HOMEWORK ON RECEIVABLES

PROBLEM 1

The net realizable value of Bonifacio Corp.’s accounts receivable at the end of the year was P2,400,000.
At the beginning of the year, the allowance for doubtful accounts had a balance of P120,000. Charges to
bad debts expense for the year were P160,000 and accounts receivable amounting to P80,000 were
written off.

Determine the gross amount of Bonifacio’s accounts receivable at the end of the year.

ADA Beginning 120,000

Bad Debts Expense 160,000
Write-offs (80,000)
ADA, Ending 200,000
NVR of AR 2,400,000
Gross Amount of AR 2,600,000

PROBLEM 2

Andres Corp. shows a balance of P2,411,400 in the Accounts Receivable account on December 31, 2023.
The balance consists of the following:
Installment accounts due in 2024 P 230,000
Installment accounts due after 2024 340,000
Overpayments to creditors 26,400
Due from regular customers, of which P400,000 represents accounts
pledged as security for a bank loan 890,000
Advances to employees 15,000
Advances to subsidiary company (made in 2021) 910,000

What is the correct amount of Accounts Receivable that should be shown on the statement of financial
position of Andres Corp. on December 31, 2023?

Installment accounts due in 2024 230,000

Due from regular customers 890,000
Accounts Receivable – current 1,120,000

Installment Accounts due after 2024 – current 340,000

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PROBLEM 3

The accounting clerk of Aurora Company reported Accounts Receivable balance at year-end of P117,000.
You, the manager decided to test the accuracy of the amount. The following information is available for
your first year in business.
a. Collection from customers P198,000
b. Merchandise purchased 320,000
c. Ending merchandise inventory 70,000
d. Goods are marked to sell at 40% above cost

Assume all sales are made on account; compute the correct Accounts Receivable at year-end. How
much is the apparent shortage?

Merchandise Purchased 320,000

Ending Merchandise Inventory (70,000)
Sold Merchandise 250,000
Mark up 1.40
Credit sales/Accounts Receivable 350,000

Accounts Receivable 350,000

Collections (198,000)
Accounts Receivable at year end 152,000

Accounts Receivable at year end 152,000

Reported Accounts Receivable (117,000)
Shortage 35,000

Accounts Receivable
Credit Sales - 350,000 Collections – 198,000
Ending – 152,000

OR

Cost of Goods Sold (320,000-70,000) 250,000

Sales Rate 1.40%
Sales on Account/Accounts Receivable 350,000
Collection (198,000)
Correct Accounts Receivable 152,000

Correct Accounts Receivable 152,000

Reported Accounts Receivable (117,000)
Shortage 35,000

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PROBLEM 4

Emilio Co. had the following information relating to its accounts receivable:

Accounts receivable, Jan. 1 P2,000,000

Allowance for doubtful accounts, Jan. 1 40,000
Credit sales 10,000,000
Sales discounts 70,000
Collection from customers (excluding recoveries) 8,700,000
Accounts written off 120,000
Accounts previously written off but were eventually collected 60,000

Compute for the doubtful accounts expense for the year and the ending balance of the allowance for
doubtful accounts given the following independent assumptions:
1. Uncollectible accounts are estimated at 1.5% of net credit sales.
2. Uncollectible accounts are estimated at 7.5% of outstanding accounts receivable.

1. 1.5% of Net Credit Sales

Net credit sales (P10,000,000 - P70,000) 9,930,000
Rate 1.50%
Doubtful accounts expense 148,950
Allowance for doubtful accounts, Jan. 1 40,000
Accounts written off (120,000)
Allowance for doubtful accounts, Dec. 31 68,950

2. 7.5% of AR
Accounts receivable, Dec. 31 3,180,000
Rate 7.50%
Allowance for doubtful accounts, Dec. 31 238,500
Allowance for doubtful accounts, Jan. 1 (40,000)
Accounts written off 120,000
Doubtful accounts expense 318,500

PROBLEM 5

Juan Luna Corp. has computed the net realizable value of its accounts receivable to be P950,000 at the
end of the year. On Jan. 1 of the current year, the allowance for doubtful accounts had a balance of
P75,000. Charges to doubtful accounts expense amounted to P120,000 during the year and P50,000 worth
of receivables was written off.

What is the gross amount of Juan Luna’s accounts receivable at the end of the year?

