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POST TEST 2 Receivables Answer KEY

Accounting (Far Eastern University)

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Far Eastern University

INSTITUTEOF ACCOUNTS, BUSINESS AND FINANCE
Department of Accountancy & Internal Auditing

INTERMEDIATE ACCOUNTING 1
POST-TEST 2- RECEIVABLES

NAME SECTION
(Family Name) (First Name) (Middle Name) SCORE
DATE RATING

GENERAL INSTRUCTIONS

1. Complete the information above.

2. Only BACK TEXT is allowed to be used for your answers.
3. Any form of cheating will be dealt with accordingly.
4. Failure to comply with the above rules will merit a grade of “F”.

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1. 11.
2. 12.
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3. 13.
4. JE – use the solution guide below 14. JE – use the solution guide below
5. JE – use the solution guide below 15. JE – use the solution guide below
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6. 16. JE – use the solution guide below

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7. 17. JE – use the solution guide below

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8. 18.
9. 19.
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10. 20.
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JOURNAL ENTRIES
No. Account Names Debit Credit
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4
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14

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15

16

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QUIZ PROPER (40 POINTS)

Instructions: Select the best answer among the given choices. Write only the letter of your choice on the space
provided before each number.

PROBLEM 1:
On December 31, 2018, Isiah Company, a financing institution lent P4,000,000 to Psalms Corp. due 3 years
after. The loan is supported by an 8% note receivable. Transaction costs incurred to originate the loan
amounted to P248,000. P374,000 was chargeable to Psalms as origination fees. Interests on the loan are
collectible at the end of each year. The yield rate on the loan is 9.25%.

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Isiah was able to collect interest as it became due at the end of 2019. During 2020, however, due to Psalms

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Corporation’s business deterioration and due to political instability and faltering global economy, the company

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was not able to collect amounts due at the end 2020. After reviewing all available evidence at December 31,
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2020, Isiah Company determined that it was probable that Psalms would pay back only P3,400,000 collectible
as follows:

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December 31, 2022 1,400,000
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December 31, 2023 1,000,000

December 31, 2024 600,000
December 31, 2025 400,000
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As of December 31, 2020, the prevailing rate of interest for all debt instruments is 14%.
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1. What is the impairment loss to be recognized in the 2020 statement of comprehensive income?
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a. 1,336,188
b. 1,294,296
c. 1,094,018
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d. 1,656,187
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2. What is the correct carrying value of the loans receivable as of December 31, 2022?
a. 2,860,219

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b. 2,013,832
c. 1,724,789
d. 1,884,332

PROBLEM 2:
On January 1, 2020, Uniform Co. sold its 2-year old equipment to XYZ Inc. for a cash down-payment of P100,000
and a non-interest bearing note with a face amount of P900,000 due December 31, 2021. There is no established
price for the equipment but its carrying amount on the company’s books was at P600,000. The prevailing market
rate of interest for similar note of this type on the transaction date was at 10%. On December 31, 2020 XYZ
developed a financial difficulty and it was apparent that it will no longer be able to settle the amount due on
December 31, 2021. To maximize the recovery of the note, Uniform agreed to extend the maturity of the note to
up to December 31, 2022. Furthermore, Uniform also agreed to reduce the principal amount by 25%.

3. How much is the impairment loss to be recognized on the note in 2020?

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a. 342,149

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b. 286,364
c. 204,545

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d. 260,331 eH w
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PROBLEM 3:
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Star Bank has a P 10,000,000 loan to Estrella Realty, which was invested by the latter in real estate development.
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Due to the economic downtrend in the real estate business, Estrella Realty is experiencing declining sales and is
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likely to default on its obligation to Star. Estrella requests for a restructuring of its loan with Star. Prevailing market
rate for similar obligations at the time of the restructuring is 8%. Accrued interest receivable on the loan at
December 31, 2020 is P 1,000,000. Based on stated interest rate of 10%. Star had not previously recognized any
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impairment on this Estrella note based on 12-month expected credit loss on date of initial recognition.
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• Reduction of principal to P 9,000,000.

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• Condonation of accrued interest

• Extension of maturity date to December 31, 2022
• Reduction of interest rate to 8%, payable annually on December 31
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4. Give the entry in the books of Star to record the impairment assuming the following agreements. Round
off present value factors to four decimal places.
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PROBLEM 4:
Star Bank has a P 10,000,000 loan to Estrella Realty, which was invested by the latter in real estate development.
Due to the economic downtrend in the real estate business, Estrella Realty is experiencing declining sales and is
likely to default on its obligation to Star. Estrella requests for a restructuring of its loan with Star. Prevailing market
rate for similar obligations at the time of the restructuring is 8%. Accrued interest receivable on the loan at
December 31, 2020 is P 1,000,000. Based on stated interest rate of 10%. Star had not previously recognized any
impairment on this Estrella note based on 12-month expected credit loss on date of initial recognition.

• Payment of the accrued interest on the date of restructuring

• Extension of maturity date of the loan to December 31, 2022, with interest during the extended
term at 7% payable on December 31, 2021 and 2022.

5. Give the entry in the books of Star to record the impairment assuming the following agreements. Round
off present value factors to four decimal places.

