ACCOUNTING FOR RECEIVABLES

Receivables are claims that are expected to be settled by receipt of money.

As to source receivables are classified as: Trade receivables or Non-trade receivables. Trade
receivables are those arising from sales on account or services rendered on account. Other
receivables not arising from sale or services on account are classified as non-trade receivables.
Trade receivables are generally classified as current asset.
Non-trade receivables are classified as current only if collectible within one year from the
reporting date. If not collectible within 12 months, it classified as noncurrent asset.
Receivables are presented in the statement of financial position at amortized cost.

To be discussed:
A. How to compute the correct balance of Accounts receivable
B. Accounting for Uncollectible accounts
1. Allowance method- Adjusting entry is prepared at the end of an accounting
period to take up provision for those receivable that will not be collected.
2. Direct-write off method- no adjusting entry is prepared for uncollectible
accounts.
C. Receivable Financing
1. Assignment/Pledging of Accounts Receivable
2. Factoring of AR
3. Discounting of Notes Receivable
a. Without recourse
b. With recourse
D. Accounting for non-interest bearing notes receivable
E. Computation of Impairment loss
Comparison of the Allowance method and Direct write-off method of acctg for bad debts:

Transactions: Entries under:

Allowance method Direct write-off method
1. On Dec. 31,2019, X Company Bad debts expense - 20,000
estimates that P20,000 if its AR is Allowance for bad debts- 20,000 No adjusting entry
doubtful of being collected.
2. On Feb. 14, 2020, X Company Allowance for bad debts – 10,000 Bad debts expense- 10,000
wrote-off the account of Mr. Covi, Accounts receivable (Mr. Covi) - 10,000 Accounts receivable(Mr. Covi)- 10,000
P10,000.
3. On Nov.30,2020, Mr. Covi showed Accounts receivable(mr. covi)– 5,000 Accounts receivable (mr. Covi)– 5,000
up and pay Company X, P5,000 Allowance for bad debts – 5,000 Bad debts expense – 5,000
Recovery of AR To re-establish the account of mr. covi To re-establish the account of mr. covi which
which had been previously written-off had been previously written-off
Cash - 5,000 Cash - 5,000
Accounts receivable(Mr. Covi) -5,000 Accounts receivable(Mr. Covi) -5,000
To record collection of AR. To record collection of AR.

IFRS requires the use of the allowance method. Direct write-off method violates the
matching principle.
ILLUSTRATIVE PROBLEMS:
I. ACCTG. for UNCOLLECTIBLE ACCOUNTS
A. The balances of selected accounts of Encanto Company as at December 31, 2020, are as
follows:

Accounts Receivable P337,000

Allowance for uncollectible accounts 12,000

The following transactions affecting accounts receivable occurred during the year ended
December 31, 2021.

Sales (all on account, terms 2/10, 1/15, n/60) P1,500,000

Cash received from customers 1,600,000
From customers paying within the 10-day discount period 882,000
From customers paying within the 15-day discount period 495,000
From recovery of accounts written-off 3,000
From customers paying beyond the discount period ?
Accounts receivable written off as worthless 11,000
Credit memoranda for sales returns 6,000

Based on assessment of the collectability of the accounts, impairment loss recognized on

accounts receivable is P15,000.
Questions:
1. What is the balance of Accounts receivable on December 31, 2021? Answer: P200,000
2. What is the balance of Allowance for bad debts on December 31, 2021? P19,000
3. What is the amortized cost of Accounts receivable at Dec. 31, 2021? P181,000

COMPUTATIONS:
1. COMPUTATION OF AR BALANCE AT DEC. 31.
BEG. BALANCE P337,000
ADD(LESS): debit(credit) to AR during the year 2021
FOR: Sales on account 1,500,000
Collections:
From customers paying w/in the 10-day discount period(882,000/.98) (900,000)
From customers paying w/in the 15-day discount period(495,000/.99) (500,000)
Recovery of accounts written off (reinstatement of account) 3,000
Recovery of accounts written off (collection) (3,000)
From customers paying beyond the discount period (220,000)
AR written off as worthless (11,000)
For sales returns (6,000)
AR BALANCE, DEC. 31 200,000

