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    Accounts Payable and Notes Payable

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    njsrza
    The document provides examples and solutions for accounting problems related to notes payable, accounts payable, and current liabilities. It includes 7 illustrative problems covering topics like initial measurement of notes payable, interest expense calculation, amortization of notes payable, and calculation of carrying amounts for both interest and non-interest bearing notes.

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    Accounts Payable and Notes Payable

    Uploaded by

    njsrza
    230 views3 pages
    The document provides examples and solutions for accounting problems related to notes payable, accounts payable, and current liabilities. It includes 7 illustrative problems covering topics like initial measurement of notes payable, interest expense calculation, amortization of notes payable, and calculation of carrying amounts for both interest and non-interest bearing notes.

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    Accounts payable and notes payable

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    The document provides examples and solutions for accounting problems related to notes payable, accounts payable, and current liabilities. It includes 7 illustrative problems covering topics like initial measurement of notes payable, interest expense calculation, amortization of notes payable, and calculation of carrying amounts for both interest and non-interest bearing notes.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    230 views3 pages

    Accounts Payable and Notes Payable

    Uploaded by

    njsrza
    The document provides examples and solutions for accounting problems related to notes payable, accounts payable, and current liabilities. It includes 7 illustrative problems covering topics like initial measurement of notes payable, interest expense calculation, amortization of notes payable, and calculation of carrying amounts for both interest and non-interest bearing notes.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Illustrative Problem 1: Accounts payable

    The balance of August Company's accounts payable account on December 31, 2021 was P 1,225,000, net of P 25,000 debit
    balances, before the following information was considered: (we cannot offset debit balances, kailangan mong i-add back yung debit
    balace)
     Goods shipped FOB destination on December 21, 2021 from a vendor to the company were lost in transit. The invoice cost
    of P 45,000 was recorded by the Company. ( hindi mo pa na rereceive kasi nawala, pero ni record na ni company kailangan mong
    tanggalin yung 45k)
     Goods were in transit from a vendor to the company on December 31, 2021. The invoice cost was P 60,000 and the goods
    were shipped FOB shipping point on December 28, 2021. The company received and recorded the goods on January 6,
    2022. (may utang kana nung dec 28, pero irerecord mo palang ng jan 6. Kailangan mo na syang I record as part of yungAP dahil FOB SP
    sya utang mona sya dec 28 palang.)
     Goods shipped to the company, FOB shipping point on December 20, 2021 from a vendor were lost in transit. The invoice
    price was P 50,000. (may utang kana on Dec 20 pero nawala sya, tignan mo din kung anong klasing shipment at dahil FOB SP upon
    shipping may utang kana.)
     On December 27, 2021, a vendor authorized the company to return, for full credit, goods shipped and billed at P 35,000 on
    December 20, 2021. A P 35,000 credit memo was received and recorded by the company on January 6, 2022. (SRA yung 35k,
    hindi mopa sya na rerecord)

    Required: What amount should it report as accounts payable in its December 31, 2021, statement of financial position?
    a. 1,325,000 b. 1,250,000 c. 1,370,000 d. 1,280,000

    Solution:
    Unadjusted balance 1,225,000
    Debit balance (25,000)
    FOB destination lost in transit (45,000)
    FOB shipping point 60,000
    FOB shipping point lost in tansit 50,000
    SRA (35,000)
    Adjusted accounts payable 1,280,000

    NOTE PAYABLE

    Illustrative Problem 2:
    Enrico company borrowed 1,000,000 on October 1,2020, by signing a 1,000,000, 12%, 7 months note.

    Requirements:
    1. How much is the initial measurement of the note payable? 1,000,000

    2. How much is the interest expense at the end of 2020?


    Solution:
    Interest paid/expense = Face amount x nominal rate
    1,000,000 x 12% = 120,000
    3/12
    30,000

    3. How much is the carrying amount of the note on December 31,2020? 1,000,000

    Illustrative Problem 3:
    On May 1, 2029, Guevarra corporation purchased a piece of equipment from Rain Company by issuing a 14% one-year note for
    320,000. There is no equivalents cash price for this equipment, but the market rate of interest on similar notes is 8%. The
    present value of 1 using 8% for 1 period is 0.9259

    Requirement: Equipment 337,768


    1. Prepare the journal entry on the date of issuance. Notes payable 320,000
    Interest payable = 320,000 x 14% = 44,800 Premium on NP 17,768

