DO IT YOURSELF:

PROBLEM NO. 1
Presented below are unaudited balances of selected accounts of OPLOK COMPANY as of
December 31, 2016:
Unaudited Balances, 12/31/16
Selected Accounts Debit Credit

Cash P 300,000
Accounts receivable 1,000,000
Allowance for doubtful accounts 10, 000
Net sales P 5,760,000

Additional information are as follows:

a. Goods amounting to P50,000 were invoiced for the accounts of Juliet Store & Co., recorded
on January 2, 2017 with terms of net, 60 days, FOB shipping point. The goods were shipped to
Variety Store on December 30, 2016.

b. The bank returned on December 29, 2016, a customer’s check for P5,000 marked “DAIF”, but
no entry was made.

c. CATHY COMPANY estimates that allowance for uncollectible accounts should be one-half
percent (½%) of the accounts receivable balance as of year-end. No provision has yet been
made for 2016.

REQUIRMENTS
1. Adjusted allowance for doubtful accounts on December 31, 2016
2. Adjusted Bad debts expense on 2016
3. Adjusted balance of Accounts receivable on December 31, 2016

SOLUTION
Adjusted Accounts receivable (1,000,000 + 50,000 + 5,000) P1, 055,000
Multiply by ½% .05
Allowance for doubtful accounts P 52, 750
Add: Debit Balance 10,000
Adjusted Bad debts expense P 62,750

PROBLEM NO. 2

The Notes Receivable account of CATHY Co. has a debit balance of P320, 000 on December
31, 2017. There was no balance of notes receivable at the beginning of the year. Your analysis
of the account reveals the following:

1) Notes amounting to P 925,000 were received from customers during the year.

2) Notes of P 482,000 were collected on due dates. On November 1, 180-day note amounted to
P 122,000 and 1-year note amounted to P 25,000, with both have a stated rate of 12% and
dated October 1 were discounted at the Family Bank at an interest rate of 15%. The Notes
Receivable account was credited for the notes discounted.

3) P 98, 000 of the notes discounted was paid on maturity date while note for P 24,000 was
dishonored and was charged back to Notes Receivable account.

4) Cash of P 30,000 was received as partial payment on notes not yet due. The amount
received was credited to Liability on Partial Payment account.

5) A note for P 20,000 was pledged as collateral for a bank loan.

Requirement:
1. Assuming that CATHY Co. will use a Notes Receivable Discounted account. Compute the
adjusted Notes receivable for December 31, 2017.

2. Compute for the Total Accrued Interest Receivable that will be credited in discounting of
notes.

3. What is the Carrying Amount of discounted notes receivable at the time of discounting?

SOLUTION
1. Notes Receivable Unadjusted Balance
(P 925,000- 482,000- 147,000 + 24,000) P 320,000
Partial collection (P 30,000)
Outstanding Notes Receivable discounted:
Notes Receivable discounted P 147,000
Collected at maturity (98,000)
Dishonored Notes (24,000 ) 25,000
Dishonored note ( 24,000 )

Adjusted Balance P 291,000

2. Accrued Interest Receivable:

For 180-day note (P 122,000 x 12% x 1/12) 1,220

For 1-year note (P25,000 x 12% x 1/12) 250
Total Accrued Interest Receivable 1,470

3. Carrying amount of Notes Discounted:

For 180-day notes:

Principal P 122,000
Accrued Interest 1,220 123,220

For 1-year notes:

Principal P25,000
Accrued Interest Receivable 250 25,250
Total Carrying Amount P 148,470

PROBLEM NO. 3

On January 1, 2017, Goodlife Company reported the following:

Accounts Receivables 2,000,000

Allowance for doubtful accounts 100,000

1. Cash sales of the entity amount to P600,000 and represent 8% of gross sales

2. 80% of the credit sales customers do not take advantage of the 5/10, n/30 terms.

3. Customers who did not take advantage of the discount paid P4,950,000.

4. It is expected that cash discounts of P10,000 will be taken accounts receivable

outstanding at December 21, 2017.

5. Sales returns amounted to P 80,000. All returns were from charge sales

6. During the year accounts totaling P60,000 were written off as uncollectible.
 Recoveries during the year amounted to P5,000. This amount is not included in the
collections.

7. The allowance for doubtful accounts is adjusted to that it represents a certain

percentage of the outstanding accounts receivable at year-end.

REQUIREMENTS:
A. Prepare Journal Entries

SOLUTION:
1. Cash 600,000
Accounts Receivable 6,900,000
Sales 7,500,000

2. Cash 1,311,000
Sales Discount 69,000
Accounts receivable 1,380,000

3. Cash 4,950,000
Accounts receivable 4,950,000

4. Sales Discount 10, 000

Allowance for doubtful accounts 10, 000

5. Sales return 80, 000

Accounts receivable 80,000

6. Allowance for doubtful accounts 60,000

Accounts receivable 60,000

Accounts receivable 5,000

Allowance for doubtful accounts 5,000

Cash 5,000
Accounts Receivable 5,000

7. Doubtful accounts 21,500

Allowance for doubtful accounts 21,500

Required allowance – December 31 (5% x 2,430,000) P 121,500

less: allowance before adjustments 100,000
Doubtful accounts P 21,500

PROBLEM NO. 4

Awesome company provided the following transactions

May 1 Elegant company assigned P 800,000 of accounts receivable to a bank in

consideration for a loan.

