivable s receivable (not including factored and assigned s), December 31, 2017-Php1,000,000 Of the assigned s, Php600,000 had been collected by the end of the year. 1.
How much were the proceeds from factoring and general assignment of the s receivable? Php3,840,000
2.
Assuming that these are the only transactions affecting receivables, how much is the uncollectible expense for the year ended December 31, 2017? Php98,000
Problem 30 (MC43) Mari Company, One of Pau Company credit customers, is experiencing financial difficulties and a downward trend in its financial performance. The firm is unable to service its obligation and as a result has missed the payment of its note and accrued interest with Pau Company. The principal amount of the note is Php1,000,000 (which is already due) with annual interest of 10% payable annually. Accrued interest balance at December 31, 2017 is Php100,000. Mari Company management has negotiated a modification of its debt with Pau Company. At this time, the prevailing market rate of interest for similar transaction remained at 10%. Pau Company agreed to the following new :
Forgive the accrued interest at December 31, 2017
Extend the payment of the principal for two years
Reduce the interest rate (payable annually) to 8%
How much impairment loss should be recognized by Pau Company on December 31, 2017? Php134,760
Problem 31 (MC44&45) On December 31, 2017, the Kapamilya Finance Company had a Php10,000,000 notes receivable from Grand Towers Company. The note bears 10% interest. The books reported accrued interest of Php1,000,000 on this date. Because of financial distress being suffered by Grand Towers Company, Kapamilya Finance agreed to the restructuring and modification of the of its loan to Grand Towers as follows:
Reduction of principal to Php8,000,000
Reduction of interest to 8% payable annually beginning December 31, 2018
Accrued interest on December 31, 2017 is condoned; and
Principal payment was reset to December 31, 2019
The prevailing market rate of interest for similar obligations on the date of restructuring decreased to 9%. Use present value factors rounded to two decimal places. 1.
How much impairment loss should Kapamilya Finance Company record on December 31, 2017 as a result of the restructuring? Php3,246,400
2.
At what amount would the restructured notes receivable be reported at December 31, 2017? Pho7,753,600
s Receivable
Problem 1 (3-8) On January 1, 2016, Pau Company sold a piece of land with a carrying amount of Php12,000,000 in exchange for a 5% promissory note with face amount of Php15,000,000. The note is payable in annual installment of Php5,000,000 plus accrued
interest on the outstanding balance. The first installment is due on December 31, 2016. There is no established cash price for the land and the note has no ready market. The prevailing interest rate for a note of this type is 10%.
Required: a. b.
Prepare an amortization table (2016 to 2018) Prepare all entries to record the transactions from January 1, 2016 to December 31, 2018
The note is interest-bearing, but the rate of interest of the note (5%) is unreasonably lower than the prevailing rate (10%) for similar obligation. The present value of the note is determined as follows: 5 M + (5% x 15 M) = 5,750,000 x 0.9091 P5,227,325 5 M + (5% x 10 M) = 5,500,000 x 0.8264 4,545,200 5 M + (5% x 5 M) = 5,250,000 x 0.7513 3,944,325 Total P13,716,850
Problem 2 (3-6) On January 1, 2016, Mari Company sold a tract of land that was acquired several years ago for Php5,600,000. Mari Company received a three-year, non-interest bearing note for Php12,000,000 in exchange for land . There is no readily available market value for the land but the current market rate of interest for comparable notes is 15%. The note is payable in equal annual installments of Php4,000,000 every December 31, starting December 31, 2016. Present value of 1 for three periods at 15% is 0.6575. Present value of an ordinary annuity of 1 for three periods at 15% is 2.2832. Required: a. What is the amount of interest revenue recognized in Mari Company’s income statement from 2016 to 2018? b. What is the carrying amount of the note at December 31, 2016 and 2017? c. What amounts of the note shall be classified as current assets and non-current assets at December 31, 2016 and 2017?
FV PV (4,000,000 x 2.2832)
Php
12,000,000 9,132,800 --------------------------2,867,200 ===============
Discount on Notes receivable
Notes Receivable Land Gain on sale of land (9,132,800-5,600,000) Discount on Notes Receivable Effective Interest 1/12016 2016 2017 2018
12,000,000 5,600,000 3,532,800 2,867,200
Principal Carrying Value
9,132,800x15%=1,369,920 4,000,000 6,502,720x15%= 975,408 4,000,000 3,478,128x15%= 521,719 521,872
9,132,800 6,502,720 3,478,128 -
Problem 3 (3-4): Camil Company completed the following transactions during the year 2016: Jan
14
Wrote off the of Mayet Company for Php20,000 that arose from sale in July 2015.
