Accounting (PT - Financial Assets)

Proof of Cash
Problem 17-1
Lazer Company had the following bank reconciliation on June 30:
Balance per bank statement, June 30 3,000,000

Deposit in transit 400,000
Total 3,400,000
Outstanding checks (900,000)
Balance per book, June 30 2,500,000
The bank statement for the month of July showed the following:
Deposits, including P200,000 note collected for Lazer 9,000,000

Disbursements, including P140,000 NSF customer 7,000,000
check and P10,000 service charge
All reconciling items on June 30 cleared through the bank in July. The outstanding
checks totaled P600,000 and the deposit in transit amounted to P1,000,000 on
July 31.
What is the adjusted cash in bank on July 31?

What is the cash balance per book on July 31?
What is the amount of cash receipts per book in July?
What is the amount of cash disbursements per book in July?
Problem 17-2
Chris Company presented the following bank reconciliation for the month of November:
Balance per bank statement, November 30 3,600,000

Add: Deposit in transit 800,000
4,400,000
Less: Outstanding checks 1,200,000
Bank credit recorded in error 200,000 1,400,000
Balance per book, November 30 3,000,000
Data per bank statement for the month of December follow:
December deposits, including note collected

of P1,000,000 for Chris 5,500,000
December disbursements, including NSF customer check
P350,000 and service charge P50,000 4,400,000
All items that were outstanding on November 30 cleared through the bank in December, including the
bank credit.
In addition, checks amounting to P500,000 were outstanding and deposits of P700,000 were in transit
on December 31.
What is the adjusted cash in bank on December 31?

What is the cash balance per ledger on December 31?
What is the amount of cash receipts per book in December?
What is the amount of cash disbursements per book in December?
Problem 17-3
Lira Company prepared the following bank reconciliation on June 30:
Balance per bank 9,800,000

Deposits in transit 400,000
Outstanding checks (1,400,000)
Balance per book 8,800,000
There were total deposits of P6,500,000 and charges for disbursements

of P9,000,000 for July per bank statement. All reconciling items on June
30 cleared the bank on July 31.
Checks outstanding amounted to P1,000,000 and deposits in transit

totaled P1,200,000 on July 31.
What is the amount of cash receipts per book in July?

What is the amount of cash disbursements per book in July?
What is the adjusted cash in bank on July 31?
What is the cash balance per ledger on July 31?
Problem 17-4
Oro Company had the following bank reconciliation on March 31:
Balance per bank statement, March 31 4,650,000

Add: deposits in transit 1,030,000
Total 5,680,000
Less: Outstanding checks 1,260,000
Balance per book, March 31 4,420,000
Data per bank statement for the month of April:
Deposits 5,840,000
Disbursements 4,970,000
All reconciliation items on March 31 cleared through the bank in

April.
Outstanding checks on April 30 totaled P700,000 and there were

no deposits in transit on April 30.
What is the cash balance per book on April 30?

Problem 17-5
Jam Company provided the following bank reconciliation on May 31:
Balance per bank statement 2,100,000

Deposits outstanding 300,000
Checks outstanding ( 30,000)
Correct cash balance 2,370,000
Balance per book 2,372,000

Bank service charge ( 2,000)
Correct cash balance 2,370,000
Data for the month of June: Bank Book
Checks recorded 2,300,000 2,360,000

Deposits recorded 1,620,000 1,800,000
Collection by bank, P400,000 note plus interest 420,000
NSF check returned with June 30 statement 10,000
Balances 1,830,000 1,810,000
What is the amount of checks outstanding on June 30?

What is the amount of deposits in transit on June 30?
What is the adjusted cash in bank on June 30?
Accounts Receivable
Problem 18-1
Roxy Company provided the following information relating to

accounts receivable for the current year:
Accounts receivable on January 1 1,300,000

Credit sales 5,400,000
Collections from customers, excluding recovery 4,750,000
Accounts written off 125,000
Collection of accounts written off in prior year
(customer credit was not established) 25,000
Estimated uncollectible receivables per aging
of receivables at December 3 165,000
What is the balance of accounts receivable, before allowance for

doubtful accounts On December 31?
Problem 18-2
Jay Company provided the following data relating to accounts

receivable for the current year:
Accounts receivable, January 1 650,000

Credit sales 2,700,000
Sales return 75,000
Collections from customers 2,150,000
Estimated future sales return at December 31 50,000
Estimated uncollectible accounts at 12/31 per aging 110,000
What is the amortized cost of accounts receivable on December 31?

Problem 18-3
At year-end, Miami Company reported that the current receivables

consisted of the following:
Trade accounts receivable 930,000

Allowance for uncollectible accounts (20,000)
Claim against shipper of 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 300,000
1,500,000
What total amount should be reported as trade and other

receivables under current assets at year-end?
Problem 18-4
Faith Company provided the following information relating to

current operations:
Accounts receivable, January 1 4,000,000

Accounts receivable collected 8,400,000
Cash sales 2,000,000
Inventory, January 1 4,800,000
Inventory, December 31 4,400,000
Purchases 8,000,000
Gross margin on sales 4,200,000
What is the balance of accounts receivable on December 31?

Problem 18-5
Steven Company provided the following information during the first

year of operations:
Total merchandise purchases for the year 7,000,000

Merchandise inventory on December 31 1,400,000
Collections from customers 4,000,000
All merchandise was marked to sell at 40% above cost. All sales are
on a credit basis and all receivables are collectible
Problem 18-6
Honduras Company revealed a balance of P8,200,000 in the accounts

receivable control account at year-end.
An analysis of the accounts receivable showed the following:
Accounts known to be worthless 100,000

Advance payments to creditors on purchase orders 400,000
Advances to affiliated entities 1,000,000
Customers’ accounts reporting credit balances arising
from sales returns (600,000)
Interest receivable on bonds 400,000
Trade accounts receivable – unassigned 2,000,000
Subscription receivable due in 30 days 2,200,000
Trade accounts receivable assigned (Finance
Company’s equity in assigned accounts is P500,000) 1,500,000
Trade installments receivable due 1-18 months,
including unearned finance charge of P50,000 850,000
Trade accounts receivable from officers, due currently 150,000
Trade accounts on which postdated checks are held
and no entries were made on receipt on checks 200,000
Total 8,200,000
What amount should be reported as trade accounts receivable at year-

end?
Problem 18-7
Von Company provided the following data for the current year in relation to
accounts receivable:
Debits
January 1 balance after deducting credit balance of P30,000 530,000
Charge sales 5,250,000
Charge for goods out on consignment 50,000
Shareholders’ subscriptions 1,000,000
Accounts written off but recovered 10,000
Cash paid to customer for January 1 credit balance 25,000
Goods shipped to cover January 1 credit balance 5,000
Deposit on long-term contract 500,000
Claim against common carrier 400,000
Advances to supplier 300,000
Credits
Collections from customers, including overpayment of P50,000 5,200,000
Write-off 35,000
Merchandise returns 25,000
Allowances to customers for shipping damages 15,000
Collection on carrier claim 50,000
Collection on subscription 200,000

What total amount of trade and other receivables should be reported under
current assets?
What total amount of other receivables should be reported under noncurrent
assets?
Problem 18-8
Wonder Company provided the following transactions affecting

accounts receivable during the current year:
Sales – cash and credit 5,900,000

Cash received from credit customers, all of whom
took advantage of the discount feature of the
credit terms 4/10, n/30 3,024,000
Cash received from cash customers 2,100,000
Accounts receivable written off as worthless 50,000
Credit memorandum issued to credit customers
for sales returns and allowances 250,000
Cash refunds given to cash customers for sales
returns and allowances 20,000
Recoveries on accounts receivable written off as
uncollectible in prior periods not included in
cash received from customers stated above 80,000
Balances on January 1
Accounts receivable 950,000
Allowance for doubtful accounts 100,000
The entity provided for uncollectible account losses by crediting

allowance for doubtful accounts in the amount of P70,000 for the
current year.

What is the balance of allowance for doubtful accounts on
December 31?
Problem 18-9
Germany Company started business at the beginning of current year.

The entity established an allowance for doubtful accounts estimated at 5% of
credit sales. During the year, the entity wrote off P50,000 of uncollectible
accounts.
Further analysis showed that merchandise purchased amounted to P9,000,000

and ending merchandise inventory was P1,500,000. Goods were sold at 40%
above cost.
The total sales comprised 80% sales on account and 20% cash sales.
Total collections from customers, excluding cash sales, amounted to
P6,000,000.
What is the cost of goods sold?