Entry to record collection of the P882,000

Cash 882,000
Sales Discount 18,000
Accounts Receivable 900,000

Computation of collections from customers paying beyond the discount period:

Total cash received from customers P1,600,000

LESS: the ff. Amounts received
From customers paying within the 10-day discount period (882,000)
From customers paying within the 15-day discount period (495,000)
Recovery of accounts written off (collection) (3,000)
Cash received from customers paying beyond the discount 220,000
period.
 2. Computation of allowance balance at Dec. 31,
Allowance balance, beginning P12,000
Add(less):
Recovery 3,000
Written-off (11,000)
Impairment loss (bad debts expense recorded) 15,000
Allowance balance, end P19,000

The P19,000 balance of Allowance for bad debts at Dec. 31, 2021, can also be computed
through the following T-account.
Allowance for bad debts
12,000 beg. balance
Written-off 11,000 3,000 recovery
15,000 bad debts expense recorded

11,000 30,000

19,000 balance, Dec. 31

3. Computation of amortized cost of Accounts receivable at Dec. 31, 2021?

AR balance, Dec. 31, 2021 200,000
LESS: Allowance for bad debts, Dec. 31, 2021 (19,000)
Amortized cost of Accounts receivable, Dec. 31, 2021 (181,000)

B. Bruno Company has an Allowance for uncollectible accounts balance of P34,000 at January
1, 2021. During the year 2021, accounts totaling P47,000 were written-off. Accounts written-
off in prior years amounting to P7,000 were recovered during the year. At Dec. 31, 2021, an
aging of its Accounts receivable showed the following:

Amount % Uncollectible
Not yet due P340,000 0%
1-30 days past due 240,000 5%
31-60 days past due 20,000 25%
61-90 days past due 30,000 50%
Over 90 days past due 24,000 90%
Additional accounts to be written-off 6,000 100%

Questions:
1. How much doubtful accounts expense was reported by Bruno FY 2021? P 65,600
2. What is the amortized cost of Accounts receivable at Dec. 31, 2021? P600,400
3. What is the balance of Allowance for bad debts on December 31, 2021? P59,600

COMPUTATIONS:
1. Computation of bad debts expense for the year 2021.

Amount of A/R % uncollectible Estimated uncollectible

P340,000 0 0
240,000 5 12,000
20,000 25 5,000
30,000 50 15,000
24,000 90 21,600
6,000 100% 6,000
 P660,000
Est. uncollectible accounts at Dec. 31 also the 59,600
required allowance bal. after adjustment

Required allow. Balance at Dec. 31, 2021------------------------------P 59,600

Add: allowance bal, at Dec. 31, 2021, before adjustment------------ 6,000 debit
Amount of adjustment to the allowance account,
which is the bad debts expense for the year 2021- ------------------P 65,600

Computation of P6,000 debit balance in the allowance account at Dec. 31, before
adjustment:
Allowance balance, January 1, 2021 P34,000
Add(less):
Recovery 7,000
Written-off (47,000)
Allowance balance, at Dec. 31, 2021 before adjustment P6,000 debit

3. Computation of amortized cost of Accounts receivable at Dec. 31, 2021?

AR balance, DEC. 31, 2021 660,000
LESS: Estimated uncollectible accounts, Dec. 31, 2021 (59,600)
Amortized cost of Accounts receivable, Dec. 31, 2021 600,400

C. The following information were taken from the accounting records of Dolores Corporation.

2022 2021
Net credit sales P1,200,000 P1,050,000
Accounts Receivable, Dec. 31 305,000 260,000
Allowance for uncollectible accounts, Dec. 31 12,000 6,000
Uncollectible accounts written off in prior years and
then recovered this year 3,000

Your examination of the records of the company indicates that uncollectible accounts expense
recorded during the year 2022 was P48,000. What is the amount of Accounts Receivable
actually written off during 2022? P45,000

Computation:
Allowance for Uncollectible Accounts, beg P 6,000
Add(less):
Recovery of accounts previously written off 3,000
Uncollectible accounts expense for 2022 48,000
Allowance for Uncollectible Accounts, end (12,000)
Accounts written off during 2022 P45,000

Alternative computation of Accounts written off during 2022. Thru the T-account of
Allowance for bad debts.