    Total payment : 320,000 + 44,800 = 364,8000


    Present value: 364,800 x .9259 = 337,768
    Interest expense 18,014
    Premium on NP 11,853
    Interest expense: 337,768 x 8% x 8/12 = 18,014 Interest payable 29,867
    Interest payable : 44,800 x 8/12 = 29,867
    Difference amortization: 11,853
    Face amount 320,000
    Beginning balance 17,768
    Premium 5,915
    Amortization 11,853
    CA 12/31/29 325,925
    Ending balance 5,915

    Illustrative Problem 4:
    On April 1, 2028, Valencia Company issued a 3,000,000, 12% promissory note for a machinery purchased. Equal princial amount
    of 1,000,000 plus interest on the unpaid balance of the principal are payable annually every March 31 starting March 31,2029.

    Requirement:
    1. How much is the initial carrying amount of the Notes payable? 3,000,000
    2. Assuming Pepper company is using the calendar year:
    a. How much is the CA of the note on December 2028? 3,000,000
    b. Hoe much is the interest payable and expense on December 31,2028? 270,000
    3,000,000 x 12% x 9/12 = 270,000

    3. Assuming Pepper Company is using the fiscal year:


    a. How much is the CA amount of the note on March 31,2029? 2,000,000
    b. How much is the interest payable on March 31,2029? 0
    c. How much is the interest expense on March 31,2029? 360,000
    3,000,000 x 12% = 360,000

    Illustrative Problem 5:
    On January 1,2028, Santos Company issued a 3,000,000, 12% promissory note for a machinery purchased. The interest is
    payable every December 31 while the principal is payable after 3 years. Market rate of interest is 10%. Present value factor of 1
    using 10% for 3 periods is 0.7513 while the present value factor of ordinary annuity of 1 using 10% for 3 periods is 2.4869.

    Requirements:
    1. How much is the initial CA of the note on January 1,2028?
    Principal (3,000,000 x 0.7513) 2,253,900
    Interest (3,000,000 x 12% x 2.4869) 895,284
    Present value 3,149,184

    2. How much is the interest expense for the year 2028?


    Interest expense = CA, beg x effective rate
    3,149,184 x 10% = 314,918

    3. Prepare an amortization table


    Date Payment Interest Expense Amortization Carrying Amount
    Jan 1, 2028 3,149,184
    Dec 31,2028 360,000 314,918 45,082 3,104,102
    Dec 31,2029 360,000 310,410 49,590 3,054,512
    Dec 31,2030 360,000 305,457 54,549 3,000,000

    Shortcut: CA at the beginning x 1. interest rate - payment = ending CA

    Illustrative Problem 6:
    On January 1,2028, Jesarza Company issued a three-year, 4,000,000, non-interest bearing promissory note for a machinery
    purchased. The equivalent cash price of the machinery acquired is 3,005,259. The company uses the calendar year as its
    accounting period. The effective interest rate is 10%.

    Requirement:
    1. How much is the initial CA of the note? 3,005,529
    2. Prepare an amortization:
    DATE PAYMENT INTEREST EXPENSE AMORTIZATION CARRYING AMOUNT
    Jan 1, 2028 3,005,259
    Dec 31,2028 0 300, 526 300, 526 3,305,785
    Dec 31, 2029 0 330, 579 330, 579 3,636,364
    Dec 31,2030 0 363, 636 363, 636 4,000,000
    Illustrative Problem 7:
    On January 1, 2028, Dionisio Company issued a three-year, 3,000,000, non interest bearing promissory note for a
    machinery purchased. The note is payable in installments of 1,000,000 every December 31, starting December 31,2028.
    The effective interest rate is 10% and the Present value of ordinary annuity of 1 using 10% for 3 periods is 2.4869.

    Requirement:
    1. How much is the initial CA of the note? 2,486,900
    PV 1,000,000
    2.4869
    CA 2,486,900

    2. Prepare an amortization table.


    DATE PAYMENT INTEREST EXPENSE AMORTIZATION CARRYING AMOUNT
    Jan 1, 2028 2,486, 900
    Dec 31,2028 1,000,000 248,690 751, 310 1, 735,590
    Dec 31, 2029 1,000,000 173,559 826, 441 909, 149
    Dec 31,2030 1,000,000 90,851 909, 149 0

    CURRENT LIABILITIES

    a. 3,200,000
    b. 2,825,000
    c. 2,400,000
    d. 2,200,000

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