What is the amount of sales on account?
What is the net realizable value of accounts receivable at year-end?
Accounts Receivable
Problem 19-1
Orr Company prepared an aging of accounts receivable on December

31 and determined that the net realizable value of the accounts
receivable was P2,500,000.
Allowance for doubtful accounts on January 1 280,000

Accounts written off as uncollectible 230,000
Accounts receivable on December 31 2,700,000
Uncollectible accounts recovery 50,000
What amount should be recognized as doubtful accounts expense for

current year?
Problem 19-2
Roanne Company used the allowance method of accounting for

uncollectible accounts.
During the current year, the entity had charged P800,000 to bad
debt expense and wrote off accounts receivable of P900,000 as
uncollectible.
What was the decrease in working capital?
Problem 19-3
Mill Company’s allowance for doubtful accounts was P1,000,000 at

the end of 2018 and P900,000 at the end of 2017.
For the year ended December 31, 2018, the entity reported doubtful
accounts expense of P160,000 in the income statement.
What amount was debited to the appropriate account to write off

uncollectible accounts in 2018?
Problem 19-4
Tara Company provided the following information pertaining accounts receivable at

year-end:
Days Estimated Estimated

Outstanding Amount Uncollectible
0 – 60 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 account receivable and
recovered P40,000 that had been written off in prior years.
At the beginning of current year, the allowance for uncollectible account was
P100,000.
Under the aging method, what amount of allowance for uncollectible accounts
should be reported at year-end?
Problem 19-5
Marian Company used the allowance method of accounting for doubtful accounts.
The following summary schedule was prepared from an aging of accounts

receivable outstanding on December 31:
Number of days Probability

outstanding Amount of collection
0 – 30 days 5,000,000 98%
31 – 60 days 2,000,000 90%
Over 60 days 1,000,000 80%
The following additional information is available for the current year:
Net credit sales for the year 40,000,000

Allowance for doubtful accounts:
Balance, January 1 (cr) 450,000
Balance before adjustment, December 31 (dr) 20,000
The entity based the estimate of doubtful accounts on the aging of accounts
receivable.
What amount should be recognized as doubtful accounts expense for the current
year?
Problem 19-6
Delta Company sold goods to wholesalers on terms 2/15, net 30. The entity had no
cash sales but 50% of the customers took advantage of the discount.
The entity used the gross method of recording sales and accounts receivable.
An analysis of the trade accounts receivable at year-end revealed the following:
Age Amount Collectible

0 – 15 days 2,000,000 100%
16 – 30 days 1,400,000 95%
31 – 60 days 400,000 90%
Over 60 days 200,000 50%
4,000,0000
What amount should be reported as allowance for sales discount at year-end?

What amount should be reported as allowance for doubtful accounts at year-end?
What is the net realizable value of accounts receivable at year-end?
Problem 19-7
Manchester Company provided the following accounts abstracted

from the unadjusted trial balance at year-end:
Debit Credit
Accounts receivable 5,000,000
Allowance for doubtful accounts 40,000
Net credit sales 20,000,000
The entity estimated that 3% of the gross accounts receivable will

become uncollectible.
What amount should be recognized as doubtful accounts expense

for the current year?
Problem 19-8
At the beginning of current year, Jasmin Company had a credit balance of P260,000 in
the allowance for uncollectible accounts. Based on past experience, 2% of credit sales
would be uncollectible.
During the current year, the entity wrote off P325,000 of uncollectible accounts. Credit
sales for the year totaled P9,000,000.
What is the uncollectible accounts expense for the year?

What amount should be reported as allowance for uncollectible accounts at year-end?
Problem 19-9
Ladd Company provided the following data for the current year:
Allowance for doubtful accounts – January 1 180,000

Sales 9,500,000
Sales returns and allowances 800,000
Sales discounts 200,000
Accounts written off as uncollectible 200,000
The entity provided for doubtful accounts expense at the rate

of 5% of net sales.
What amount should be reported as doubtful accounts

expense?
What is the allowance for doubtful accounts on December 31?
Problem 19-10
Effective with the current year, Hall Company adopted a new accounting
method for estimating the allowance for doubtful accounts at the amount
indicated by the year-end aging of accounts receivable.
Allowance for doubtful accounts, January 1 250,000

Provision for doubtful accounts during the current year
at 2% of credit sales of P10,000,000 200,000
Estimated uncollectible accounts per aging on December 31 220,000
After year-end adjustment, what is the doubtful accounts expense for

current year?
Problem 20-1
From inception of operations, Axis Company carried no allowance for

doubtful accounts.
Uncollectible accounts were expensed as written off and recoveries

were credited to income as collected.
During 2019, management recognized that the accounting policy with

respect to doubtful accounts was not correct and determined that an
allowance for doubtful accounts was necessary.
A policy was established to maintain an allowance for doubtful

accounts based on historical bad debt loss percentage applied to year-
end accounts receivable.
The historical bad debt loss percentage is to be recomputed each year

based on all available past years up to a maximum of five years.
Year Credit sales Write-offs Recoveries

2015 1,500,000 15,000 0
2016 2,250,000 38,000 2,700
2017 2,950,000 52,000 2,500
2018 3,300,000 65,000 4,800
2019 4,000,000 83,000 5,000
The entity reported accounts receivable of P1,250,000 on December

31, 2018 and P2,000,000 on December 31, 2019.
What is the allowance for doubtful accounts on December 31, 2018?

What is the doubtful accounts expense for 2019?
Problem 20-2
From inception of operations, Murr Company provided for uncollectible accounts expense under the
allowance method.
Provisions were made monthly at 2% of credit sales, bad debts written off were charged to the allowance
account and recoveries of bad debts previously written off were credited to the allowance account.
No year-end adjustments to the allowance account were made.
The allowance for doubtful accounts was P120,000 on January 1, 2018.
During the current year, credit sales totaled P9,000,000, interim provisions for doubtful accounts were made
at 2% of credit sales, P90,000 of bad debts were written off, and recoveries of accounts previously written
off amounted to P15,000.
The entity prepared an aging of accounts receivable for the first time on December 31, 2018.
Classification Balance Uncollectible
November – December 2,000,000 2%
July – October 600,000 10%
January – June 400,000 25%
Prior to January 1, 2018 200,000 75%
3,200,000
Based on the review of collectability of the account balances in the “prior to January 1, 2018” aging
category, additional accounts totaling P60,000 are to be written off on December 31, 2018.
Effective with the year ended December 31, 2018, the entity adopted a new accounting method for
estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of
accounts receivable.
What is the required allowance for doubtful accounts on December 31, 2018?
What amount was recorded as doubtful accounts expense for 2018?
What amount should be reported as doubtful accounts expense in the income statement for 2018?
What is the year-end adjustment to the allowance for doubtful accounts on December 31, 2018?
Problem 20-3
Horus Company provided for doubtful accounts expense monthly at 3%

of credit sales. The balance in the allowance for doubtful accounts was
P1,000,000 on January 1, 2018.
During 2018, credit sales totaled P20,000,000, interim provisions for

doubtful accounts were made at 3% of credit sales, P200,000 accounts
were written off, and recoveries of accounts previously written off
amounted to P50,000.
An aging of accounts receivable was made on December 31, 2018.
1 – 60 days 6,000,000 10% uncollectible

More than one year 500,000 50% uncollectible
10,000,000
Based on the review of the “more than one year” category, additional
accounts of P100,000 are to be written off on December 31, 2018.
What amount should be reported as doubtful accounts expense for the

current year?
What is the year-end adjustment to the allowance for doubtful accounts
on December 31, 2018?
What is the net realizable value of accounts receivable on December 31,
2018?
Problem 20-4
Flappable Company began operations on January 1, 2015. The entity provided for
doubtful accounts based on 5% of annual credit sales in prior years. On January 1, 2018,
the entity changed the method of determining the allowance for doubtful accounts
using an aging schedule.
2018 2017 2016 2015

Credit sales 15,000,00 9,500,000 8,000,000 6,000,000
Collections excluding recovery 0 8,200,000 6,700,000 4,500,000
Accounts written off during year 11,700,00 120,000 80,000 None
Recovery of accounts written off 0 40,000 35,000 None
200,000
100,000
Days Account Outstanding Amount Probability of Collection
30 days or less 3,000,000 95%
Between 31 and 60 days 1,500,000 80%
Between 61 and 180 days 1,200,000 75%
Between 181 and one year 1,200,000 50%
Over one year – to be written off 100,000 0%
What amount should be reported as allowance for doubtful accounts on December 31,
2018?
What amount should be reported as doubtful accounts expense for current year?
What is the net realizable value of accounts receivable value of accounts receivable on
December 31, 2018?
Problem 20-5
Sigma Company began operations on January 1, 2018. On December 31,

2018, the entity provided for doubtful accounts based on 1% of annual
credit sales.
On January 1, 2019, the entity changed the method of determining the

allowance for doubtful accounts by aging of accounts receivable.
Days past invoice date Percent of uncollectible

0 – 30 1
31 – 90 5
91 – 180 20
Over 180 80
In addition, the entity wrote off all accounts receivable that were over 1
year old.
The entity provided the following additional information:
2019 2018
Credit sales 3,000,000 2,800,000
Collections including recovery 2,915,000 2,400,000
Accounts written off 27,000 None
Recovery of accounts previously written off 7,000 None
Days past invoice date at December 31

0 – 30 300,000 250,000
31 – 90 80,000 90,000
91 – 180 60,000 45,000
Over 180 25,000 15,000

What amount should be reported as doubtful accounts expense for 2019?
Problem 20-6
On January 1, 2018, Easy Company reported accounts receivable 2,000,000

and allowance for doubtful accounts P100,000. The entity provided the
following data:
Credit sales Write-offs Recoveries

2015 11,100,000 260,000 22,000
2016 12,250,000 295,000 37,000
2017 14,650,000 300,000 36,000
2018 15,000,000 200,000 50,000
The collections from customers during 2018 totaled P14,000,000, excluding

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

What amount should be reported as allowance for doubtful accounts on
December 31, 2018?
What is the net realizable value of accounts receivable on December 31, 2018?
Problem 20-7
Sky Company provided the following information at year-end:
2019 2018
Accounts receivable 880,000 800,000
Allowance for doubtful accounts (10,000) (15,000)
Allowance for sales return (20,000) (25,000)
Net realizable value 850,000 760,000
The entity reported doubtful accounts expense in 2019 of P30,000 and

had products returned for credits totaling P15,000 at sales price. Gross
sales for 2019 amounted to P6,150,000.
What amount of accounts receivable was written during 2019?