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PROBLEM 5:
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Valiant Company reported the following analysis of current receivables at year-end:

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Trade accounts receivable 2,000,000

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Allowance for doubtful accounts (100,000)

Claim against shipper for goods lost in transit in
300,000
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Selling price of unsold goods sent by valiant on

consignment at 150% of cost and not included in 600,000
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ending inventory
Security deposit on lease of warehouse 200,000
Total 3,000,000

6. What total amount should be reported as current trade and other receivables?
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a. 2,200,000
b. 2,400,000
c. 2,300,000
d. 3,000,000

PROBLEM 6:
Rapture Company had the following information for the current year relating to accounts receivable:

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Accounts receivable, January 1 1,300,000

Credit sales 5,400,000
Collections from customer, excluding recovery 4,750,000
Accounts written off 125,000
Collection of accounts written off in prior year,
25,000
customer credit was not reestablished
Estimated uncollectible receivables per aging at
165,000
December 31

7. What is the balance of accounts receivable, before allowance for doubtful accounts, on December 31?
a. 1,825,000
b. 1,850,000
c. 1,950,000
d. 1,990,000

PROBLEM 7:
At year-end, Harem Company Reported accounts receivable of P8,200,000 with the following analysis:

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Accounts know to be worthless 100,000

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Advance payments on purchase orders 400,000
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Advances to subsidiary
Customers’ accounts reporting credit balances arising
1,000,000

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(600,000)
from sales return
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Trade accounts receivable 3,500,000
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Subscription receivable due in 30 days 2,200,000

Trade installments receivable due 1 to 18 months,
850,000
including an earned finance charge of P50,000
Trade accounts receivable from officers, due
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150,000
currently
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Trade accounts on which postdated checks are held

200,000
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and no entries were made on the receipt of checks

8. What is the correct balance of trade accounts receivable?

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a. 4,650,000
b. 4,700,000
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c. 4,150,000
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d. 4,050,000
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PROBLEM 8:
On January 1, 2020 easy company reported accounts receivable P2,070,000 and allowance for doubtful accounts
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P80,000.

Credit Sales Writeoffs Recoveries

2017 11,100,000 260,000 22,000
2018 12,250,000 295,000 37,000
2019 14,650,000 300,000 36,000
2020 15,000,000 310,000 40,000

The collections from customers during 2020 totaled 14 million pesos, 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.

9. What amount should be reported as allowance for doubtful accounts on December 31, 2020?
a. 110,000

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b. 378,000
c. 300,000
d. 478,000

10. What is the net realizable value of accounts receivable on December 31, 2020?
a. 2,650,000
b. 2,690,000
c. 2,760,000
d. 2,800,000

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PROBLEM 9:
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AIN’T NO MOUNTAIN HIGH ENOUGH has a note receivable from CLIMB EVERY MOUNTAIN (CEM). CEM is
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experiencing a great financial crisis and has negotiated for a restructuring of its note with face amount of
₱800,000, and accrued interest of ₱88,000, based on interest rate of 11%. The note is due today. CEM asked
that the principal and accrued interest be paid one-time after two years. Only 2% interest will be collected yearly
moving forward. An allowance for bad debts of ₱20,000 relates to this note.
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11. How much is the impairment loss?

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a. 156,865
b. 136,865
c. 116,865
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d. 0
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12. How much is the discount on the restructured note receivable?

a. 156,865
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b. 136,865
c. 116,865
d. 0
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PROBLEM 10:
On January 1, 2020, Empress Bank granted a loan to a borrower. The interest on the loan is 10% payable
annually starting on December 31, 2019. The loan matures in three years on December 31, 2022.

Principal amount 5,000,000

Direct origination cost incurred 457,500
Origination fee charged against the borrower 200,000

After considering the origination fee charged against the borrower and the direct origination cost incurred, the
effective rate on the loan is 8%.

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13. Determine the carrying amount of the loan on January 1, 2020.

a. 5,257,500
b. 5,657,500
c. 4,742.500
d. 4,342,500

14. Prepare journal entries for January 1, 2020. (Do not compound entries.)

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15. Prepare journal entry for receipt of interest on December 31, 2020.
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16. Prepare journal entry for amortization of direct origination cost in 2021. (One entry for interest and one
entry for amortization. Do not compound entries.)
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17. Prepare journal entry for receipt of payment of loan in 2022. (One entry for interest and one entry for
amortization. Do not compound entries.)
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PROBLEM 11:
Moderate Bank granted a loan to a borrower on January 1, 2019. The interest on the loan is 10% payable
annually starting December 31, 2019. The loan matures in three years on December 31, 2021. After considering
the origination fee received from the borrower and the direct origination cost incurred, the effective rate on the
loan is 12%.
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Principal amount 5,000,000

Direct origination cost incurred 100,000
Origination fee received from the borrower 340,000
Indirect origination cost incurred 50,000

18. What is the interest income for 2020?

a. 571,178.02
b. 579,719.39
c. 500,000.00
d. 71,178.02

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19. How much is the amortization of unearned interest income in December 31, 2019?
a. 571,178.02
b. 579,719.39
c. 500,000.00
d. 71,178.02

20. What is the carrying amount of the loan receivable on December 31, 2020?

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a. 4,759,816.87

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b. 4,579,816.87

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c. 4,910,714.29
d. 4,901,714.29
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