July
31
Received a Php24,000, 90-day 10% note from Pau Company for merchandise sold.
Aug
15
Received a Php40,000 cash plus Php30,000 note from Bulacan Company for merchandise sold. The note is dated August 15 and bears interest at 12%, and matures in 120 days.
Nov
1
Completed a Php40,000 credit card sale with a 4% fee. Cash is received Immediately from the credit card company.
Nov
4
Pau Company refuses to pay the note that was due to Camil Company.
Nov
5
Completed a Php18,000 credit card sale with a 5% fee. The amount due from the credit card company was received on November 9.
Nov
15
Received the full amount of Php20,000 from Mayet Company that was previously written off on January 14.
Dec
13
Received payment of principal plus interest from Bulacan Company for the August 15 note.
Required: Prepare journal entries to record the transactions on Camil Company’s books. July 14
31 Aug. 15
Nov. 1
Nov. 4
5 Nov. 9
Nov. 15 Nov.15 Dec. 13
Allowance for Doubtful s s Receivable-Moret Co. Notes Receivable Sales Cash Notes Receivable Sales Cash Credit Card Service Charge Sales 4% x 40,000 = 1,600 s Receivable-Pau Company Notes Receivable Interest Revenue 24,000 x .10 x 90/360 = 600 s Receivable-Credit Card Sales Cash Credit Card Service Charge s Receivable-Credit Card 5% x 18,000 = 900 s Receivable-Moret Co. Allowance for Doubtful s Cash s Receivable-Moret Co. Cash Notes Receivable Interest Revenue 30,000 x 12% x 120/360 = 1,200
20,000 20,000 24,000 24,000 40,000 30,000 70,000 38,400 1,600 40,000 24,600 24,000 600 18,000 18,000 17,100 900 18,000 20,000 20,000 20,000 20,000 31,200 30,000 1,200
Problem 4 (3-10) The statement of financial position of Honda Inc. shows the s Receivable balance at December 31, 2016 as follows: s receivable Allowance for doubtful s
Php 900,000 18,000
During 2017, transactions relating to the s were as follows: 1. Sales on , Php9,600,000. 2. Cash received from collection of current receivable totaled Php7,840,000 after discounts of Php160,000 were allowed for prompt payment. 3. Credit memo issued to customers for sales returns , Pho120,000. 4. Customers’ s of Php40,000 were ascertained worthless and written off. 5. Recovered Php10,000 of s written off prior to 2017. 6. Received a 90-day, 12% note for Php50,000 from a customer on an overdue . 7. s receivable of Php1,400,000 have been pledged to a bank on a loan of Php800,000. Collections of Php300,000 were made on these receivables (not included in the collections previously given) and applied as partial payment to the loan. 8. Based on assessment of the impairment of receivables, it is estimated that allowance for doubtful s should be Php118,000 at December 31. 9. Recorded the accrued interest on the note in no. 6. The note was dated December 1, 2017. Required:
Prepare journal entries to record the foregoing transactions. After preparing the journal entries , determine the amortized cost of the s receivable at December 31, 2017. a.
s receivable Sales
9,600,000 9,600,000
b.