What amount was collected from customers during 2019?
What amount was recorded as estimated sales returns during 2019?
What amount was reported as net sales for 2019?
Problem 23-1
Problem 23-2
Problem 23-3
Nova Company reported the following receivables on December 31, 2018:

Accounts receivable, net of P520,000 allowance for
doubtful accounts 3,840,000
Interest receivable 190,000
Notes receivable 4,000,000
 The notes receivable comprised:
P1,000,000 note dated October 31, 2018, with principal and 6% interest
payable on October 31, 2019.
P3,000,000 note dated March 31, 2018, with principal and 8% interest payable
on March 31, 2019.
 During 2019, sales revenue totaled P21,200,000, P19,800,000 cash was
collected from customers, and P410,000 in accounts receivable written off. All
sales are made on a credit basis.
 Doubtful accounts expense is recorded at year-end by adjusting the allowance
account to an amount equal to 10% of year-end accounts receivable.
What amount should be reported as interest income for 2019?

Problem 23-4
At year-end, Jet Company received two P1,000,000 notes receivable from

customers in exchange for services rendered.
On both notes, interest is calculated on the outstanding principal balance
at the annual rate of 3% and payable at maturity.
The note from Hart Company, made under customary trade terms, is due
in nine months and the note from Maxx Company is due in five years.
The market interest rate for similar notes at year-end was 8%.
What is the total carrying amount of notes receivable at year-end?
Problem 23-5
On January 1, 2018, Ott company sold goods to Fox Company. Fox signed a
non-interest-bearing note requiring payment of P600,000 annually for
seven years. The first payment was made on January 1, 2018.
The prevailing rate of interest for this type of note at date of issuance was
10%.
What amount should be recorded as sales revenue in January 2018?
What is the carrying amount of the note receivable on January 1, 2018?
What is the interest income for 2018?
What is the carrying amount of the note receivable on December 31, 2018?
Problem 23-6
On December 31, 2018, Park Company sold used equipment with carrying
amount of P2,000,000 in exchange for a non-interest-bearing note of
P5,000,000 requiring ten annual payments of P500,000. The first payment
was made on December 31, 2019.
The market interest for similar note was 12%.
What is the gain on sale of equipment to be recognized in 2018?
What amount should be recognized as interest income for 2019?
Problem 23-7
On December 31, 2018, Chang Company sold a machine in the ordinary course of business to Door
Company in exchange for a non-interest-bearing note requiring ten annual payments of P1,000,000.
The entity made the first payment on December 31, 2018. The market interest rate for similar notes
at date of issuance was 8%.
What is the amount of sales revenue?
On December 31, 2018, what is the carrying amount of the note receivable?
Problem 23-8
On January 1, 2018, Emme Company sold equipment with carrying amount of P4,800,000 in exchange
for a P6,000,000 non-interest-bearing note due January 1, 2021. There was no established exchange
price for the equipment.
The prevailing rate of interest for a note of this type on January 1, 2018 was 10%.
What amount should be reported as gain or loss on sale of equipment?
Problem 23-9
On January 1, 2018, Mill Company sold a building and received as consideration

P1,000,000 cash and a P4,000,000 non-interest-bearing note due on January 1, 2021.
There was no established exchange price for the building and the note had no ready
market.
The prevailing rate of interest for a note of this type was 10%.
What amount of interest revenue should be included in the 2019 income statement?
Problem 23-10
Jean Company purchased from Carmina Company a P2,000,000, 8%,

five-year note that required five equal annual year-end payments of
P500,900. The note was discounted to yield a 9% rate to Jean Company.
At the date of purchase, Jean Company recorded the note at the present
value of P1,948,500.
What is the total interest revenue earned by Jean Company over the life
of this note?
Problem 24-1
Appari Bank granted a loan to a borrower on January 1, 2018. The interest

rate on the loan is 10% payable annually starting December 31, 2018. The
loan matures in five years on December 31, 2022.
Principal amount 4,000,000
Origination 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%.
What is the carrying amount of the loan receivable on January 1, 2018?
What is the carrying amount of the loan receivable on December 31, 2018?
Problem 24-2
National Bank granted a loan to a borrower on January 1, 2018. The interest

on the loan is 10% payable annually starting December 31, 2018. The loan
matures in three years.
Origination fee charged against the borrower 342,100
After considering the origination fee charged against the borrower and the
direct origination cost incurred, the effective rate on the loan is 12%.
Problem 24-3
Philippine Bank granted a loan to a borrower on January 1, 2018. The interest

on the loan is 8% payable annually starting December 31, 2018. The loan
matures in three years on December 31, 2020.
Origination fee charged against the borrower 100,000
After considering the origination fee charged to the borrower and the direct
origination cost incurred, the effective rate on the loan is 6%.
Problem 24-4
On December 1, 2018, Nicole Company gave Dawn Company a P2,000,000, 12% loan.
Nicole Company paid proceeds of P1,940,000 after the deduction of a P60,000
nonrefundable loan origination fee.
Principal and interest are due in sixty monthly installments of P44,500, beginning
January 1, 2019.
The repayments yield an effective interest rate of 12% at a present value of P2,000,000
and 13.4% at a present value of P1,940,000.
What amount of interest income should be reported in 2018?
What amount should be reported as accrued interest receivable on December 31, 2018?
Problem 24-5
National Bank granted a 10-year loan to Abbo Company in the amount of P1,500,000
with a stated interest rate of 6%. Payments are due monthly and are computed to be
P16,650.
National Bank incurred P40,000 of direct loan origination cost and P20,000 of indirect
loan origination cost. In addition,
National Bank charged Abbo Company a 4-point nonrefundable loan origination fee.
What is the initial carrying amount of the loan receivable on the part of National Bank?
What is the carrying amount of the loan payable on the part of Abbo Company?
Problem 25-1
Beach Bank Loaned Boracay Company P7,500,000 on January 1, 2016. The terms
of the loan were payment in full on January 1, 2020 plus annual interest payment
at 11%. The interest payment was made as scheduled on January 1, 2017.
However, due to financial setbacks, Boracay Company was unable to make the
2018 interest payment.
Beach Bank considered the loan impaired and projected the cash flows from the
loan on December 31, 2018. The bank accrued the interest on December 31, 2017
but did not continue to accrue interest for 2018 due to the impairment of the
loan. The projected cash flows are:
Date of cash flow Amount projected on
December 31, 2018
December 31, 2019 500,000
December 31, 2020 1,000,000
December 31, 2021 2,000,000
December 31, 2022 4,000,000
What is the loan impairment loss for 2018?
Problem 25-2
Kalibo Bank loaned P5,000,000 to Caticlan Company on January 1, 2016.

The terms 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 are due on January 1, 2017.
Caticlan Company made the required payments during 2017 and 2018.
However, during 2018 Caticlan Company began to experience financial
difficulties, requiring Kalibo Bank to reassess the collectability of the loan.
On December 31, 2018, Kalibo Bank has determined that the remaining
principal payment will be collected but the collection of the interest is
unlikely. Kalibo Bank did not accrue the interest on December 31, 2018.
Problem 25-3
On January 1, 2018, 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 2018, 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 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.
No interest revenue has been recognized in 2018 in connection with the loan.
Prepare the journal entries for the entire term of the loan.
1/1/18 Loan receivable 1,000,000

Cash 1,000,000
12/31/18 Impairment loss 338,473

Allowance for impairment loss 238,473
Loan receivable 100,000
12/31/19 Allowance for impairment loss 52,922