Net realizable value 950,000

Allowance for doubtful accounts, Dec. 31
Allowance for doubtful accounts, Jan. 1 75,000
Doubtful accounts expense 120,000
Accounts written off (50,000) 145,000
Gross accounts receivable, Dec. 31 1,095,000

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PROBLEM 6

Del Pilar Inc. reported the following balances after adjustment at the end of 2023 and 2022:

2023 2022
Accounts receivable 6,500,000 5,750,000
Net realizable value 6,300,000 5,600,000

During 2023, Del Pilar wrote off accounts amounting to P205,000 and collected P45,000 worth of accounts
previously written off.

How much doubtful accounts expense should Del Pilar recognize for the year ended Dec. 31, 2023

Allowance for doubtful accounts, 2023 200,000

Allowance for doubtful accounts, 2022 150,000
Accounts written off (205,000) (55,000)
Doubtful accounts expense 255,000
Note: collection (recovery) of written off account is recognized as income.

PROBLEM 7

From the inception of operations to Dec. 31, 2023, Heroes Corp. provided for uncollectible accounts
receivable under the allowance method: provisions were made monthly at 2% of credit sales; bad debts
written off were charged to the Allowance account; and debts previously written off but were recovered are
credited to a revenue account; and no year-end adjustments to the Allowance account were made. Heroes’
usual credit terms are net 30 days.

The balance in the Allowance for Doubtful Accounts was P143, 000 at January 1, 2023. During 2023, credit
sales totaled P15,000,000; interim provisions for doubtful accounts were made at 2% of credit sales,
P140,000 of bad debts were written off, and recoveries of accounts previously written off amounted to
P43,000. Heroes installed a computer facility in November 2023 and an aging of accounts receivable was
prepared for the first time as of December 31, 2023. A summary of the aging is as follows:

Classification by month of sale Balance % Uncollectible

November-December 2023 2,160,000 2
July-October 2023 1,300,000 10
January-June 2023 840,000 25
Prior to Jan. 1, 2023 300,000 70

Based on the review of the collectability of the account balances in the ‘Prior to Jan. 1, 2023’ aging
category, additional receivables totalling P120,000 were written off as of December 31, 2023. The 70%
uncollectible estimate applies to the remaining P180,000 in the category. Effective with the year ended
December 31, 2023, Heroes 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.

1. What is the balance of the allowance for doubtful accounts on December 31, 2023 before year-end
adjustments?

Allowance for doubtful accounts, Jan. 1 143,000

Recorded doubtful accounts expense (P15M x 2%) 300,000

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Accounts written off (140,000)
Additional write-off (120,000)
Allowance for doubtful accounts, Dec. 31, unadjusted 183,000

2. What is the additional expense, if any, to adjust the existing allowance?

Category Uncollectible
November-December (P2,160,000 x 2%) 43,200
July-October (P1,300,000 x 10%) 130,000
January-June (P840,000 x25%) 210,000
Prior to Jan. 1 (P180,000 x 70%) 126,000
Required allowance/ADA, end 509,200

Required allowance / ADA, end 509,200

Allowance for doubtful accounts, Dec. 31, unadjusted (183,000)
Additional expense 326,200

3. For the year ended December 31, 2023, Heroes’ doubtful accounts expense would be?

Interim doubtful accounts expense 300,000

Additional expense 326,200
Total doubtful accounts expense 626,200

4. How much is the net realizable value of Heroes’ accounts receivable at December 31, 2023?

Accounts receivable Dec. 31 4,480,000

Allowance for doubtful accounts, Dec. 31, adjusted (509,200)
Net realizable value 3,970,800

PROBLEM 8

Bonifacio Co. purchases the accounts receivable of other companies on a without recourse, notification
basis. At the time the receivables are factored, 15% of the amount factored is charged to the client as
commission and recognized as revenue in Bonifacio’s books. Also, 10% of the receivables factored is
withheld by Bonifacio as protection against sales returns or other adjustments. This amount is credited by
Bonifacio to the Client Retainer account. At the end of each month, payments are made by Bonifacio to its
clients so that the balance in the Client Retainer account is equal to 10% of unpaid factored receivables.
Based on Bonifacio’s bad debt loss experience, an allowance for bad debts of 5% of all factored receivables
is to be established. Bonifacio makes adjusting entries at the end of each month.

On January 3, 2023, Andres Co. factored its accounts receivable totaling P2,000,000. By January 31,
P1,600,000 of these receivables had been collected by Bonifacio.