A cash advance of 80% less service charge of P20,000 was made by the latter.

It was agreed that interest of 2% per month is to be made and that the assignor
continues to make the collections. The entity signed a promissory note for the
loan.

5 The entity issued a credit memo to a customer for a returned merchandise,

P30,000. The account is one of the assigned accounts
 10 Collections of P500,000 of the assigned accounts were made, less 2% discount.

June 1 Remitted the collections to the bank plus 2% interest for one month.

7 Assigned accounts of P10,000 proved to be worthless.

20 Collections of P200,000 for the accounts assigned were made.

July 1 Final settlement was made with the bank. Elegant Company accordingly
remitted to the amount due the bank to pay off the loan plus interest charge

REQUIREMENTS:
Prepare journal entries

SOLUTION:

May 1 Accounts receivable – assigned 800,000

Accounts receivable 800,000

Cash (640,000 – 20,000) 620,000

Service charge 20,000
Note payable 640,000

5 Sales return 30,000

Accounts receivable – assigned 30,000

10 Cash 490,000
Sales discount (2% x 500,000) 10,000
Accounts receivable – assigned 500,000

June 1 Notes payable – bank 490,000

Interest expense (2% x 640,000) 12,800
Cash 502,800

7 Allowance for doubtful accounts 10,000

Accounts receivable – assigned 10,000

20 Cash 200,000
Accounts receivable – assigned 200,000

July 1 Notes payable – bank (640,000 - 490,000) 150,000

Interest expense (2% x 150,000) 3,000
Cash 153,000

1 Accounts receivable 60,000

Accounts receivable – assigned 60,000

Accounts receivable – assigned P 800,000

Less: collections P 690,000
Sales discount 10,000
Sales return 30,000
Worthless accounts 10,000 740,000
BALANCE P 60,000
PROBLEM NO. 5

VBN Company provided the following transactions

April 5 Received from A, a customer, P500,000, 60-day, 12% note, dated April 4, in
payment of an account

19 The note of A was discounted with the bank at 14%

May 3 Received a P1,000,000, 30-day noninterest bearing note dated May 1 from B, in
payment of an account

16 The note of B was discounted with the bank at 12%

25 Received from C, a customer, a P 1,500,000, 60-day 12% note dated May 15

and made by Company X. Gave the customer credit for the maturity value of the
note less discount.

June 7 Received notice from the bank that the note of A was not paid on maturity

Paid bank the amount due plus protest fee and other charges of P 20,000.

15 Received a 60-day,12% note, P800,000, dated June 15, from D, a customer for
sale of merchandise.

18 Received full payment from A including interest of 12% on total amount due from
maturity date of original note.

REQUIREMENTS:
A. Prepare journal entries to record the transactions assuming any discounting of note
receivable is accounted for as CONDITIONAL SALE with recognition of a contingent
liability
B. Prepare necessary adjustments on June 30

SOLUTION:
A.)
April 5 Notes receivable 500,000
Accounts receivable 500,000

19 Cash 501,075
Loss on discounting 1,425
Notes receivable discounted 500,000
Accounts receivable – assigned 2,500

Principal P 500,000
Add: interest (500,000x 12% x 60/360) 10,000
Maturity value 510,000
Less: discount (510,000 x 14% x 45/360) 8,925
Net proceeds P 501,075

Principal P 500,000
Accrued interest receivable (500,000 x 12% x 15/360) 2,500
Carrying amount of NR P 502,500
 Net proceeds P 501,075
Less: Carrying amount of NR 502,500
Loss on discounting (P 1,425)

May 3 Notes receivable 1,000,000

Accounts receivable 1,000,000

16 Cash 995,000
Loss on discounting 5,000
Notes receivable discounted 1,000,000

Principal P 1,000,000
Less: Discount (1,000,000 x 12% x 15/360) 5,000
Net proceeds P 995,000

25 Notes receivable 1,500,000

Interest income 4,500
Accounts receivable 1,504,500

Principal P 1,500,000
Add: interest (1,500,000 x 12% x 60/360) 30,000
Maturity value P 1,530,,000

June 7 Accounts receivable (510,000+20,000) 530,000

Cash 530,000

Notes receivable discounted 500,000

Notes receivable 500,000

15 Notes receivable 800,000

Sales 800,000

18 Cash 532,650
Accounts receivable 530,000
Interest income (530,000 x 12% x 15/360) 2,650

B) Accrued interest receivable 4,000

Interest income (800,000 x 12% x 15/360) 4,000

Notes receivable discounted 1,000,000

Notes receivable 1,000,000