Cash 7,840,000 Sales discounts 160,000 s receivable c. Sales returns 120,000 s receivable d. Allowance for uncollectible s 40,000 s receivable e. s receivable 10,000 Allowance for uncollectible s Cash 10,000 s receivable f. Notes receivable 50,000 s receivable g. Cash 800,000 Notes payable-bank Cash 300,000 s receivable Notes payable-bank 300,000 Cash h. Uncollectible s expense 130,000 Allowance for uncollectible s 18,000 – 40,000 + 10,000 = 12,000 debit 118,000 + 12,000 = 130,000 i. Interest receivable 500 Interest revenue 50,000 x 12% x 30/360 s receivable (900,000+9,600,000–8,000,000–120,000 - 40,000–50,000–300,000) P1,990,000 Less Allowance for uncollectible s 118,000 Amortized cost of s receivable P1,872,000
8,000,000 120,000 40,000 10,000 10,000 50,000 800,000 300,000 300,000 130,000
Problem 5 (3-14) Pau Company has an Allowance for doubtful s balance of Php68,000 at January 1, 2017. During 2017, s totaling Php94,000 were written off. s written off in prior years amounting to Php14,000 were recovered during the year. At December 31, 2017, an aging of its s receivable showed: Amount Probability of Collections Not yet due Php 340,000 100% 1-30 days past due 240,000 95% 31-60 days past due 20,000 75% 61-90 days past due 30,000 50% Over 90 days past due 24,000 10% Additional s to be written off 6,000 Required: Show computations for the following: a. Doubtful s expense for the year 2017. b. Allowance for doubtful s as of December 31, 2017. c. Amortized Cost of s Receivable at December 31, 2017. (a)
Allowance for Uncollectible s, January 1, 2017 s written off Recovery of s previously written off Additional s written off Allowance for Uncollectible s, December 31, 2017 before adjustments (debit balance) Required balance in Allowance based on aging (5% x 240,000) + (25% x 20,000) + (50% x 30,000) + (90% x 24,000) Required adjustment/Uncollectible s Expense for 2017 (b)
s Receivable, December 31, 2017 Less Allowance for Uncollectible s Net amortized cost
P 68,000 (94,000) 14,000 (6,000) (P18,000)
53,600 P71,600 P654,000 71,600 P582,400
500
Problem 6 (3-13) The balances of selected s taken from the December 31, 2016 statement of financial position of Pau Company are as follows: s receivable Allowance for doubtful s
Php 674,000 24,000
The following transactions affecting s receivable occurred during the year ending December 31, 2017 (in summary): Sales (all on , : 2/10, 1/15, n/60) Php 3,000,000 Cash received from customers 3,200,000 From customers paying within the 10-day discount period 1,764,000 From customers paying within the 15-day discount period 990,000 From recovery of s written off 6,000 From customers paying beyond the discount period ? s receivable written off as worthless 22,000 Credit memorandum for sales returns 12,000 Based on assessment of the collectability of the s, impairment loss recognized on s receivable is Php30,000. Required: Compute s Receivable and Allowance for Doubtful s at December 31, 2017. s Receivable, December 31, 2016 Sales on during 2017 Cash received from customers Cash discounts allowed: (1,764,000 ÷ 98%) x 2% ] (990,000 ÷ 99%) x 1% Recovery of s written off s written off as worthless Credit memoranda for sales returns s Receivable, December 31, 2014
P 674,000 3,000,000 (3,200,000) P36,000 10,000
(46,000) 6,000 (22,000) (12,000) P 400,000
Allowance for Uncollectible s, December 31, 2016 Recovery of s written off s written off as worthless Impairment loss on receivables Allowance for Uncollectible s, December 31, 2017
P 24,000 6,000 (22,000) 30,000 P 38,000
The computation may also be conveniently done through T-s, as follows: s Receivable Balance, beg 674,000 Collections Sales on 3,000,000 Cash discounts Recovery 6,000 Write off Sales returns Total 3,680,000 Total Balance, end 400,000
Write off
Total
Allowance for Uncollectible s 22,000 Balance, beg Recovery Impairment 22,000 Total Balance, end
Problem 7 (3-15) The financial statements of Mari Company reported the following selected s. s receivable, January 1, 2017 Allowance for doubtful s, Jan. 1, 2017 Sales during 2017 Cash collected from customers
Php
2,400,000 120,000 20,000,000 17,440,000
3,200,000 46,000 22,000 12,000 3,280,000
24,000 6,000 30,000 60,000 38,000
The cash collected from customers included a Php40,000 recovery from a customer whose was written off in prior year. On November 15, a customer settled his overdue by issuing a 15%, 4-month note for Php800,000. During 2017, s of Php200,000 were written off as worthless. Analysis of the s receivable at December 31, 2017 revealed that Php1,200,000 were considered pas due. Management’s estimate of probable loss on past due s is 20% and on current at 5%. Required: 1. 2. 3.
Adjusted balance of Allowance for Doubtful s at December 31, 2017. Doubtful s expense for year 2017. Net Realizable Value of s Receivable, December 31, 2017. a)
s Receivable, January 1 Sales during 2017 Cash collected from customers Recovery of s previously written off Note received in settlement of an s written off as worthless s Receivable, December 31 s Receivable, December 31 Past due s Current s/Not yet past due Adjusted balance of Allowance for Uncollectible s 20% x1,200,000 past due s 5% x 2,800,000 current s Total Adjusted Allowance for Uncollectible s, Dec. 31, 2017 s written off during the year as worthless Recovery of s previously written off Allowance for Uncollectible s, January 1, 2014 Uncollectible s Expense for year 2014 s Receivable Less Allowance for Uncollectible s Amortized cost of s receivable, December 31, 2014
(b)
(c)
P 2,400,000 20,000,000 (17,440,000) 40,000 ( 800,000) ( 200,000) P 4,000,000 P 4,000,000 1,200,000 P 2,800,000 P 240,000 140,000 P 380,000 P380,000 200,000 (40,000) (120,000) P420,000 P4,000,000 380,000 P3,620,000
Problem 8 (3-20) Mari Company completed the following selected transactions during 2017: May
1
Assigned s of Php4,000,000 to Kapamilya Bank under a notification basis. Kapamilya Bank made an advance of 75% and deducted a 6% finance charge based on the amount advanced.