Allowance for bad debts

6,000 beg. Balance from Dec. 31, 2021
Written-off 45,000 3,000 recovery
48,000 bad debts expense recorded

45,000 57,000

12,000 balance, Dec. 31,2022

II. Accounting for NON-INTEREST BEARING NOTES RECEIVABLE
When a note makes no provision for interest, it is said to be non-interest bearing or zero
interest bearing. However, a non interest bearing note does not mean that there is no
interest accruing on the note. The Note is simply written in a form where the face value
already includes an imputed interest for the term of the note.
Non-interest bearing notes receivable is presented in the statement of financial position at
Amortized Cost.
Illustration: NON-INTEREST BEARING NOTES RECEIVABLE (single payment)
On January 1, 2021, Mirabel company sold land that was acquired years ago for
P2,800,000. Mirabel received a non-interest bearing notes receivable for P4,500,000 due
on Dec. 31, 2023 in exchange for the land. There is no readily available fair value for the
land, but the current market rate of interest for comparable notes is 8%.

Questions:
1. What is the carrying value of the notes receivable on Dec. 31, 2021? 3,857,868
2. How much interest income is recognized in year 2021? 285,768
3. What is the carrying value of the notes receivable on Dec. 31, 2022? P4,166,497
4. How much interest income is to be recognized for the year 2022? 308,629

Computations:
Computation of the present value of the notes receivable at Jan. 1, 2021
Face value P4,500,000
Multiply by present value factor 0.7938
Present value or carrying value of notes rec. (Jan. 1,2021) 3,572,100

Face value of note P4,500,000

Present value, carrying value Jan. 1, 2021 3,572,100
Discount on notes receivable (Jan. 1, 2021) P927,900

Note: The discount on notes receivable, is transferred to the account interest income
through amortization using the effective interest method.

1. Computation of the carrying value of note rec. On Dec. 31, 2021:

Face value P4,500,000
Less: unamortized discount at Dec. 31, 2021 (P 927,900-285,768) 642,132
Carrying value of the note (Dec.31, 2021) 3,857,868

Alternative computation of the carrying value of the notes receivable on Dec. 31, 2021:
carrying value of notes rec. (Jan. 1,2021) 3,572,100
Add: first amortization of discount 285,768
Carrying value of the note (Dec.31, 2021) 3,857,868

2. Computation of Interest income for the year 2021 (first amortization of discount)
Carrying value of the note (Jan.1, 2021) 3,572,100
Multiply by interest rate 8%
Interest income for the year 2021 285,768

3. Computation of Interest income for the year 2022 (2nd amortization of discount)
Carrying value of the note (Dec. 31, 2021) 3,857,868
Multiply by interest rate 8%
Interest income for the year 2022 308,629

4. Computation of the carrying value of note rec. On Dec. 31, 2022:

Face value P4,500,000
 Less: unamortized discount at Dec. 31, 2022
(P 927,900 less 1st and 2nd amortization of discount) (333,503)
Carrying value of the note ,Dec.31, 2022 P4,166,497

Note: comes due date of the notes receivables, its carrying value WOULD BE EQUALS to its
Face Value

CV – 4,500,000 FV – 4,500,000

Alternative computation:
carrying value of notes rec. (Jan. 1,2021) 3,572,100
Add: Amortized discount- first amortization 285,768
2nd amortization 308,629
Carrying value of the note (Dec.31, 2021) P4,166,497

Entries to record the receipt of the non-interest bearing notes receivable

A. Entry to record the sale of land on Jan. 1,2021:

Notes receivable 4,500,000
Land 2,800,000
Discount on notes rec. 927,900
Gain on sale of land 772,100

Computation of gain on sale of land:

selling price of land (equal to the present value of the note) 3,572,100
Carrying value of land 2,800,000
gain on sale of land 772,100