Interest Income 52,922



1/1/23 Cash 900,000
Loan receivable 900,000
Problem 25-4
On December 31, 2018, Macedon bank has a 5-year loan receivable with a face amount of P5,000,000
dated January 1, 2017 that is due on December 31, 2021. Interest on the loan is payable at 9% every
December 31.
The borrower paid the interest that was due on December 31, 2017 but informed the bank that
interest accrued in 2018 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, 2018 is 10%.
Problem 25-5
On December 31, 2018, Solid Bank has a loan receivable of P4,000,000 from a borrower that it is
carrying at face value and is due on December 31, 2023. Interest on the loan is payable at 9% each
December 31.
The borrower paid the interest due on December 31, 2018 but informed the bank that it would
probably miss the next two years’ interest payments.
After that, the borrower is expected to resume the annual interest payment, but it would make the
principal payment on year late, with interest paid for that additional year at the time of principal
payment.
Problem 25-6
On December 31, 2018, Oregon Bank recorded an investment of P5,000,000 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 at maturity on December 31, 2021.
Unfortunately, the borrower is experiencing significant financial difficulty and will have difficult time
in making full payment.
The bank projected that the entire principal will be paid at maturity and 4% interest or P200,000 will
be paid annually on December 31 of the next three years. There is no accrued interest on December
31, 2018.
Problem 25-7
On December 31, 2018, London Bank granted a P5,000,000 loan to a borrower with 10% stated rate
payable annually and maturing in 5 years.
The loan was discounted at the market interest rate of 12%.
On December 31, 2020, the bank determined that the borrower would pay back only P3,000,000 of
the principal at maturity.
However, it was considered likely that interest would continue to be paid on the P5,000,000 loan.
What is the amount of cash paid to the borrower on December 31, 2018?
What is the impairment loss for 2020?
Problem 25-8 (This is not included in Anki)
Diane Company sold loans with a P2,200 fair value and a carrying amount of P2,000.
The entity obtained an option to purchase similar loans and assumed recourse obligation to purchase
loans. The entity also agreed to provide a floating rate of interest to the transferee.
Fair values
Cash proceeds 2,100
Interest rate swap 140
Call option 80
Recourse obligation (120)
What is the gain (loss) on the sale?
What is included in the journal entry to record the transfer on the books of Diane Company?
Assume that Diane Company agreed to service the loans without explicitly stating the compensation.
The fair value of the service is P50. What are the net proceeds and the gain (loss) on the sale,
respectively?
Problem 21-1
On December 1, 2018, Bamboo Company assigned specific accounts receivable totaling P4,000,000 as
a collateral on a P3,000,000, 12% note from a certain bank. The entity will continue to collect the
assigned accounts receivable.
In addition to the interest on the note, the bank also charged a 5% finance fee deducted in advance
on the P3,000,000 value of the note.
The December collections of assigned accounts receivable amounted to P2,000,000 less cash
discounts of P100,000. On December 31, 2018, the entity remitted the collections to the bank in
payment for the interest accrued on December 31, 2018 and the note payable.
The entity accepted sales returns of P150,000 on the assigned accounts and wrote off assigned
accounts of P200,000.
What amount of cash was received from the assignment of accounts receivable on December 1, 2018?
What is the carrying amount of note payable on December 31, 2018?
What is the balance of accounts receivable-assigned on December 31, 2018?
Problem 21-2
Zeus Company factored P6,000,000 of accounts receivable to a finance entity at the end of current
year. Control was surrendered by Zeus Company.
The factor assessed a fee of 3% and retained a holdback equal to 5% of the accounts receivable.
In addition, the factor charged 15% interest computed on a weighted average time to maturity of the
accounts receivable of 54 days.
What is the amount of cash initially received from the factoring?
If all accounts are collected, what is the cost of factoring the accounts receivable?
Problem 21-3
Cynthia Company factored P750,000 of accounts receivable at year-end. Control was surrendered.
The factor accepted the accounts receivable subject to recourse for non-payment.
The factor assessed a fee of 2% and retained a holdback equal to 4% of the accounts receivable.
In addition, the factor charged 12% interest computed on a weighted-average time to maturity of
fifty-one days. The fair value of the recourse obligation is P15,000.
What is the amount of cash initially received from the factoring?
Assuming all accounts receivable are collected, what is the cost of factoring the accounts receivable?
Problem 21-4
Camia Company sold accounts receivable without recourse for P5,300,000. The entity received
P5,000,000 cash immediately from the factor.
The remaining P300,000 will be received once the factor verifies that none of the accounts receivable
is in dispute.
The accounts receivable had a face amount of P6,000,000. The entity had previously established an
allowance for bad debts of P250,000 in connection with such accounts.
What amount of loss on factoring should be recognized?
Problem 21-5
Mazda Company sold P5,800,000 in accounts receivable for cash of P5,000,000.

The factor withheld 10% of the cash proceeds to allow for possible customer
returns and other adjustments.
An allowance for doubtful accounts of P600,000 had previously been established
by the entity in relation to these accounts.
What is the loss on factoring that should be recognized?
Problem 21-6
Crater Company factored without recourse P2,000,000 of accounts

receivable with a bank.
The finance charge is 3%, and 5% was retained to cover sales discounts,
sales returns and allowances.
What amount of cash was received on the sale of accounts receivable?
What amount should be recognized as loss on factoring?
Problem 21-7
Daisy Company sold accounts receivable without recourse with

face amount of P6,000,000.
The factor charged 15% commission on all accounts receivable
factored and withheld 10% of the accounts factored as protection
against customer returns and other adjustments.
The entity had previously established an allowance for doubtful
accounts of P200,000 for these accounts.
By year-end, the entity had collected the factor’s holdback there
being no customer returns and other adjustments.
What amount of cash was initially received from factoring?
What is the loss on factoring?
21-8
Freeway Company provides financing to other entities by purchasing their accounts

receivable on a nonrecourse basis. Freeway charges clients a commission of 15% on all
receivables factored.
In addition, freeway withholds 10% of receivables factored as protection against sales returns
and other adjustments.
Freeway credits the 10% withheld to Clients Retainer account and makes payments to clients
at the end of each month so that the balance in the retainer is equal to 10% of unpaid
receivables at the end of the month.
Experience has led Freeway to establish an allowance for doubtful accounts of 4% of all
unpaid receivables purchased.
During the current year, Freeway purchased receivables from Motorway Company totaling
P3,000,000.
Motorway had previously established an allowance for doubtful accounts for these
receivables at P100,000,
By year-end, Freeway had collected P2,500,000 on these receivables.
What is the amount of cash initially received by Motorway Company from Freeway Company?
What is the loss on factoring to be recognized by Motorway Company?
Problem 21-9
During the second year of operations, Shark Company found itself in financial
difficulties. The entity decided to use the accounts receivable as a means of
obtaining cash to continue operations.
On July 1, 2018, the entity sold P1,500,000 of accounts receivable for cash
proceeds of P1,400,000. No allowance for doubtful accounts was associated
with these accounts.
On December 15, 2018, the entity assigned the remainder of its accounts
receivable, P5,000,000 as of that date, as collateral on a P2,500,000, 12%
annual interest rate loan from Finance Company. The entity received
P2,500,000 less a 2% finance charge.
None of the assigned accounts had been collected by the end of the year. It is
estimated that 10% of accounts receivable would be uncollectible.
The entity revealed the following data on December 31, 2018:
Accounts receivable, excluding factored and assigned accounts 1,000,000
Accounts receivable – assigned 5,000,000
Accounts receivable – factored 1,500,000
Allowance for doubtful accounts before adjustment 100,000
What total amount was received from the financing accounts receivable?
What is the net realizable value of accounts receivable on December 31,2018?
What amount should be recognized as doubtful accounts expense for 2018?
INVESTEMNTS
Problem 36-2
At the beginning of current year, Alexis Company purchased marketable

equity securities to be held as “trading” for P5,000,000. The entity also paid
transaction cost amounting to P200,000.
The securities had a market value of P5,500,000 at year-end and the
transaction cost that would be incurred on sale is estimated at P100,000. No
securities were sold during the current year.
What amount of unrealized gain or loss on these securities should be
reported in the income statement for the current year?
Problem 36-2
During 2018, Garr Company purchased marketable equity

securities as a trading investment.
For the year ended December 31, 2018, the entity recognized
an unrealized loss of P230,000.
There were no security transactions during 2019. The entity
provided the following information on December 31, 2019:
Security Cost Market value
A 2,450,000 2,300,000
B 1,800,000 1,820,000
4,250,000 4,120,000
In the 2019 income statement, what amount should be reported
as unrealized gain or loss?
Problem 36-3
During 2018, Latvia Company purchased trading securities with

the following cost and market value on December 31, 2018:
Security Cost Market value
A – 1,000 shares 200,000 300,000
B – 10,000 shares 1,700,000 1,600,000
C – 20,000 shares 3,100,000 2,900,000
5,000,000 4,800,000
The entity sold 10,000 shares of Security B on January 15, 2019,
for P150 per share.
What amount of unrealized gain or loss should be reported in
the income statement for 2018?
What amount should be reported as loss on sale of trading
investment in 2019?
Problem 36-4
At the beginning of current year, Carmela Company acquired nontrading

equity instrument for P4,000,000.
The equity instrument is irrevocably designated as financial asset at fair
value through other comprehensive income.
The transaction coast incurred amounted to P700,000.
The fair value of the instrument was P5,500,000 at year-end and the
transaction cost that would be incurred on the sale of the investment is
estimated at P600,000.
What amount of gain should be recognized in other comprehensive
income for the current year?
Problem 36-5
Benquet Company began operations at the beginning of current

year. The following information pertains to the portfolio of equity
securities at year-end:
Trading Nontrading
Aggregate cost 4,000,000 6,000,000
Aggregate market value 3,700,000 5,500,000
Aggregate lower of cost or market value
applied to each security 3,500,000 5,300,000
The market declines are judged to be other than temporary.
The nontrading securities are designated at fair value through other
comprehensive income.
What amount should be reported as total loss on these securities in
the income statement for the current year?
Problem 36-6
On December 31, 2018, Fay Company appropriately reported a