May
31
Received notice from Kapamilya Bank that Php2,000,000 assigned s had been collected, and that Kapamilya Bank charged Mari Company 12% interest. The collection is applied first to interest, and the balance is applied to principal.
June
30
Received notice from Kapamilya Bank that Php1,600,000 had been collected. Kapamilya Bank remitted to Mari Company the amount due to the latter, after deducting 12% interest on the loan balance.
Required: Prepare journal entries in the books of Mari Company to record the foregoing transactions. May 1 1
31
June 30
s Receivable Assigned s Receivable Cash (4,000,000 x 75% x 94%) Finance Charges (3,000,000 x 6%) Notes Payable (4,000,000 x 75%) Interest Expense (3.0M x 0.12 x 1/12) Notes Payable s Receivable Assigned Notes Payable Interest Expense (1,030,000 x 0.12 x 1/12) Cash s Receivable Assigned
4,000,000 4,000,000 2,820,000 180,000 3,000,000 30,000 1,970,000 2,000,000 1,030,000 10,300 559,700 1,600,000
Problem 9 (3-19) Camil Company had the following transactions during 2017: October 1
Camil Company assigned Php10,000,000 of s receivable to a bank in consideration of a loan. The bank advanced 80% of the assigned s receivable less service charge of 5% based on the amount of the loan. Customers were not notified of the assignment, thus, Camil Company continues to make the collection. 21
Camil company issued a credit memo to a customer, whose is assigned with the bank, for defective merchandise returned amounting to Pho400,000.
November
31
Assigned s of Php5,000,000 were collected, less 2% discount.
1
Remitted Php5,000,000 to the bank plus interest for one month at a rate of 12% per year.
15
Assigned s amounting to Php100,000 were found to be worthless and were written off.
December
30
Collections of Php4,000,000 were made from the assigned s.
1
Paid the balance due to the bank, plus 12% interest. The balance in the assigned s, if any, is reverted to unassigned s after the final settlement with the bank.
Required:
Journal entries to record the foregoing transactions.
Oct 1
s Receivable Assigned
10,000,000
s Receivable 1
Cash
10,000,000 7,600,000
Finance Charges
400,000
Notes Payable – Bank
8,000,000
5% x 8,000,000 = 400,000 21
Sales Returns and Allowances
400,000
s Receivable Assigned
31
Cash
400,000
4,900,000
Sales Discounts
100,000
s Receivable Assigned
5,000,000
2% x5,000,000 = 100,000
Nov. 1
Notes Payable – Bank Interest Expense (8M x 0.12 x 1/12)
5,000,000 80,000
Cash 15
Allowance for Uncollectible s
5,080,000 100,000
s Receivable Assigned 31
Cash
100,000 4,000,000
s Receivable Assigned Sept. 1
Notes Payable – Bank Interest Expense (3,000,000 x 0.12 x /12)
4,000,000 3,000,000 30,000
Cash 1
3,030,000
s Receivable
500,000
s Receivable Assigned
500,000
Problem 10 (3-16) Kapuso Bank has a Php20,000,000 loan to Camil Realty, which was invested by the latter in real estate development. Due to the economic downtrend in the real estate business, Camil Realty is experiencing declining sales and is likely to default on its obligation to Kapuso Bank. Camil Realty requests for a restructuring of its loan with Kapuso Bank. Prevailing market rate of interest for similar obligations at the time of restructuring is 8%. Accrued interest receivable on the loan at December 31, 2016 is Php2,000,000, based on stated interest rate of 10%. For each of the following alternative restructuring arrangements, determine the amount of the impairment loss to be recognized by Kapuso Bank , and give the entry in the books of the company to record impairment. (Round off present value factors to four decimal places)
Alternative 1 ) Reduction of principal to Php18,000,000 ) Condonation of accrued interest ) Extension of maturity date to December 31, 2018 ) Reduction of interest rate to 8%, payable annually on December 31. Carrying value (20 M + 2M) 22,000,000 Present value of future cash inflows: Principal due on 12/31/16 (18M x 0.8264) P14,875,200 Interest for 2 years 18M x 8% = 1,440,000; 1,440,000 x 1.7355 2,499,120 17,374,320 Impairment loss P 4,625,680 Restructured Notes Receivable 17,374,320 Impairment Loss – Receivables 4,625,680 Notes Receivable 20,000,000 Interest Receivable 2,000,000