Entries to amortize the discount on notes receivable on Dec. 31, 2021 (1 st amortization)
Discount on notes receivable 285,768
Interest revenue 285,768

Entry to record the receipt of payment on maturity date of note:

Cash 4,500,000
notes receivable 4,500,000

C. Accounting for NON-INTEREST BEARING NOTES RECEIVABLE (installment payment)

On January 1, 2021, Mirabel company sold land that was acquired years ago for
P2,800,000. Mirabel received a non-interest bearing notes receivable for P4,500,000 in
exchange for the land. There is no readily available fair value for the land, but the current
market rate of interest for comparable notes is 8%. The note is payable in equal annual
installments of P1,500,000 every December 31, starting December 31, 2021.
Questions:
1. How much interest income is recognized in year 2021? 309,252
2. What is the carrying value of the notes receivable on Dec. 31, 2021? 2,674,902

Computations:
Computation of the present value of the notes receivable at Jan. 1, 2021
Installment payment P1,500,000
Multiply by present value factor (PV of ordinary annuity) 2.5771
Present value/carrying value of notes rec. (Jan. 1,2021) P3,865,650

Face value of note P4,500,000

Present value, Jan. 1, 2021 3,865,650
Discount on notes receivable (Jan. 1, 2021) Interest P 634,350
 1. Computation of Interest income for the year 2021
Carrying value of the note (Jan.1, 2021) P3,865,650
Multiply by interest rate 8%
Interest income for the year 2021 P 309,252

2. Computation of the carrying value of note rec. On Dec. 31, 2021:

Face value P4,500,000
Less: 1st installment payment received (1,500,000)
Balance 3,000,000
Less: unamortized discount at Dec. 31, 2021 (634,350-309,252) 325,098
Carrying value of the note (Dec.31, 2021) 2,674,902

Alternative computation of the carrying value of the notes receivable on Dec. 31, 2021:
carrying value of notes rec. (Jan. 1,2021) P3,865,650
Add(less): first amortization of discount 309,252
First installment payment received (1,500,000)
Carrying value of the note (Dec.31, 2021) 2,674,902

ACCOUNTING FOR IMPAIRMENT LOSS ON RECEIVABLE

Illustrations
A. On December 31, 2019, Madrigal company has a notes receivable of P10 Million from
Abuela company. Due to financial difficulty experienced by Abuela, the company requested
for a restructuring of its loan with Madrigal. Accrued interest on the loan at December 31,
2019 is P1,000,000 based on the 10% stated interest of the note.

Compute the amount of impairment loss on each of the ff. restructuring arrangements:
1.
 Condonation of accrued interest
 Reduction of principal to P9,000,000
 Extension of maturity date to Dec. 31, 2021
 Reduction of interest rate to 8%, payable annually every Dec. 31

Computation of impairment loss

Carrying value of the receivable (P10M + 1M accrued interest) P11,000,000
Present value of future cash payments to be received:
Principal due on 12/31/21 (P9Mx.8264) 7,437,600
Interest for 2 years: 9M x 8%=720,000x 1.7355 1,249,560
Total Present Value future payments to be received 8,687,160
Impairment loss P2,312,840

Note: the present value factors are to be based on the original interest rate.

IMPAIRMENT LOSS- is the excess of the receivables’ carrying amount

over the present value of the future cash flows discounted at the
historical or original interest rate of the note.

The entry to record the impairment loss on notes receivable and the restructuring of the
note is:

Restructured Notes Receivable 8,687,160

Impairment Loss – Receivables 2,312,840
Notes Receivable 10,000,000
Interest Receivable 1,000,000
2. Assuming the restructuring arrangement is as follows:

 Payment of the accrued interest on the day of restructuring

 Extension of maturity date of the loan to Dec. 31, 2021, with
interest during the extended term of 7% payable on Dec. 31,
2020 and 2021.