P100,000 unrealized loss.
There was no change during 2019 in the composition of the portfolio
of nontrading equity securities held at fair value through other
comprehensive income.
Security Cost__ Market value__.
December 31, 2019
A 1,200,000 1,300,000____
B 900,000 500,000____
C 1,600,000 1,500,000____
3,700,000 3,300,000____
What is the market value of the investment on December 31, 2018?
What amount of loss on these securities should be included in the
statement of comprehensive income for the year ended December 31,
2019 as component of other comprehensive income?
What cumulative amount of loss on these securities should be
reported in the statement of changes in equity for the year ended
December 31, 2019 as component of other comprehensive income?
Problem 36-7
On January 1, 2018, Lebanon Company purchased equity securities

to be held at fair value through other comprehensive income.
On December 31, 2017, the cost and market value were:
Cost__ Market..
Security X 2,000,000 2,400,000
Security Y 3,000,000 3,500,000
Security Z 5,000,000 4,900,000
On July 1, 2019, the entity sold Security X for P2,500,000.
What amount should be recognized directly in retained earnings as a
result of the sale of financial asset in 2019?
Problem 36-8
Trinidad Company provided the following portfolio of equity investments

measured at fair value through other comprehensive income:
Aggregate cost – December 31, 2018 1,700,000
Unrealized gain – December 31, 2018 40,000
Unrealized loss – December 31, 2018 260,000
Net realized gain during 2018 300,000
On January 1, 2018, the entity reported an unrealized loss of P15,000 as a
component of other comprehensive income.
In the 2018 statement of changes in equity, what cumulative amount
should be reported as unrealized loss on these securities?
At the beginning of current year, Remington Company acquired

200,000 ordinary shares of Universal Company for P9,000,000.
At the time of purchase, Universal Company had outstanding 800,000
shares with a carrying amount of P36,000,000.
The following events took place during the current year:
 Universal Company reported net income of P1,800,000 for the
current year.
 Remington Company received from Universal Company a dividend
of P0.75 per ordinary share.
 The market value of Universal Company share had temporarily
declined to P40.
Remington Company has elected irrevocably to measure the
investment at fair value through other comprehensive income.
What is the carrying amount of the investment at year-end?
Problem 36-10
Neal Company held the following financial assets as trading investments

on December 31, 2018:
Cost Market value
100,000 shares of Company A
nonredeemable preference share
capital, par value P75 775,000 825,000
7,000 shares of Company B preference

share capital, par value P100, subject to
mandatory redemption by the issuer at
par on December 31, 2019 690,000 625,000
1,465,000 1,450,000
On December 31, 2018, what is the total carrying amount of the
investments?
Problem 37-1
During 2018, Lawan Company bought the shares of Burwood Company.

June 1 20,000 shares @ P100 2,000,000
December 1 30,000 shares @ P120 3,600,000
5,600,000
Transactions for 2019
January 10 Received 20% share dividend
July 20 Received cash dividend of P10 per share
December 10 Sold 30,000 shares at P125 per share
What amount should be reported as dividend income for 2019?
What is the gain on the sale of shares under FIFO approach?
What is the gain on the sale of shares under average approach?
Problem 37-2
Wood Company owns 20,000 shares of Arlo Company’s 200,000

shares of P100 par, 6% cumulative, nonparticipating preference share
capital and 10,000 shares representing 2% ownership of Arlo’s
ordinary share capital.
During 2018, Arlo Company declared and paid preference dividends of
P2,400,000. No dividends had been declared or paid during 2017.
In addition, Wood Company received a 5% share dividend on ordinary
share from Arlo Company when the quoted market price of Arlo’s
ordinary share was P10.
What amount should be reported as dividend income for 2018?
Problem 37-3
Day Company received dividends from share investments during the current year:
 A share dividend of 4,000 shares from Parr Company when the market price of
Parr’s share was P20. Day Company owns less than 1% of Parr’s share capital.
 A cash dividend of P150,000 from Lark Company in which Day Company owns a
25% interest. A majority of Lark’s directors are also directors of Day Company.
What amount of dividend revenue should be reported for the current year?
Problem 37-4
Wray Company provided the following data for the current year:
 On September 1, Wray received a P500,000 cash dividend from Seco Company
in which Wray owns a 30% interest.
 On October 1, Wray received a P60,000 liquidating dividend from King Company,
Wray owns a 5% interest in King.
 Wray owns a 10% interest in Bow Company, which declared and paid
P2,000,000 cash dividend on November 15.
What amount should be reported as dividend income for the current year?
Problem 37-5
During the current year, Neil Company held 30,000 shares of Brock Company’s
100,000 outstanding shares and 6,000 shares of Amal Company’s 300,000
outstanding shares. During the year, Neil received P300,000 cash dividend from
Brock, P15,000 cash dividend and 10% share dividend from Amal. The closing price
of Amal share is P150.
What amount should be reported as dividend revenue for the current year?
Problem 37-6
On March 1, Evan Company purchased 10,000 ordinary shares at P80 per share.
On September 30, Evan Company received 10,000 share rights to purchase an
additional 10,000 shares at P90 per share.
On September 30, the share had a market value of P95 and the share right had a
market value of P5.
What amount should be reported on September 30 for investment in share rights?
Problem 37-
Rice company owned 30,000 ordinary shares of Wood Company acquired on July 31
at a total cost of P1,100,000.
On December 1, Rice received 30,000 share rights from Wood. Each right entitles
the holder to acquire one share at P45.
The market price of Wood’s share on this date was P50 and the market price of each
right was P10. Rice sold the rights on December 31 for P450,000 less a P10,000
commission.
What amount should be reported as gain from the sale of the rights?
Problem 37-8
Adam Company owned 50,000 ordinary shares of Bland Company. These 50,000
shares were purchased by Adam for P120 per share.
On August 30, Bland distributed 50,000 share rights to Adam, Adam was entitled to
buy one new share of Bland Company for P90 cash and two of these rights.
On August 30, each share had a market value of P130 and each right had a market
value of P20.
What total cost should be recorded for new shares that are acquired by exercising
the rights?
Problem 37-9
Excelsia Company issued rights to subscribe to its stock, the ownership of 4 shares
entitling the shareholders to subscribe for 1 share at P100.
Jealina Company owns 50,000 shares of Excelsia Company with total cost of
P5,000,000. The share is quoted right-on at 125.
What is the total cost of the new investment if all of the stock rights are exercised by
the investor?
Problem 37-10
2016
Jan. 1 Christopher Company purchased 20,000 shares of Bay Company, P100 par, at P110 per share.
Mar.1 Bay Company issued rights to Christopher Company, each permitting the purchase of ¼ share at
par. No entry was made. The bid price of the share was 140 and there was no quoted price for
the rights.
Apr. 1 Christopher Company paid for the new shares charging the payment to the investment account.
Since Christopher Company felt that it had been assessed by Bay Company, the dividends
received from Bay Company in 2016 and 2017 were credited to the investment account until the
debit for payment of the new share was fully offset.
Dec. 31 Christopher Company received annual dividend of P250,000 from Bay Company.
2017
Dec. 31 Christopher Company received annual dividend of P250,000 from Bay Company.
2018
Jan. 1 Christopher Company received 50% share dividend from Bay Company.
On same date, the shares received as share dividends were sold at P160 per share and the
proceeds were credited to income.
Dec. 31 The shares of Bay Company were split 2 for 1. Christopher Company found that each new share
was worth P5 more than the P110 paid for the original shares.
Accordingly, Christopher Company debited the investment account with the additional shares
received at P110 per share and credited income.
2019
Jun. 30 Christopher Company sold one-half of the investment at P92 per share and credited the proceeds
to the investment account.
 What is the balance of the investment on December 31, 2019 as it was kept by Christopher Company?
 Using the average method, what is the correct balance of the investment on December 31, 2019?
 What is the net adjustment to retained earnings on December 31, 2019?
 What amount of gain on sale of investment should be reported in 2019?
Problem 38 – (1-12)
At the beginning of current year, Farley Company acquired 20% of the

outstanding ordinary shares of Davis Company for P8,000,000.
The investment gave Farley the ability to exercise significant influence
over Davis. The carrying amount of the acquired shares was P6,000,000.
The excess of cost over carrying amount was attributed to a depreciable
asset which was undervalued on Davis’ statement of financial position
and which had a remaining useful life of ten years.
The investee reported net income of P1,800,000 and paid cash
dividends of P400,000 and thereafter issued 5% share dividend during
the current year.
What should be reported as investment income for the current year?
What is the carrying amount of the investment in associate at year-end?
At the beginning of current year, Well Company purchased 10% of Rea

Company’s outstanding ordinary shares for P4,000,000.
Well Company is the largest single shareholder in Rea and Well’s
officers are a majority of Rea’s board of directors.
The investee reported net income of P5,000,000 for the current year
and paid cash dividend of P1,500,000.
What amount should be reported as investment in Rea Company at
year-end?
On July 1, 2018, Denver Company purchased 30,000 shares of Eagle