Prepare the entries on Bonifacio’s and Andres’s books to record the above information.
Andres's books
3-Jan Cash 1,400,000
Commission expense 300,000
Receivable from factor 200,000
Allowance for doubtful accounts 100,000
Accounts receivable 2,000,000

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 31-Jan Cash 160,000
Receivable from factor 160,000

Bonifacio's books
3-Jan Accounts receivable 2,000,000
Cash 1,400,000
Commission Income 300,000
Client retainer 200,000
Allowance for doubtful accounts 100,000
31-Jan Cash 1,600,000
Accounts Receivable 1,600,000
31-Jan Client retainer 160,000
Cash 160,000

PROBLEM 9

Del Pilar Corp. required additional cash for its operation and used its accounts receivable to raise such
needed cash, as follows:

On December 1, 2023, Del Pilar assigned on a non-notification basis accounts receivable of P4,000,000
to a bank in consideration for a loan of 90% of the receivables less a 0.5% service fee on the accounts
assigned. Del Pilar signed a note for the bank loan. On December 31, 2023, Del Pilar collected assigned
accounts of P2,400,000 less discount of P160,000. Del Pilar remitted the collections to the bank in partial
payment for the loan. The bank applied first the collection to the interest and the balance to the principal.
The agreed interest is 1.25% per month on the loan balance.

Del Pilar sold P1,750,000 of accounts receivable for P1,350,000. The receivables had a carrying amount
of P1,600,000 and were sold outright on a non-recourse basis.

Del Pilar received an advance of P400,000 from Greg Bank by pledging P500,000 of accounts receivable.
Del Pilar issued a 1-year note for this.

On December 31, 2023, Del Pilar discounted at a bank a customer’s P1,200,000, 10-month, 10% note
receivable dated April 30, 2023. The bank discounted the note at 15% on the same date.

1. In its December 31, 2023, statement of financial position, how much should Del Pilar report as note
payable in its current liabilities section?

Original note 3,600,000

Payment applied to principal: (P2,240,000 - 45,000) (2,195,000)
Note payable from assignment 1,405,000
Note payable from pledging 400,000
Note payable, Dec. 31 1,805,000

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2. How much is Del Pilar’s equity in the assigned accounts receivable as of December 31, 2023?

AR assigned 4,000,000
Face value collected (2,400,000) 1,600,000
Note payable, Dec. 31 (1,405,000)
Equity on assigned accounts 195,000

3. How much were the proceeds from the note receivable discounted on December 30?

Face value 1,200,000

Interest to maturity 100,000
Maturity value 1,300,000
Discount (32,500)
Proceeds 1,267,500

4. How much was debited to the Allowance for Doubtful Accounts during the sale of the receivables?

Gross amount 1,750,000

Carrying amount 1,600,000
ADA debited 150,000

PROBLEM 10

When Penang Corp. found itself in severe financial problems, it applied for a loan in City National Bank. In
accordance with the terms of the application, Penang assigned P5,000,000 of its accounts receivable to
the bank. The receivables serve as a collateral for the assurance of the payment of the loan.

On January 1, 2019, upon the approval of the loan, City forwarded 80% of the face value of the assigned
accounts less 0.5% of the face value of the note for processing fees. The terms of the loan also states that
Penang should pay 1.5% of the outstanding balance of the note or P50 000, whichever is higher, as interest
to be paid every two months. Notice regarding the balance of the assigned accounts and the payment of
interest will be given by City every two months. On the same date, the debtors of Penang were informed
that their payments should be forwarded directly to the bank.

On February 28, City informed Penang that 30% of the assigned accounts were already collected. Half of
the assigned accounts were entitled to the 2% cash discount. Penang also found out in the notice that
P80,000 of the assigned accounts were proven to be worthless, and P20,000 were granted allowances,
upon Penang’s approval. A check for the payment of the interest was sent by Penang on the same date.

After two months, City sent another notice to Penang stating that the remaining assigned accounts were
already collected. None of them were given any discounts. A check was sent by City to Penang for the
excess collection.
Receivable Note
Beginning balance 5,000,000 4,000,000
Collection (1,500,000) (1,485,000)
Write-offs (80,000)
Sales allowance (20,000)
Balance, Feb. 28 3,400,000 2,515,000

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1. What was Penang’s equity on the assigned accounts on February 28?

Accounts receivable - assigned, Feb. 28 3,400,000

Note payable, Feb. 28 2,515,000
Equity on assigned accounts, Feb. 28 885,000

2. How much cash did Penang receive from City from the excess collection of the assigned accounts?

April Collections 3,400,000

Note Payable, Feb. 28 (2,515,000)
Interest Incurred 50,000
Cash Received 835,000

3. How much was the total interest incurred by Penang on the note?

Actual Base Higher

AS of Feb. 28 60,000 50,000 60,000
As of Apr. 30 37,725 50,000 50,000
Interest incurred 110,000

PROBLEM 11

On March 1, 2024, Luna Co. discounted its P3,000,000, 10%, 9-month note to a financial institution. The
note was dated January 1, 2024, and the institution discounted the note at 12%.