Alternative 2 ) Condonation of accrued interest ) Principal amount of Php4,000,000 plus interest on the unpaid principal reduced to 8%, payable in annual instalments to begin December 31, 2017. Carrying value (20 M + 2M) Present value of future cash inflows: 4M + (8% x 20M) = 5,600,000 x 0.9091 4M + (8% x 16M) = 5,280,000 x 0.8264 4M + (8% x 12M) = 4,960,000 x 0.7513 4M + (8% x 8M) = 4,640,000 x 0.6830 4M + (8% x 4M) = 4,320,000 x 0.6209 Impairment loss Entry: Restructured Notes Receivable Impairment Loss – Receivables Notes Receivable Interest Receivable
22,000,000 5,090,960 4,363,392 3,726,448 3,169,120 2,682,288
19,032,208 2,967,792 19,032,208 2,967,792 20,000,000 2,000,000
Entry:
Alternative 3 ) Payment of the accrued interest on the date of restructuring (December 31, 2016) ) Extension of maturity date of the loan to December 31, 2018, with interest during extended term at 7% payable on December 31, 2017 and 2018. Carrying value Present value of future cash inflows: Principal due on 12/31/16 20M x 0.8264 Interest due on 12/31/15 and 12/31/16 20M x 7% = 1,400,000; 1,400,000 x 1.7355 Impairment loss Entry: Restructured Notes Receivable Impairment Loss – Receivables Notes Receivable Cash Interest Receivable
20,000,000
16,528,000 2,429,700
18,957,700 1,042,300
18,957,700 1,042,300 20,000,000 1,400,000 1,400,000
Alternative 4 ) Extension of maturity date to December 31, 2018 ) Interest at 10% on the carrying value of the loan (Php22,000,000) payable December
31,
2017 and December 31, 2018. Carrying value Present value of future cash inflows: Principal due on 12/31/16 22M x 0.8264 Interest due on 12/31/15 and 12/31/16 22M x 10% = 2,200,000; 22,000,000 x 1.7355
22,000,000
18,180,800
3,818,100 21,998,900 -------------1,100 ==========
No Impairment loss
due to rounding off, but it hould be zero) No entry is required for the restructuring.
The present condition of Camil Realty indicates that it has the ability to meet the modified as indicated.
Problem 11 (3-23) Pau Company received from a SMC Corporation a one-year, P1,000,000 note bearing annual interest of 8%. Five months prior to maturity , Pau Company discounted the note at Kapuso Bank at 10%. Required: 1.
What were the proceeds from the note discounting?
2.
Give the entry for the discounting , assuming the note was discounted without
recourse. 3.
Give the entry for the discounting, assuming the note was discounted with
recourse. (a)
Maturity value = 1,000,000 + (1,000,000 x .08) = 1,080,000 Proceeds = 1,080,000 – (1,080,000 x 0.10 x 5/12) = 1,035,000 (b) Interest Receivable Interest Revenue 1,000,000 x 8% x 7/12
Cash Loss on Sale of Notes Receivable Notes Receivable Interest Receivable
46,667 46,667
1,035,000 11,667 1,000,000 46,667
Problem 12 (3-26) Mari Company finances some of its current operations by factoring its s receivable to Kapuso Finance Company. On July 1, 2016, the company factored Php4,000,000 of its s receivable to Kapuso Finance Company. Purchase price was 85% of the receivables factored. Kapuso Finance Company withheld 5% of the purchase price as protection against sales returns and allowances. Sales returns recorded by Mari Company on the factored s receivable totalled Php60,000; the balance of the factor’s holdback was settled by Kapuso Finance Company on August 31, 2016.
Required: 1.
What was the net cash received by Mari Company from this factored s?
2.
Give the entries in the books of Mari Company to record the foregoing in the Months of July and August 2016.
s receivable factored Purchase price Purchase price of s receivable factored Less amount withheld (5% x3,400,000) Net cash received from the factored s (b) Cash Receivable from Factor Loss on Factoring s Receivable Sales Returns Receivable from Factor Cash Receivable from Factor
P4,000,000 85% P 3,400,000 170,000 P 3,230,000
3,230,000 170,000 600,000 4,000,000 60,000 60,000 110,000 110,000
(170,000-60,000 = 110,000)
Problem 13 (3-27) Pau Company manufactures and sells beauty products to retailers. During 2016, the company completed the following transactions related to receivables: a.
