INTERMEDIATE ACCOUNTING 2

ASSIGNMENT NO.1

1.1. The following transactions were completed by Black widow Corporation during
December 2020:

Dec. 16 Purchased merchandise from Hawkeye Company, P66,000, terms 2/10,

n/30; FOB shipping point. Hawkeye Company paid freight of P1,400.
Dec. 19 Received goods from Thor Corporation, P72,000; terms: 3/10, 2/15, n/30.
72k x 2% =
Dec. 26 Paid the account with Hawkeye Company in full.
Dec. 31 Paid the account with Thor Corporation in full.

REQUIRED:
a) Record the foregoing transactions in the books of Black widow Corporation using the:
(1) Gross method of recording purchases.

December 16, 2020

Purchase 66,000
Freight-in 1,400
Accounts Payable 67,400

December 19, 2020

Purchase 72,000
Accounts Payable 72,000

December 26, 2020

Accounts Payable 67,400

Purchased discount 1,320
Cash 66,080

December 31, 2020

Account payable 72,000

Purchase discount (2%) 1,440
Cash 70,560

(2) Net method of recording purchases.

 December 16, 2020

Purchase 64,680
Freight-in 1,400
Accounts Payable 66,080

December 19, 2020

Purchase 69,840
Accounts Payable 69,840

December 26, 2020

Accounts Payable 66,080

(72,000x97%)
Cash 66,080

December 31, 2020

Accounts Payable 69,840

Purchase Discount 720
Cash 70,560

b) Give the necessary adjustment on December 31 assuming that Black widow uses the
net method and assuming that the account with Thor is still unpaid at December 31.

December 31 Purchase account lost 720

Account payable – Thor 720

1.2. Berlin Company’s accounts payable at December 31, 2020 totaled P1,000,000 before any
necessary year-end adjustments relating to the following transactions and information:

• On December 27, 2020, Berlin wrote and issued checks to creditors totaling P350,000.
The issuance of the checks was recorded on January 3, 2021.
 • On December 28, 2020, Berlin purchased and received goods for P150,000, terms 2/10,
n/30. Berlin records purchases and accounts payable at net amounts. The invoice was
recorded and paid January 3, 2021

• Goods shipped on December 20, 2020 from a vendor to Berlin under terms FOB
Destination were received on January 2, 2021. The invoice cost was P65,000. The
purchase was recorded on January 2, 2021.

• Goods costing P120,000 were purchased from Lisbon Trading. The goods were shipped
on December 28, 2020, terms FOB shipping point. On January 4, 2021, Berlin received
the goods together with the invoice.

• The accounts payable general ledger balance of P1,000,000 is net of P80,000 debit
balance in one supplier’s account representing deposit on goods to be delivered in
February 2021

REQUIRED:
What amount should Berlin Company report as total accounts payable at December 31,
2020?

Total account payable at December 31, 2020 1,000,000

Unrecorded check written & issued on December 27 (350,000)
Unrecorded purchased received on December 28 net amounts 147,000
Goods purchased FOB shipping point still in transit & not yet 120,000
recorded
Debit balance in supplier’s account net 80,000
Total amount of account payable at December 31, 2020 997,000

1.3. The balance in Adams Company’s accounts payable at December 31, 2020 was
P1,500,000 before considering the following information:

• Goods shipped FOB shipping point on December 20, 2020 from a vendor to Adams
we’re lost in transit. Adams did not record the invoice cost of P240,000 claim against the
common carrier.

• On December 27, 2020, a vendor authorized Adams to return, for full credit goods
shipped and billed at P80,000 on December 2, 2020. Adams shipped the returned goods
on December 27, 2020. A credit memo for P80,000 was received and recorded by Adams
on January 6, 2021.
 REQUIRED:
What amount should Adams Company report as total accounts payable at December 31,
2020?

Reported amount at December 31, 2020 1,500,000

FOB shipping point lost in transit 240,000

Credit memo returned goods (80,000)
Total Account Payable at December 31, 2020 1,660,000

1.4. On May 1, 2020, the Madison Company purchased two new company automobiles from
Ford Motors Corporation. The terms of the sale called for Madison to pay P3,924,000 on
April 30, 2021. Madison gave the seller a non-interest-bearing note for this amount. At
the date of purchase, the interest rate for short-term loans of this type was 9%.

REQUIRED:
(a) Give the journal entries on the following dates:
(1) May 1, 2020

Purchase automobiles 3,600,000

Discount on notes payable 324,000
Notes payable 3,924,000
3,924,000/1.09 = 3,924,000
3,924,000-3,600,000 = 324,000

(2) December 31, 2020

Interest Expense 216,000

215,999
Discount on notes payable 216,000
215,999

(3) April 30, 2021

Interest expense 108,000

108,001
Discount on Notes Payable 108,000
108,001

Notes Payable 3,924,000

Cash 3,924,000
 (b) At what amount should the Notes Payable be shown on the December 31, 2020
statement of financial condition of Madison Company?

Notes payable 3,924,000

Less: Unamortized cost of notes payable 108,000
108,001
Net amount, December 31, 2020 3,816,000
3,815,999

1.5. On May 1, 2020, the Unison Company purchased a special type of equipment from
Taylor Corporation issuing a 9%, interest bearing note for P8,000,000 due April 30,
2021. There is no established cash price for this equipment.

REQUIRED: Give the entries on May 1, 2020, December 31, 2020, and April 30, 2021
and determine the carrying value of the liability on December 31, 2020, assuming that:
(a) The market rate of interest for a note of this type is 5%.

Principal 8,000,000
Stated interest (8,000,000*9%*1 yr) 720,000
Total future cash flow 8,720,000
PV factor at 5% for 1 period 0.9523
Present Value of the Note 8,304,762

May 1, 2020

Equipment 8,304,762
Notes Payable 8,000,000 (it
should be cr)
Premium on Notes Payable 304,762

December 31, 2020

Interest Expense 276,825

Premium on Notes Payable 203,285
(203,175)
Interest Payable 480,000

April 30, 2021

Notes payable 8,000,000

Interest payable 480,000
Interest expense 138,357
 (138,413 =
PV*5%*4/12)
Premium on notes payable 101,643
(101,587)
Cash 8,720,000

(b) The market rate of interest for a note of this type is 12%.

Principal 8,000,000
Stated interest (8,000,000*9%*1 yr) 720,000
Total future cash flow 8,720,000
PV factor at 12% for 1 period 0.8928(57)
Present Value of the Note 7,786,088
(7,785,713)

May 1, 2020

Equipment 7,786,088
Discount on Notes Payable 213,912
(214,287)
Notes Payable 8,000,000

December 31, 2020

Interest Expense 622,608

(622,857)
Interest Payable 480,000
Discount on Notes Payable 142,608
(142,857)

April 30, 2021

Notes payable 8,000,000

Interest payable 480,000
Interest expense 311,430
Discount on Notes Payable 71,304
(71,430)
Cash 8,862.859
(8,720,000)

Notes Payable 8,000,000

Discount on Notes Payable (71,304)
Interest Payable 480,000
Carrying amount at December 31, 2020 8,408,696