Computation of impairment loss

Carrying value of the receivable P10,000,000
Present value of future cash payments to be received:
Principal due on 12/31/21 (P10M x.8264) 8,264,000
Interest due on Dec. 31,2020 and Dec. 31, 2021:
10M x 7%=700,000 x 1.7355 1,214,850
Total Present Value future payments to be received 9,478,850
Impairment loss 521,150

The entry to record the impairment loss on notes receivable and the restructuring of the
note is:

Restructured Notes Receivable 9,478,850

Impairment Loss – Receivables 521,150
Notes Receivable 10,000,000

RECEIVABLE FINANCING consists of the following:

1. Pledging - Accounts receivable are used as collateral for a loan. The company’s AR
remains the same before and after Pledging.
2. Assignment - this is similar to pledging of AR. AR is used as collateral for a loan.
3. Factoring is a sale of Accounts receivable- the company’s AR will decrease upon
factoring of AR.
4. Discounting of Notes Receivable
a. with recourse- if the maker of the note failed to pay the note on its maturity
date, the endorser is liable to pay.
b. with out recourse- if the maker of the note failed to pay the note on its
maturity date, the endorser is NOT liable to pay.

ILLUSTRATIONS

1. FACTORING
In order to generate additional cash, Luisa company factored P1,200,000 of its accounts
receivable to Isabel, a Financing company. Factoring fee was 10%. Isabel withheld 6% of the
purchased price as protection against sales returns and allowances.
Questions:
1. How much cash did Luisa received from factoring its AR? P1,015,200
2. How much is the loss on factoring? 120,000

1. computation of proceeds from factoring of AR

Amount of AR factored 1,200,000

Purchased price by Isabel (100% less 10% factoring fee) 90%
Selling price of AR 1,080,000
Less: factor’s holdback ((1,080,000 x 6%) (64,800)
Proceeds 1,015,200

2. Computation of loss on Factoring

Amount of AR factored 1,200,000

Selling price ( computed above) 1,080,000
Loss on sale of AR 120,000

Entry to record factoring of AR:

Cash ( amount of proceeds) 1,015,200

Loss on factoring 120,000
Receivable from Isabel (the amt. withheld) 64,800
Accounts receivable 1,200,000

2. DISCOUNTING OF NOTES RECEIVABLE

On May 16, 2019, Antonio discounted a 120-day, P60,000, 12% notes receivable dated March 2,
2019. The discount rate is 10%. (use 365 days). How much is the proceeds?
Computation of proceeds from discounting of notes receivable
Face value of notes receivable 60,000
Add: Interest of the note ( 60,000 x 12% x 120/365) 2,367
Maturity Value 62,367
Less: discount (MV x discount rate x discount period/365)
( 62,367 x 10% x 45/365) 769
Proceeds P61,598

The discount period of 45 days is determined as follows:

Term of note 120 days
Less: expired number of days (May 16 to March 2) 75
Discount period 45 days

Discount period is the number of days from the date of discounting up to maturity date.
(from May 16 to Maturity date). The start of count is May 17.

The expired number of days from March 2 to May 16 is determined as follows:

Days in March-----------------------------------------31
Less: date of the note, March ------------------- 2 29
Days in April 30
Date of discounting, May 16 16
Expired number of days 75 days

Note: If the discounting of notes receivable is without recourse, the receivable of the
company will decrease. Because notes receivable is credited upon discounting without
recourse.

3. PLEDGING/ASSIGNMENT
As collateral for a P650,000, 12% loan at BDO, Camilo pledged P 800,000 of its Accounts
receivable. BDO charged a 2% service fee based on the amount of loan.

The entry to record the loan using AR as collateral is:

Cash ( amount of proceeds) 650,000 less 2% service fee 637,000
Misc. expense ( the amount of service fee) 13,000
Loans payable or notes payable 650,000
To record loan obtained from BDO using P800,000 Accounts
 receivable as collateral.

AR pledged or assigned do not decrease the AR of the company.