Sold goods, Php6,000,000 on , all under the : 2/15,n/60. The company uses the gross method to record s receivable.
b.
Total cash collected from customers on was Php4,500,000. Customers who paid Php1,764,000 paid their s within the discount period.
c.
Notes received in settlement of were Php500,000.
d.
Collected Php400,000 of notes receivable plus interest of Php32,000 (which includes the Php5,600 interest receivable at December 31, 2015).
e.
Notes receivable discounted with recourse were Php80,000. Proceeds from the discounting were Php82,800. The total maturity value of the notes is Php92,000. All of theses notes matured without notice of protest.
f.
s receivable assigned were Php600,000 on a loan for Php480,000. Service fees of Php36,000 were charged by the finance company on the assignment.
g.
Notes receivable of Php30,000 were overdue as of December 31, on which Php1,800 interest has accrued.
h.
s of Php24,000 were written off during 2016.
i.
As of December 31, Php360,000 of the assigned s had already been collected, this amount plus appropriate interest of Php6,000 had been remitted to the finance company.
j.
As of December 31, an assessment of collectability of the receivables indicated that the allowance for uncollectible s must be adjusted to a balance of Php60,000.
k.
Of the remaining notes not yet due, Php6,400 interest had accrued at December 31.
The following were the balances as of December 31, 2015: Notes receivable
Php
200,000
Interest receivable s receivable
5,600 1,200,000
Allowance fro uncollectible s
24,000
Required: 1. Prepare entries relating to the foregoing including year-end adjustments and any reversing entries at January 1. 1/1/12 (1) (2)
(3) (4)
(5)
(6)
(7)
(8) (9)
(10)
(11) (b)
Interest Revenue Interest Receivable s Receivable Sales Cash Sales Discounts (1,764,000/98%) x 2% s receivable
Notes Receivable s Receivable Cash Notes Receivable Interest Revenue Cash Liability on Discounted Notes Liability on Discounted Notes Interest expense Notes Receivable Interest revenue s Receivable Assigned s Receivable Cash Finance Charges Notes Payable s Receivable Notes Receivable Interest Revenue Allowance for Uncollectible s s Receivable Notes Payable Interest Expense Cash Uncollectible s Expense Allowance for Uncollectible s 60,000 – (24,000 –24,000 ) Interest Receivable Interest Revenue Trade and Other Receivables include the following: Notes Receivable s Receivable – Unassigned s Receivable - Assigned Interest Receivable Allowance for Uncollectible s Total
5,600 5,600 6,000,000 6,000,000 4,500,000 36,000 4,500,000
500,000 500,000 432,000 400,000 32,000 82,800 82,800 82,800 9,200 80,000 12,000 400,000 400,000 444,000 36,000 480,000 31,800 30,000 1,800 24,000 24,000 360,000 6,000 366,000 60,000 60,000 6,400 6,400 P 190,000 ? ? (60,000) P
Problem 14 (MC19) The following data are given for Toyota, Inc.: Cash Cost of sales
Php
Credit
100,000 Php
Total
900,000 Php
1,000,000
Cash received from customers
130,000
1,170,000
1,300,000
Assuming merchandise was marked to sell as follows: Cash sales, at 30% above cost and credit sales, at 40% above cost, all of which are collectible. The balance of s receivable at the end of the period was _____________. Php90,000 900,000 x 1.4 = 1,260,000; 1,260,000 – 1,170,000 = 90,000
Problem 15 (MC 22) Camil Company had the following information relating to its s receivable: s receivable at 12/31/15
Php
2,600,000
Credit sales for 2016
10,800,000
Collection from customers during 2016 (including recovery of Php50,000)
9,500,000
s written off 9/30/16
250,000
Collection of s written off in prior years
50,000
Estimated uncollectible receivables per aging at 12/31/16
330,000
At December 31, 2016, Camil’s s receivable before allowance for uncollectible s, should be ____________. Php3,700,000 2,600,000 + 10,800,000 + 50,000 – 9,500,000 – 250,000 = 3,700,000
Problem 16 (MC27) Camil Company prepared an aging of its s receivables at December 2016 and determined that the amortized cost of the receivables was Php500,000. Additional information is available as follows: Allowance for bad debts, 1/1/16-credit balance
Php
s written off as uncollectible during 2016 s receivable at 12/31/16 Uncollectible s recovery during 2016 What is Camil’s uncollectible expense for the year 2016? Php20,000 540,000 – 500,000 = 40,000; 40,000 + 46,000 – 56,000 – 10,000 = 20,000
56,000 46,000 540,000 10,000
Problem 17 (MC25&26) The following s were abstracted from Pau Company’s unadjusted trial balance at December 31, 2016: Debit s receivable
Php
Credit
2,000,000
Allowance for uncollectible s
16,000
Net credit sales
Php
6,000,000
Pau Company estimates that 3% of the gross s receivable outstanding will become uncollectible. 1.