Company’s 100,000 outstanding ordinary shares for P200 per share. On
December 15, 2018, the investee paid P400,000 in cash dividend to the
ordinary shareholders.
The investee’s net income for the year ended December 31, 2018 was
P1,200,000, earned evenly throughout the year.
What amount of income from the investment should be reported in
2018?
On April 1, 2018, Ben Company purchased 40% of the outstanding

ordinary shares of Clarke Company for P10,000,000.
On that date, Clarke’s net assets were P20,000,000 and Ben cannot
attribute the excess of the cost of its investment in Clarke over its
equity in Clarke’s net assets to any particular factor. The investee’s net
income for 2018 is P5,000,000.
What is the maximum amount which could be included in 2018 income
before tax to reflect the “equity in net income of investee”?
At the beginning of current year, Ronald Company purchased 40% of the

outstanding ordinary shares of New Company, paying P6,400,000 when
the carrying amount of the net assets of New Company equaled
P12,500,000.
The difference was attributed to equipment which had a carrying amount
of P3,000,000 and a fair market value of P5,000,000 and to building which
had a carrying amount of P2,500,000 and a fair value of P4,000,000.
The remaining useful life of the equipment and building was 4 years and 12
years, respectively.
During the current year, New Company reported net income of P5,000,000
and paid cash dividend of P2,500,000.
What is the excess of cost over the carrying amount of net assets acquired?
What amount should be reported as investment income for the current
year?
What is the carrying amount of the investment in associate at year-end?
At the beginning of current year, Kean Company purchased 30% interest

in Pod Company for P2,500,000.
On this date Pod’s shareholders’ equity was P5,000,000. The carrying
amount of Pod’s identifiable net assets approximated their fair values,
except for land whose fair value exceeded the carrying amount by
P2,000,000.
The investee reported net income of P1,000,000 and paid no dividends
during the current year.
What amount should be reported as investment in associate at year-end?
At the beginning of current year, Sage Company bought 40% of Eve

Company’s outstanding ordinary shares for P4,000,000.
The carrying amount of Eve’s net assets at the purchase date totaled
P9,000,000.
Fair values and carrying amounts were the same for all items except for
plant and inventory, for which fair values exceeded their carrying
amounts by P900,000 and P100,000, respectively.
The plant has an 18-year life. All inventory was sold during the current
year.
During the current year, the investee reported net income of
P1,200,000 and paid a P200,000 cash dividend.
What is the excess of cost over carrying amount of net assets acquired?
What amount should be reported as investment income for current
year?
What is the carrying amount of the investment in associate at year-
end?
At the beginning of current year, Anne Company purchased 20% of the

outstanding shares of Dune Company for P4,000,000, of which
P1,000,000 was paid in cash and P3,000,000 is payable with 12% annual
interest at every year-end.
Dune Company’s shareholders’ equity at the beginning of current year
was P13,000,000.
Anne Company also paid P500,000 to a business broker who helped
find a suitable business and negotiated the purchase.
At the time of acquisition, the fair values of Dune Company’s
identifiable assets and liabilities were equal to their carrying amounts
except for an office building which had a fair value in excess of carrying
of P2,000,000 and an estimated life of 10 years.
During the current year, Dune Company reported net income of
P5,000,000 and paid cash dividend of P2,000,000.
What is the implied goodwill from the acquisition?
What amount of income should be reported for the current year as a
result of the investment?
end?
At the beginning of current year, Occidental Company purchased 40%

of the outstanding ordinary shares of Manapla Company for P3,500,000
when the net assets of Manapla amounted to P7,000,000.
At acquisition date, the carrying amounts of the identifiable assets and
liabilities of Manapla were equal to their fair value, except for
equipment for which the fair value was P1,500,000 greater than
carrying amount and inventory whose fair value was P500,000 greater
than cost.
The equipment has a remaining life of 4 years and the inventory was all
sold during the current year.
Manapla Company reported net income of P4,000,000 and paid
P1,000,000 cash dividend during the current year.
What is the excess fair value over the acquisition cost?
What is the maximum amount of the “equity in earnings of the
investee”?
end?
At the beginning of current year, Bing Company purchased 30,000
shares of Latt Company’s 200,000 outstanding ordinary shares for
P6,000,000. On that date, the carrying amount of the acquired shares
on Latt’s books was P4,000,000.
Bing attributed the excess of cost over carrying amount to patent. The
patent has a remaining useful life of 10 years.
During the current year, Bing’s officers gained a majority on Latt’s board
of directors.
Latt Company reported earnings of P5,000,000 for the current year and
declared and paid dividend of P3,000,000 at year-end.
end?
On July 1, 2018, Miller Company purchased 25% of Wall Company’s

outstanding ordinary shares and no goodwill resulted from the
purchase.
Miller appropriately carried this investment at equity and the balance in
Miller’s investment account was P1,900,000 on December 31, 2018.
Wall Company reported net income of P1,200,000 for the current year
ended December 31, 2018, and paid cash dividend totaling P480,000 on
December 31, 2018.
How much did Miller pay for the 25% interest in wall?
At the beginning of current year, Cyber Company bought 30% of the

outstanding ordinary shares of Free Company for P5,000,000 cash.
Cyber Company accounts for this investment by the equity method.
At the date of acquisition, Free Company’s net assets had a carrying
amount of P12,000,000.
Equipment with an average remaining life of five years had a fair value
that was P2,500,000 in excess of their carrying amount.
The remaining difference between the purchase price and the carrying
amount of the underlying equity cannot be attributed to any
identifiable tangible or intangible asset. Accordingly, the remaining
difference is allocated to goodwill.
Free Company reported net income of P4,000,000 and paid cash
dividend of P1,000,000 during the current year.
What is the implied goodwill from the acquisition?
What is the investment income for the current year?
end?
Moss Company owned 20% of Dubro Company’s preference share

capital and 50% of the ordinary share capital. The investee reported net
income P600,000 for the current year.
10% cumulative preference share 1,000,000
capital 7,000,000
Ordinary share capital
Problem 39- (1-12)
Blue Company purchased 10% of Tot Company’s 100,000 outstanding

ordinary shares on January 1, 2018 for P500,000.
On December 31, 2018, Blue Company purchased an additional 20,000
shares of Tot Company for 1,500,000. Tot Company had not issued any
additional shares during 2018.
The investee reported earnings of P3,000,000 for 2018.
The fair value of the 10% interest is P900,000 on December 31, 2018.
What is the carrying amount of the investment in associate on
December 31, 2018?
What total amount of income should be recognized for 2018?
On January 1, 2018, Forensic Company acquired a 10% interest in an

investee for P3,000,000. The investment was accounted for using cost
method.
On January 1, 2019, the entity acquired a further 15% interest in the
investee for P6,750,000.
On such date, the carrying amount of the net assets of the investee was
P36,000,000 and the fair value of the 10% interest was P4,500,000.
The fair value of the net assets of the investee is equal to carrying
amount except for an equipment whose fair value exceeds carrying
amount by P4,000,000. The equipment has a remaining life of 5 years.
The investee reported net income of P8,000,000 for 2019 and paid cash
dividend of P5,000,000 on December 31, 2019.
What amount of gain on remeasurement to equity should be recognized
for 2019?
What is the goodwill arising from the acquisition on January 1, 2019?
December 31, 2019?
On January 1, 2018, Mega Company acquired 10% of the outstanding

ordinary shares of Penny Company for P4,000,000. The investment was
appropriately accounted for under cost method.
On January 1, 2019, Mega gained the ability to exercise significant
influence over financial and operating control of Penny by acquiring an
additional 20% of Penny’s outstanding ordinary shares for P10,000,000.
The fair value of Penny’s net assets equaled carrying amount. The fair
value of the 10% interest on January 1, 2019 was P6,000,000.
For the year ended December 31, 2018 and 2019, the investee reported
the following:
2018 2019
Dividend paid 2,000,000 3,000,000
Net income 6,000,000 6,500,000
What is the investment income in 2018?

What is the investment income for 2019?
December 31, 2019?
Seiko Company had 100,000 ordinary shares outstanding. Globe

Company acquired 30,000 shares of Seiko for P120 per share in 2016
representing 30% interest.
Changes in retained earnings for Seiko are:
Retained earnings (deficit), January 1, 2018 (500,000)
Net income for 2018 700,000
Retained earnings, December 31, 2018 200,000
Net income for 2019 800,000
Cash dividend paid on December 31, 2019 (400,000)
Retained earnings, December 31, 2019 600,000

December 31, 2019?
Chur Company acquired a 40% interest in Flim Company for P1,700,000
on January 1, 2018. The shareholders’ equity of Flim Company is
presented below.
January 1 December 31
Share capital 3,000,000 3,000,000
Revaluation surplus - 1,300,000
Retained earnings 1,000,000 1,500,000
On January 1, 2018, all the identifiable assets and liabilities of Flim
Company were recorded at fair value. Film Company reported profit of
P700,000, after income tax expense of P300,000 and paid dividend of
P200,000 to shareholders during the current year.
The revaluation surplus is the result of the revaluation of the land
recognized by Flim Company on December 31, 2018. Additionally,
depreciation is provided by Flim Company on December 31, 2018.
Additionally, depreciation is provided by Flim Company on the
diminishing balance method whereas Chur Company used the straight
line. Had Flim Company used the straight line, the accumulated
depreciation would be increased by P200,000.
December 31, 2018?
Aye Company acquired 30% of the issued share capital of Bee Company
for P1,000,000 on January 1, 2018. The retained earnings of Bee
Company on this date amounted to P2,000,000. The entities prepared
their financial statements on December 31, of each year.
Bee Company showed the following abbreviated statement of financial
position on December 31, 2019:
Sundry net assets 6,000,000
Share capital, P10 par 1,000,000
Share premium 2,000,000
Retained earnings 3,000,000
The fair value of the net assets of Bee Company at the date of
acquisition was P5,000,000.
The recoverable amount of the net assets of Bee Company is
P7,000,000 on December 31, 2019.
December 31, 2019?
Grant Company acquired 30% of South Company’s voting share capital