How much did Luna receive on March 1?

Principal 3,000,000
Interest 225,000
Maturity value 3,225,000
Discount (225,750)
Proceeds 2,999,250

PROBLEM 12

Melchora Corp. received a 5-year, 8% note from Aquino Inc. for the sale of its inventory on Jan. 1, 2023.
The items cost Melchora P2,200,000 and were sold for P4,800,000, the face value of the note signed by
Aquino. The note pays interest every June 30 and Dec. 31. The effective interest on this note is 10%.

1. What is the amount of the note at initial recognition?

PV of principal 2,946,784 (4.8M x 0.613913)

PVOA of interest 1,482,573 (4.8M x .04 x 7.721734)
PV of note 4,429,357

Date Interest Receipt Amortization Carrying value

1/1/23 4,429,357
6/30/23 221,468 192,000 29,468 4,458,825
12/31/23 222,941 192,000 30,941 4,489,766
6/30/24 224,488 192,000 32,488 4,522,254

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12/31/24 226,113 192,000 34,113 4,556,367
6/30/25 227,818 192,000 35,818 4,592,185
12/31/25 229,609 192,000 37,609 4,629,794
6/30/26 231,490 192,000 39,490 4,669,284
12/31/26 233,464 192,000 41,464 4,710,748
6/30/27 235,537 192,000 43,537 4,754,286
12/31/27 237,714 192,000 45,714 4,800,000

2. How much is the interest revenue recorded by Melchora in 2024?

Interest, 6/30/24 224,488

Interest, 12/31/24 226,113
Total interest, 2024 450,601

3. What is the carrying value of the note at the end of 2025?

CV, 12/31/25 4,629,794

4. What is the unamortized discount on the note on Dec. 31, 2026?

Face value 4,800,000

Carrying value, 12/31/26 4,710,748
Unamortized discount 89,252

PROBLEM 13

On January 1, 2023, Juan Co. received a P4,000,000, 10% note from a customer upon the sale of its
goods. The note is to be paid in six equal semi-annual installments, plus interest on the outstanding balance
every June 30 and December 31, starting June 30, 2023. The effective rate on the note is 9%.

1. How much is the note upon initial recognition?

Date Principal Interest Total PV factor Present value

06/30/2023 666,667 200,000 866,667 0.956938 829,346
12/31/2023 666,667 166,667 833,333 0.915730 763,108
06/30/2024 666,667 133,333 800,000 0.876297 701,037
12/31/2024 666,667 100,000 766,667 0.838561 642,897
06/30/2025 666,667 66,667 733,333 0.802451 588,464
12/31/2025 666,667 33,333 700,000 0.767896 537,527
Amount at initial recognition 4,062,380

4.5%
Date Interest income Cash receipt Amortization Carrying amount
1/1/22 4,062,380
6/30/23 182,807 866,667 (683,860) 3,378,520
12/31/23 152,033 833,333 (681,300) 2,697,220
6/30/24 121,375 800,000 (678,625) 2,018,595
12/31/24 90,837 766,667 (675,830) 1,342,765

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2. How much is the interest income recognized by Juan in 2023?

Interest income, June 30 182,807

Interest income, December 31 152,033
Interest income, 2023 334,841

3. How much is the carrying amount of the note on December 31, 2024?

Carrying amount, Dec. 31, 2024 1,342,765

PROBLEM 14

On January 1, 2023, Sultan Co. received a P4,000,000, noninterest-bearing note from a borrower. The
note is to be paid in 16 quarterly installments starting January 1, 2023. The effective rate on this note is
12%.