After adjustments at December 31, 2016, what is the balance of the allowance for uncollectible s? Php60,000 3% x 2,000,000 = 60,000
2.
How much uncollectible s expense is reported in Pau Company’s statement of comprehensive income for year ended December 31, 2016? Php76,000 60,000 + 16,000 = 76,000
Problem 18 (MC 23) You are given the following information relating to Mari Trading, a general merchandising company: Rate of gross profit on sales s receivable, December 31, 2015
20% Php
Collections on s receivable in 2016
Cost of goods available for sale in 2016
160,000 860,000
Php
920,000
Collections on s receivable in 2016
860,000
Merchandise inventory, December 31, 2016
200,000
Assuming all sales were on , what was the company’s s receivable balance on December 31, 2016?
Problem 19 (MC24) s receivable for Mari Company at December 31, 2016 showed a balance of Php3,00,000. The allowance for uncollectible s had a Php90,000 debit balance before the year end adjustment. Sales during the year totaled Php25,000,000. An aging analysis shows that Php150,000 of the outstanding s receivable are estimated to be uncollectible. The uncollectible expense for 2016 is ____________. Php240,000
Problem 20 (MC28) Camil Company recorded uncollectible s expense of Pho40,000 during 2016. The allowance for uncollectible s had a balance of Php35,000 on December 31, 2015. During the year 2016, Camil Company wrote of Php61,000 of uncollectible receivables and recovered Php16,100 of uncollectible s written off in prior years. How much will be the allowance for uncollectible s at December 31, 2016? Php30,100
Problem 21 (MC29&30) Alexis Company has the following data relating to s receivable for the year ended December 31, 2016: s receivable, January 1, 2016
Php
960,000
Allowance for uncollectible s, Jan 1, 2016 Sales during the year, all on , : 2/10,1/15,n/30
38,400 4,800,000
Cash received from customers during the year
5,120,000
s written off during the year
35,200
An analysis of cash received from customers during the year revealed that Php2,822,400 was received from customers availing the 10-day discount period, Php1,584,000 from customers availing the 15-day discount period, Php9,600 represented recovery of s written off, and the balance was received from customers paying beyond the discount period. Alexis Company’s year-end balance of allowance for uncollectible s was estimated to be 5% of the outstanding s receivable as at December 31, 2016, based on the aging of the s. 1.
What is the s receivable balance at December 31, 2106? Php540,800
2.
How much was Alexis Company’s doubtful expense for the year ended December 31, 2016? Php14,240
Problem 22 (MC32) During 2016, Camil Company wrote off uncollectible s of Php15,000 and recovered s of Php7,400 that had been written off in 2015. In addition the following information is available: s Receivable December 31, 2014
Php
December 31, 2015
750,000
Amortized Cost Php
1,000,000
725,000 960,000
The uncollectible expense for the year 2016 is __________. Php22,600
Problem 23 (MC31) On June 30, 2016, Alexis Company had an unadjusted credit balance of Php20,000 in its allowance for uncollectible s. An analysis of Alexis Company’s trade s receivable at that date revealed the following: Age 0-30 days
Amount % of Collectibility Php
1,200,000
95%
31-60 days
80,000
90%
Over 60 days
40,000
Php28,000
What amount should Alexis Company report as allowance for uncollectible s in its June 30, 2016 statement of financial position? Php96,000
Problem 24 (MC33) On December 31, 2014, Pau Company sold equipment to Camil Company for Php200,000. Pau Company accepted a 10% note receivable for the entire sales price. This note is payable in two equal installments of Php100,000 plus accrued interest on December 31, 2015 and December 31, 2016. On July 1, 2016, Pau Company discounted the note at a bank at a discount rate of 12%.
Pau Company’s proceeds from the discounted note were _________. Php103,400
Problem 25 (MC36) On December 31, 2016, Angel Finance Company gave Camil Company a Php4,000,000, 12% loan. Camil Company received proceeds of Php3,880,000, after deduction of non-refundable finance and other processing charges of Php120,000. Principal and interest are due in 60 monthly installments of Php89,000 beginning January 1, 2017. The repayment yields an effective interest rate of 13.4% based on the proceeds of Php3,880,000. Angel Finance Company has the intention of collecting the contractual cash flows from this loan over the full term of the loan, thus, does not elect to measure this at fair value. 1.