for P2,000,000 on January 1, 2018. Grant’s 30% interest in South gave
Grant the ability to exercise significant influence.
During 2018, South earned P800,000 and paid dividend of P500,000.
South reported earnings of P1,000,000 for the 6 months ended June 30,
2019 and P2,000,000 for the year ended December 31, 2019.
On July 1, 2019, Grant sold half of the investment in South for
P1,500,000 cash.
South paid dividend of P1,000,000 on October 1, 2019.
The fair value of the retained investment is P1,600,000 on July 1, 2019
and 2,000,000 on December 31, 2019.
The retained investment is to be held as financial asset at fair value
through profit or loss.
On December 31, 2018, what is the carrying amount of the investment
in associate?
What is the carrying amount of the investment in associate before
disposal on June 30, 2019?
What total amount of income should be reported in 2019?
On January 1, 2018, Haven Company acquired 20% of the ordinary

shares of an associate for P6,000,000. On this date, all the identifiable
assets and liabilities of the associate were recorded at fair value.
An analysis of the acquisition showed that goodwill of P300,000 was
acquired. The associate reported the following net income and
dividend:
2018 2019
Net income 3,000,000 4,000,000
Dividend paid 1,000,000 1,500,000
In December 2018, the associate sold inventory to Haven Company for
P900,000. The cost of the inventory was P600,000.
This inventory remained unsold by Haven Company on December 31,
2018. However, it was sold by Haven Company in 2019.
In December 2019, the associate sold the inventory to Haven Company
for P750,000. The cost of the inventory was P500,000.
This inventory remained unsold by Haven Company on December 31,
2019.
December 31, 2019?
Glorious Company acquired 40% interest in an associate, Alta Company, for

P5,000,000 on January 1, 2018.
At the acquisition date, there were no differences between fair value and carrying
amount of identifiable assets and liabilities.
Alta Company reported the following net income and cash dividend for 2018 and
2019:
2018 2019
Net income 2,000,000 3,000,000
Dividend paid 800,000 1,000,000
The following transactions occurred between Glorious company and Alta Company:
 On January 1, 2018, Alta sold an equipment costing P500,000 to Glorious
company for P800,000.
Glorious Company applied a 10% straight line depreciation.
 On July 1, 2019, Alta Company sold an equipment for P900,000 to Glorious
Company.
The carrying amount of the equipment is P500,000 at the time of sale.
The remaining life of the equipment is 5 years and glorious Company used straight
line depreciation.
 On December 1, 2019, Alta Company sold an inventory to Glorious Company for
P2,800,000.
The inventory had a cost of P2,000,000 and was still on hand on December 31,
2019.
What is the carrying amount of the investment in associate on December 31, 2018?
What is the carrying amount of the investment in associate on December 31, 2019?
At the beginning of current year, Interlude Company acquired a 30%

interest in an investee at a cost of P3,200,000.
The equity of the investee on the date of acquisition was P6,000,000,
consisting of P4,000,000 share capital and P2,000,000 retained
earnings.
All the identifiable assets and liabilities of the investee were recorded at
fair value except for an equipment with a fair value of P3,000,000
greater than carrying amount. The remaining useful life of the
equipment is 5 years.
At year-end, Interlude company had inventory costing P2,000,000 on
hand which had been purchased from the investee. A profit of P600,000
had been made on the sale.
During the current year, the investee reported net income of
P4,000,000 and paid dividend of P1,500,000.
The equity of the investee at year-end showed the following:
Share capital 4,000,000
Retained earnings 3,500,000
Retained earnings appropriated 1,000,000
Revaluation surplus 2,000,000
The revaluation surplus arose from a revaluation of land made at the
end of current year.
The retained earnings appropriated arose from a transfer of
unappropriated retained earnings to retained earnings appropriated for
contingencies.
What is the goodwill from the acquisition of the investment?
end?
Alpha Company acquired 20,000 shares of Beta Company on January 1, 2018 at

P120 per share. Beta Company had 80,000 shares outstanding with a carrying
The difference between the carrying amount and fair value of Beta Company on
January 1, 2018 is attributable to a broadcast license which is an intangible asset.
Beta Company recorded earnings of P3,600,000 and P3,900,000 for 2018 and
2019, respectively, and paid per-share dividend of P16 in 2018 and P20 in 2019.
Alpha Company has a 20-year straight line amortization policy for the broadcast
license.
What is the carrying amount of the investment in associate on December 31,
2018?
What is the carrying amount of the investment in associate on December 31,
2019?
On January 1, 2015, Bart Company acquired as a long-term investment

for P7,000,000, a 40% interest in Hall Company when the fair value of
Hall’s net assets was P17,500,000. Hall Company reported the following
net losses:
2015 5,000,000
2016 7,000,000
2017 8,000,000
2018 4,000,000
On January 1, 2017, Bart Company made cash advances of P2,000,000
to Hall Company, On December 31, 2018, it is not expected that Bart
Company will provide further financial support for Hall Company.
What amount should be reported as loss from investment for 2018?
Problem 40 – (1-8)
On July 1, 2018, Cody Company paid P1,198,000 of 10%, 20-year bonds

with a face amount of P1,000,000. Interest is paid on June 30 and
December 31.
The bonds were purchased to yield 8%. The effective interest method is
used to recognize interest income from this long-term investment.
What is the carrying amount of the investment in bonds on December
31, 2018?
On January 1, 2018, Purl Company purchased as a long-term

investment P5,000,000 face value of Shaw Company’s 8% bonds for
P4,562,000. The bonds were purchased to yield 10% interest.
The bonds mature on January 1, 2023 and pay interest annually on
December 31. The interest method of amortization is used.
What is the carrying amount of the bond investment on December 31,
2019?
On July 1, 2018, York Company purchased as a long-term investment
P1,000,000 of Park Company’s 8% bonds for P946,000, including
accrued interest of P40,000. The bonds were purchased to yield 10%
interest.
The bonds mature on January 1, 2024, and pay interest annually on
January 1, York Company used the effective interest method of
amortization.
On December 31, 2018, what is the carrying amount of the investments
in bonds?
On January 1, 2018, Portugal Company purchased bonds with face

amount of P8,000,000 for P7,679,000 as a long-term investment.
The stated rate on the bonds is 10% but the bonds are acquired to yield
12%.
The bonds mature at the rate of P2,000,000 annually every December
31 and the interest are payable annually also every December 31. The
entity used the effective interest method of amortizing discount.
What is the carrying amount of the investment in bonds on December
31, 2018?
On July 1, 2018, East Company purchased as a long-term investment

P5,000,000 face amount, 8% bonds of Rand Company for P4,615,000 to
yield 10% per year. The bonds pay interest semiannually on January 1
and July 1.
On December 31, 2018, what amount should be reported as interest
receivable?
On July 1, 2018, Pell Company purchased Green Company ten-year, 8%

bonds with a face amount of P5,000,000 for P4,200,000.
The bonds mature on June 30, 2028 and pay interest semiannually on
June 30 and December 31.
Using the interest method, the entity recorded bond discount
amortization of P18,000 for the six months ended December 31, 2018.
On January 1, 2018, Gilberto Company purchased 9% bonds with a face
amount of P4,000,000 for P3,756,000 to yield 10%.
The bonds are dated January 1, 2018, mature on December 31, 2027
and pay interest annually on December 31. The interest method of
amortizing bond discount is used.
What amount should be reported as interest revenue for 2018?
What amount should be reported as interest revenue for 2019?
Jent Company purchased bonds at a discount of P100,000.

Subsequently, Jent sold these bonds at a premium of P140,000.
During the period that Jent held this long-term investment,
amortization of the discount amounted to P20,000.
What amount should be reported as gain on the sale of bonds?
On October 1, Danica purchased 12% bonds with face amount of

P2,000,000 for 95 plus accrued interest and brokerage fee. Interest is
paid semiannually on January 1 and July 1. Brokerage fee for this
transaction was P50,000.
At what amount should this acquisition of bonds be recorded?
On January 1, 2018, Russia Company purchased 5-year bonds with face

amount of P8,000,000 and stated interest of 10% per year payable
semiannually on June 30 and December 31.
The bonds were acquired to yield 8%
What is the market price or purchase price of the bonds?
2018?
At the beginning of current year, Dean Company purchased ten-year

bonds with a face amount of P1,000,000 and a stated interest rate of
8% per year payable semiannually June 30 and December 31.
The bonds were acquired to yield 10%
What is the market price or purchase price of the bonds?
On January 1, 2018, Tagbiliran Company purchased bonds with face
amount of P2,000,000. The bonds are dated January 1, 2018 and
mature on January 1, 2022.
The interest on the bonds is 10% payable semiannually every June 30
and December 31. The prevailing market rate of interest on the bonds
is 12%.
What is the present value of the bonds on January 1, 2018?
On January 1, 2018, Arabian Company purchased serial bonds with face

amount of P3,000,000 and stated 12% interest payable annually every
December 31.
The bonds are to be held as financial asset at amortized cost with 10%
effective yield.
The bonds mature at an annual installment of P1,000,000 every
December 31.
What is the present value of the serial bonds on January 1, 2018?
Problems 42 – (1-5)
On January 1, 2018, Queen Company purchased bonds with face