1. How much is the note upon initial recognition?

PV of note: n=15, i=3%

P250,000 x 12.561102 2,984,483.77
1st installment 250,000.00
PV of note, Jan. 1, 2023 3,234,483.77

2. How much is the interest income recognized by Sultan in 2023?

Date Installment Interest Income Carrying Amount

Jan. 1, 2023 3,234,483.77
Jan. 1, 2023 250,000.00 2,984,483.77
Apr. 1, 2023 250,000.00 89,534.51 2,824,018.28
Jul. 1, 2023 250,000.00 84,720.55 2,658,738.83
Oct. 1 , 2023 250,000.00 79,762.17 2,488,501.00
Dec. 31, 2023 74,655.03 2,563,156.03
Interest income in 2023 328,672.26

3. How much is the carrying amount of the note on December 31, 2024?

Date Installment Interest Income Carrying Amount

Jan. 1, 2023 3,234,483.77
Jan. 1, 2023 250,000.00 2,984,483.77
Apr. 1, 2023 250,000.00 89,534.51 2,824,018.28
Jul. 1, 2023 250,000.00 84,720.55 2,658,738.83
Oct. 1 , 2023 250,000.00 79,762.17 2,488,501.00
Dec. 31, 2023 74,655.03 2,563,156.03
Jan. 1, 2024 250,000.00 2,313,156.03
Apr. 1, 2024 250,000.00 69,394.68 2,132,550.71
Jul. 1, 2024 250,000.00 63,976.52 1,946,527.23
Oct. 1 , 2024 250,000.00 58,395.82 1,754,923.05
Dec. 31, 2024 52,647.69 1,807,570.74

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OR
PV of note: n=8, i=3%
P250,000 x 7.019692 1,754,923.05
Interest, 4th qtr 2024 52,647.69
Carrying amount, Dec. 31, 2024 1,807,570.74

PROBLEM 15

The following long-term receivables were reported in the Dec. 31, 2022, statement of financial position of
Tiradpass Inc.:
Note receivable from sale of plant 3,000,000
Note receivable from officer 800,000

The following transactions during 2023 and other information relate to the company’s long-term
receivables:

a. The note receivable from sale of plant bears interest at 12% per annum. The note is payable in 3
annual instalments of P1,000,000 plus interest on the unpaid balance every April 1. The initial
principal and interest payment was made on Apr.1, 2023.

b. The note receivable from officer is dated Dec. 31, 2022, earns interest at 10% per annum, and is
due on Dec. 31, 2025. The 2023 interest was received on Dec. 31, 2023.

c. Tiradpass sold a piece of equipment to Bacolod Co. on Apr.1, 2023, in exchange for a P400,000
noninterest-bearing note due on Apr.1, 2025. The note had no ready market, and there was no
established exchange price for the equipment. The prevailing interest rate for a note of this type at
Apr. 1, 2023 was 12%.

d. A tract of land was sold by Tiradpass to Davao, Inc. on July 1, 2023, for P2,000,000 under an
instalment sale contract. Davao signed a 4-year 11% note for P1,400,000 on July 1, 2023, in
addition to the down payment of P600,000. The equal annual payments of principal and interest on
the note will be P451,250 payable on July 1, 2024, 2025, 2026 and 2027. The land had an
established cash price of P2,000,000 and its cost to Tiradpass was P1,500,000. The collection of
the instalments on this note is reasonable assured.

1. What amount should be reported as noncurrent receivables in the statement of financial position at
Dec. 31, 2023?

From sale of plant:

Balance, Dec. 31, 2023 2,000,000
Installment to be paid on Apr. 1, 2024 (1,000,000) 1,000,000
From officer 800,000
From sale of equipment:
Present value of note (P400,000 x 0.79719) 318,876
Amortization of discount (P318,878 x .12 x 9/12) 28,699 347,575
From sale of land:
Principal 1,400,000
Current portion
Installment, July 2023 451,250
Interest (P1,400,000 x .11) (154,000) (297,250) 1,102,750
Total noncurrent notes receivable, Dec. 31, 2023 3,250,325

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2. What is the current portion of notes receivable on Dec. 31, 2023?

From sale of plant 1,000,000

From sale of land 297,250
Current portion of notes receivable 1,297,250

3. What is the accrued interest receivable on Dec. 31, 2023?

From sale of plant: Apr. 1 - Dec. 31, 2023

P2,000,000 x .12 x 9/12 180,000
From sale of land: July 1 - Dec. 31, 2023
P1,400,000 x .11 x 6/12 77,000
Total accrued interest receivable 257,000

4. What is the unamortized discount on notes receivable from the sale of equipment on Dec. 31, 2023?

Face value 400,000

Carrying amount (347,575)
Unamortized discount 52,425

5. What is the total interest income for the year ended Dec. 31, 2023?

From sale of plant:

Jan.1-Mar.31 (P3,000,000 x .12 x 3/12) 90,000
Apr.1 - Dec. 31 180,000 270,000
From officer (P800,000 x .10) 80,000
From sale of equipment 28,699
From sale of land 77,000
Total interest revenue - 2023 455,699

January 2023

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