What amount of interest revenue should Angel Finance Company recognize for the year 2016 as a result of this loan ? Php43,326
2.
How much interest receivable should Angel Finance Company record on December 31, 2017? Php40,000
Problem 26 (MC38&39) Camil Company sold a tract of land with carrying amount of Php6,000,000 to Lacoste Company on July 1, 2016, Php2,400,000 was collected on the date of sale and the balance of Php5,600,000 is collectible in four equal annual installments of Php1,805,000, consisting of principal and 11% interest on the unpaid balance, The first annual installments is due on July 1, 2017. 1.
What amount related to the notes receivable shall be classified as current assets on December 31, 2017? Php1,189,000
2.
How much is interest income for the year ended December 31, 2017? Php550,606
Problem 27 (MC 34&35) On January 1, 2017, Angel Corporation sold equipment costing Php760,000 with accumulated depreciation of Php320,000 on the date of sale. Angel received as consideration for the sale, a Php800,000 non interest bearing note, due January 1, 2020. 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, 2017 was 10%. The present value of 1 at 10% for three periods is 0.75. 1.
In Angel’s 2017 statement of comprehensive income, how much should be reported as interest income? Php60,000
2.
What is the carrying amount of the note at Angel’s December 31, 2017 statement of financial position? Php660,000
Problem 28 (MC40) Mummy Company received from a customer a one year, Php1,000,000 note bearing annual interest of 8%. After holding the for four months, Mummy company discounted the note , with recourse, at Kapuso Bank at a discount rate of 10%. At the date of discounting, Mummy Company would receive cash of ________. Php1,008,000.
Problem 29 (MC41) Camila Company found itself in financial difficulties and decided to use its s receivable as a means of obtaining cash to continue operations. On July 1, 2017, Camila factored Php1,500,000 of s receivable for cash proceeds of Php1,390,000. No allowance for uncollectible was associated with these s.
On December 17, 2017, Camila assigned the remainder of its s receivable , Php5,000,000 as of that date, as collateral on a Php2,500,000, 12% annual interest rate loan from Kapatid Bank. Camila received Php2,500,000 less 2% finance charge. Additional information is as follows: Allowance for doubtful s expense, 12/31/2017 (before adjustment) Php64,000 Estimated uncollectible, 12/31/2017 – 3% of s receivable s receivable (not including factored and assigned s), December 31, 2017-Php1,000,000 Of the assigned s, Php600,000 had been collected by the end of the year. 1.
How much were the proceeds from factoring and general assignment of the s receivable? Php3,840,000
2.
Assuming that these are the only transactions affecting receivables, how much is the uncollectible expense for the year ended December 31, 2017? Php98,000
Problem 30 (MC43) Mari Company, One of Pau Company credit customers, is experiencing financial difficulties and a downward trend in its financial performance. The firm is unable to service its obligation and as a result has missed the payment of its note and accrued interest with Pau Company. The principal amount of the note is Php1,000,000 (which is already due) with annual interest of 10% payable annually. Accrued interest balance at December 31, 2017 is Php100,000. Mari Company management has negotiated a modification of its debt with Pau Company. At this time, the prevailing market rate of interest for similar transaction remained at 10%. Pau Company agreed to the following new :
Forgive the accrued interest at December 31, 2017
Extend the payment of the principal for two years
Reduce the interest rate (payable annually) to 8%
How much impairment loss should be recognized by Pau Company on December 31, 2017? Php134,760
Problem 31 (MC44&45) On December 31, 2017, the Kapamilya Finance Company had a Php10,000,000 notes receivable from Grand Towers Company. The note bears 10% interest. The books reported accrued interest of Php1,000,000 on this date. Because of financial distress being suffered by Grand Towers Company, Kapamilya Finance agreed to the restructuring and modification of the of its loan to Grand Towers as follows:
Reduction of principal to Php8,000,000
Reduction of interest to 8% payable annually beginning December 31, 2018
Accrued interest on December 31, 2017 is condoned; and
Principal payment was reset to December 31, 2019
The prevailing market rate of interest for similar obligations on the date of restructuring decreased to 9%. Use present value factors rounded to two decimal places. 1.
How much impairment loss should Kapamilya Finance Company record on December 31, 2017 as a result of the restructuring? Php3,246,400
2.
At what amount would the restructured notes receivable be reported at December 31, 2017? Pho7,753,600
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