amount of P5,000,000 for P4,760,000 including transaction cost of
P160,000.
The business model is to collect contractual cash flows and to sell the
financial asset.
The bonds mature on December 31, 2020 and pay 10% interest
annually on December 31 with a 12% effective yield.
The bonds are quoted at 102 on December 31, 2018 and 105 on
December 31, 2019. The bonds are sold on June 30, 2020 at 110 plus
accrued interest.
What amount of unrealized gain should be reported as component of
other comprehensive income for 2018?
What amount should be recognized as gain on sale of the bond
investment on June 30, 2020?
On January 1, 2018, Michelle Company purchased bonds with face

amount of P5,000,000. The entity paid P4,600,000 plus transaction cost
of P142,000.
The bonds mature on December 31, 2020 and pay 6% interest annually
on December 31 of each year with 8% effective yield.
December 31, 2019.
The business model in managing the financial asset is to collect
contractual cash flows that are solely payments of principal and interest
and to sell the bonds in the open market.
What cumulative amount of unrealized gain should be reported as
component of other comprehensive income in the statement of changes
in equity for 2019?
On January 1, 2018, Dumaguete Company purchased bonds with face

amount of P4,000,000 for P4,206,000.
contractual cash flows that are solely payments of principal and interest
and to sell the bonds in the open market.
The bonds mature on December 31, 2020 and pay 10% interest
annually on December 31 each year with 8% effective yield.
December 31, 2019.
What amount of unrealized loss should be reported as component of
other comprehensive income in 2018?
What amount of unrealized loss should be reported as component of
other comprehensive income in 2019?
What amount of cumulative unrealized loss should be reported in the
statement of changes in equity for 2019?
2019?
On January 1, 2018, Reign Company purchased 12% bonds with face

amount of P5,000,000 for P5,380,000 with an effective yield of 10%.
The bonds are dated January 1, 2018, mature on January 1, 2023 and
pay interest annually on December 31 of each year.
The bonds are quoted at 120 on December 31, 2018. The entity has
elected the fair value option for the bond investment.
What total income should be reported for 2018?
On January 1, 2018, Gelyka Company purchased 12% bonds with face

P100,000. The bonds provide an effective yield of 10%.
The bonds are dated January 1, 2018 and pay interest annually on
December 31 of each year.
The bonds are quoted at 115 on December 31, 2018. The entity has
irrevocably elected the fair value option.
What amount of gain from change in fair value should be reported for
2018?
What amount of interest income should be reported for 2018?
2018?
What total amount of income from the investment should be reported in
the income statement?
On January 1, 2018 Complex Company purchased bonds with face

amount of P5,000,000. The entity paid P4,500,000 plus transaction cost
of P168,600.
on December 31 of each year with 8% effective yield.
December 31, 2019.
contractual cash flows and to sell the bonds in the open market.
The entity has not elected the fair value option.
On December 31, 2019, the entity changed the business model to
collect only contractual cash flows.
On December 31, 2020, the bonds are quoted at 115 and the market
rate of interest is 10%.
 What amount of unrealized gain should be reported as component
of OCI for 2018?
 What amount of cumulative unrealized gain should be reported as
component of OCI in the statement of changes in equity for 2019?
 What amount of unrealized gain should be reported as component
of OCI for 2019?
 What is the interest income for 2020?
 What is the carrying amount of the investment on December 31,
2020?
On January 1, 2018, Knit Company purchased 8% bonds in the face
The bonds mature on January 1, 2023 and were purchased for
P8,670,000 to yield 6%. Interest is payable annually every December 31.
The business model for this investment is to collect contractual cash
flows and to sell the bonds in the open market.
Fair Value Effective rate
December 31, 2018 7,740,000____.. 9%_ ___..
December 31, 2019 7,230,000____.. 12%_ ___..
collect contractual cash flow only.
On January 1, 2020, the fair value of the bonds did not change.
 What is the unrealized loss as component of other comprehensive
income for 2018?
 What cumulative unrealized loss in other comprehensive income is
recognized on December 31, 2019?
On January 1, 2018, Myopic Company purchased bonds with face

P100,500.
flows which are solely payments of principal and interest.
The entity did not elect the fair value option.
every December 31 with a 10% effective yield.
On December 31, 2018, the entity changed the business model for this
investment to collect contractual cash flows and to sell the financial
asset in the open market.
The bonds are quoted at 110 on January 1, 2019 and 120 on December
31, 2019.
 What amount of unrealized gain in OCI should be recognized on
January 1, 2019?
 What cumulative amount in OCI is recognized in the statement of
changes in equity for 2019?
 What is the carrying amount of the investment on December 31,
2019?
On January 1, 2018, Soledad Company purchased 10% bonds in the face
P3,405,000 to yield 8%.
The entity used the effective interest method of amortization and
interest is payable annually every December 31.
flows composed of interest and principal.
investment to realize fair value changes.
On January 1, 2020, the fair value of the bonds was P2,845,000 at an
effective rate of 11%
 What amount in profit or loss should be recognized in 2020 as a
result of the reclassification?
On January 1, 2018, Royalty Company purchased 9% bonds in the face

amount of P6,000,000. The bonds mature on January 1, 2023 and were
purchased for P5,555,000 to yield 11%.
The entity classified the bonds as held for trading and interest is
payable annually every December 31. The entity provided the following
information about fair value of the bonds and effective rate:
December 31, 2018 5,450,000____.. 12%_ ___..
December 31, 2019 6,155,000____.. 8%_ ___..
investment to collect contractual cash flows composed of principal and
interest.
 What amount of unrealized loss should be recognized in profit or
loss for 2018?
 What amount of unrealized gain should be recognized in profit or
loss for 2019?
On January 1, 2018, Zeta Company purchased 8% bonds in the face
P4,335,000 to yield 6%. Interest is payable annually every December 31.
flows composed of principal and interest and to sell the asset in the
open market.
December 31, 2018 3,870,000____.. 9%_ ___..
December 31, 2019 3,615,000____.. 12%_ ___..
investment to realize fair value changes.
 What is the unrealized loss recognized in other comprehensive
income for 2018?
 What total amount is included in profit or loss in 2019 as a result of
the reclassification from FVOCI to FVPL?
On January 1, 2018, Gerry Company purchased 6% bonds in the face

P3,530,000 to yield 9%.
The entity classified the bonds as held for trading and interest is
payable annually every December 31.
December 31, 2018 3,490,000____.. 10%_ ___..
December 31, 2019 3,425,000____.. 12%_ ___..
collect contractual cash flows and to sell the bonds in the open market.
 What is the unrealized loss included in profit or loss for 2018?
 What amount of unrealized loss is recognized in other
comprehensive income for 2019?
A
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Proof of Cash

Lazer Company had the following bank reconciliation on June 30:

Balance per bank statement, June 30 3,000,000

Deposits, including P200,000 note collected for Lazer 9,000,000

What is the adjusted cash in bank on July 31?

Balance per bank statement, November 30 3,600,000

Data per bank statement for the month of December follow:

December deposits, including note collected

What is the adjusted cash in bank on December 31?

Lira Company prepared the following bank reconciliation on June 30:

Balance per bank 9,800,000

There were total deposits of P6,500,000 and charges for disbursements

Checks outstanding amounted to P1,000,000 and deposits in transit

What is the amount of cash receipts per book in July?

Oro Company had the following bank reconciliation on March 31:

Balance per bank statement, March 31 4,650,000

Data per bank statement for the month of April:

All reconciliation items on March 31 cleared through the bank in

Outstanding checks on April 30 totaled P700,000 and there were

What is the cash balance per book on April 30?

Jam Company provided the following bank reconciliation on May 31:

Balance per bank statement 2,100,000

Balance per book 2,372,000

Data for the month of June: Bank Book

Checks recorded 2,300,000 2,360,000

What is the amount of checks outstanding on June 30?

Roxy Company provided the following information relating to

Accounts receivable on January 1 1,300,000

What is the balance of accounts receivable, before allowance for

Jay Company provided the following data relating to accounts

Accounts receivable, January 1 650,000

What is the amortized cost of accounts receivable on December 31?

At year-end, Miami Company reported that the current receivables

Trade accounts receivable 930,000

What total amount should be reported as trade and other

Faith Company provided the following information relating to

Accounts receivable, January 1 4,000,000

What is the balance of accounts receivable on December 31?

Steven Company provided the following information during the first

Total merchandise purchases for the year 7,000,000

What is the balance of accounts receivable on December 31?

Honduras Company revealed a balance of P8,200,000 in the accounts

An analysis of the accounts receivable showed the following:

Accounts known to be worthless 100,000

What amount should be reported as trade accounts receivable at year-

What is the balance of accounts receivable on December 31?

Wonder Company provided the following transactions affecting

Sales – cash and credit 5,900,000

The entity provided for uncollectible account losses by crediting

What is the balance of accounts receivable on December 31?

Germany Company started business at the beginning of current year.

Further analysis showed that merchandise purchased amounted to P9,000,000

What is the cost of goods sold?

Orr Company prepared an aging of accounts receivable on December

Allowance for doubtful accounts on January 1 280,000

What amount should be recognized as doubtful accounts expense for

Roanne Company used the allowance method of accounting for

What was the decrease in working capital?

Mill Company’s allowance for doubtful accounts was P1,000,000 at

What amount was debited to the appropriate account to write off