FOR PRACTICE SOLVING

1.Wellington Corp. has outstanding accounts receivable totaling P6.5 million as of December 31 and
sales on credit during the year of P24 million. There is also a credit balance of P12,000 in the
allowance for doubtful accounts. If the company estimates that 8% of its outstanding
receivables will be uncollectible, what will be the amount of bad debt expense recognized for
the year?

a. P 532,000
b. P 520,000
c. P1,920,000
d. P 508,000

2. Wellington Corp. has outstanding accounts receivable totaling P3 million as of

December 31 and sales on credit during the year of P15 million. There is also a debit balance of
P12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its
outstanding receivables will be uncollectible, what will be the balance in the allowance for
doubtful accounts after the year-end adjustment to record bad debt expense?

a. P1,200,000
b. P 228,000
c. P 240,000
d. P 252,000

3. At the close of its first year of operations , December 31, 2022, Ming Company had accounts
receivable of P540,000, after deducting the related allowance for doubtful accounts. During
2022, the company had charges to bad debt expense of P90,000 and wrote off, as uncollectible,
accounts receivable of P40,000. What should the company report on its statement of financial
position at December 31, 2022, as accounts receivable before the allowance for doubtful
accounts?

a. P670,000
b. P590,000
c. P490,000
d. P440,000

4. Before year-end adjusting entries, Dunn Company’s account balances at December 31, 2022, for
accounts receivable and the related allowance for uncollectible accounts were P600,000 and
P45,000, respectively. An aging of accounts receivable indicated that P62,500 of the December
31 receivables are expected to be uncollectible. The cash realizable value of accounts receivable
after adjustment is

a. P582,500.
b. P537,500.
c. P492,500.
d. P555,000.
 5. The following accounts were abstracted from Starr Co.’s unadjusted trial balance at December
31, 2022:

Debit Credit
Accounts receivable 750,000
Allowance for uncollectible accounts 8,000
Net credit sales 3,000,000

Starr estimates that 2% of the gross accounts receivable will become uncollectible. After
adjustment at December 31, 2022, the allowance for uncollectible accounts should have a credit
balance of

a. P60,000.
b. P52,000.
c. P23,000.
d. P15,000.

6. On January 1, 2022, Matiyaga Company has Accounts Receivable of P360,000 and Allowance for
bad debts of P12,000. Sales (all on account ) during 2022 amounted to P1,800,000. During the year
2022, accounts of P7,500 were written off. Analysis of Matiyaga’s accounts receivable at December
31, 2022 revealed the following:

Estimated
Age Amount Uncollectible
0-60 days P 89,000 1%
61-120 days 90,000 3%
Over 120 days 100,000 10%

There are no other transactions affecting accounts receivable. How much cash is collected from
customers during 2022?

a. P1,837,500 b. P1,873,500 c. P1,845,000 d. P1,485,000

7. Using the data for no. 6, How much bad debts expense was reported by Matiyaga FY 2022?
a. P9,090 b. P13,550 c. P9,450 d. P4,000

8. McGlone Corporation had a 1/1/22 balance in the Allowance for Doubtful Accounts of P15,000.
During 2022, it wrote off P10,800 of accounts and collected P3,150 on accounts previously
written off. The balance in Accounts Receivable was P300,000 at 1/1 and P360,000 at 12/31. At
12/31/22, McGlone estimates that 5% of accounts receivable will prove to be uncollectible.
What should McGlone report as its Allowance for Doubtful Accounts at 12/31/22?

a. P7,200
b. P7,350
c. P10,350
d. P18,000

9. Sun Inc. factors P2,000,000 of its accounts receivables without guarantee (recourse) for a
finance charge of 5%. The finance company retains an amount equal to 10% of the accounts
receivable for possible adjustments. What would be recorded by Sun as a gain (loss) on the
transfer of receivables?

a. Loss of P100,000
b. Gain of P100,000
c. Loss of P300,000
d. gain of P300,000

10.Maxwell Corporation factored, with guarantee (recourse), P100,000 of accounts receivable with
Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales
returns, and sales allowances. What amount of cash would Maxwell receive on the sale of
receivables?

a. P97,000
b. P95,000
 c. P92,000
d. P100,000

11. Geary Co. assigned P400,000 of accounts receivable to Kwik Finance Co. as security for a loan of
P335,000. Kwik charged a 2% commission on the amount of the loan; the interest rate on the note
was 10%. During the first month, Geary collected P110,000 on assigned accounts after deducting
P380 of discounts. Geary accepted returns worth P1,350 and wrote off assigned accounts totaling
P2,980.

The amount of cash Geary received from Kwik at the time of the transfer was

a. P301,500.
b. P327,000.
c. P328,300.
d. P335,000.

12. On March 19, a note receivable with a face value of P50,000 was discounted with JiMin Bank at a
discount rate of 10%. The P50,000 note was dated Feb. 15, 2021 and is due on June 15, 2021. (use 360
days). How much is the proceeds?

The next four questions are based from the following information:

On January 1, 2019, Rose company received from a customer a non-interest bearing notes
receivable for P400,000, due December 31, 2021. The prevailing rate of interest for a note
of this type at this date is 10%. The present value of 1 at 10% for three periods is 0.75

13. How much is the interest income of Rose Company FY 2019?

14. What is the carrying value of the note receivable at Dec. 31, 2019?
15. How much is the interest income of Rose Company FY 2020?
16. What is the carrying value of the note receivable at Dec. 31, 2020?

The next questions are based from the following information:

On January 1, 2021, Tom sold an equipment to Jerry. Tom received P 200,000 as down payment and
received a non-interest bearing note for P600,000 payable in five equal annual installments of P120,000
with the first payment due on December 31,2021. The prevailing rate of interest for this type of note is
12%. The present value (PV) and future value (FV) factors for 5 periods at 12% are:
PV of P1 – 0.57 PV of an annuity of P1- 3.60
FPV of P1 – 1.76 FV of an annuity of P1- 6.35

17. What is the interest revenue for year 2021? ____

18. What is the interest revenue for year 2022? ____
19. What is the amortized cost of the note receivable at Dec. 31, 2021?____

20. On July 1, 2021, West Co. received a P400,000 non-interest-bearing note due on July 1,
2023. The prevailing rate of interest for a note of this type at this date was 10%. The
present value of P1 at 10% for three periods is 0.75. What amount of interest revenue
should be included in West’s 2021 income statement? ____
The next two questions are based from the ff. data

On Dec. 31, 2019, Lemon Corporation has a 10% notes receivable of P5 million from Apple
Company, with accrued interest of P500,000 on this date. Because of financial distress
being suffered by Apple, Lemon agreed to restructure the terms of the loan as follows:

 Reduction of principal to P4,000,000

 Reduction of interest to 8% payable annually beginning Dec. 31, 2020
 Accrued interest on Dec. 31, 2019 is condoned
 Principal payment was reset to Dec. 31, 2021
 Questions: round off present value factor to 2 decimal places.

21. How much impairment loss was reported by Lemon company on Dec. 31, 2019?____
22. At what amount should the restructured notes receivable be reported on Dec. 31, 2019?__
23. White company has a 10% notes receivable of P500,000 with accrued interest of P50,000 from Blue
company as at December 31, 2019. Blue company is suffering financial difficulty making it unable to pay
its liability with White company. Thus, both parties has agreed to restructure the debt terms with the
following modifications:

 Extend the payment of the principal for two years.

 Forgive the accrued interest at December 31, 2019.
 Reduce the interest rate to 8%, payable annually.

The present value factors are: .8265 and 1.7355

How much impairment loss should White company recognize on December 31, 2019? ____

24. Lancer Corp. has the following data relating to its business operations for the year 2022:

Cash balance, January 1, 2022 650,000 Increase in accounts payable P72,000

Cash sales 740,000 Increase in inventory 48,000
Sales on Account 1,300,000 Cost of goods sold 975,000
Decrease in accounts receivable 610,000 Operating expenses paid 1,500,000

What was Lancer’s cash balance at December 31, 2022?

a. P1,390,000 b. P 951,000 c. P849,000 d. P 110,000

PLEASE START SOLVING NOW.

You may pattern your computations to the illustrations given.