Acctg3 – Intermediate Accounting

HOMEWORK 1

Name: Program/Year/Block: Date:

Direction: Solve the following problems. Make sure that your solutions are clear and understandable. You may use a
separate sheet of paper, if necessary.

Receivables

Problem 1. A company’s Accounts Receivable as of December 31 is P200,000. The aging schedule shows the following:

Estimated % of
Age of Receivables Amount
Uncollectible
0-30 days P120,000 1%
31-60 days 50,000 5%
61-90 days 20,000 10%
Over 90 days 10,000 20%

Requirements:

Assuming there is P3,000 balance in the Allowance for Doubtful Accounts before adjustment.

1. Calculate the total estimated uncollectible accounts. P7,700

2. Prepare the journal entry to record the bad debt expense.

Bad Debts Expense 4,700

Allowance for Doubtful Accounts 4,700

Problem 2. Company A sold P100,000 of its accounts receivable to a factor. The factor charges a fee of 5% and retains a
2% reserve to cover potential customer returns. The sale is without recourse, meaning the factor assumes all risk of
uncollectability.

Requirements:

1. Prepare the journal entry to record the sale of accounts receivable.

Cash 93,000
Loss on Sale of Receivables 5,000
Receivable from Factor (reserve) 2,000
Accounts Receivable 100,000
2. If 1% of the sales are returned, how much will the company receive after the factor deducts the reserve? P1,000

Problem 3. Ladd Company provided the following information for the current year:

Allowance for doubtful accounts – January 1 P200,000

Sales – all on credit 9,500,000
Sales discount 1,000,000
Sales returns and allowances 500,000
Accounts written off as uncollectible 100,000
Recovery of accounts written off 50,000

The entity recorded doubtful accounts expense at the rate of 5% of net credit sales.

Requirements:

1. Compute the amount that should be reported as allowance for doubtful accounts on December 31.
Allowance for doubtful accounts – Jan 1 200,000
Add: Bad debts expense (9,500,000-1,000,000-500,000) x 5% 400,000
Less: Accounts written off 100,000
Add: Recovery of accounts written off 50,000
Allowance for doubtful accounts – Dec 31 550,000
2. Prepare the journal entry to record the doubtful accounts expense.
Doubtful accounts expense 400,000
Allowance for doubtful accounts 400,000

Problem 4. Frame Company had an 8% note receivable dated June 30, 2024, in the original amount of P1,500,000.
Payments of P500,000 in principal plus accrued interest are due annually on July 1, 2025, 2026, 2027.

Requirements:

1. Compute the balance of note receivable on July 1, 2025. 1,500,000 less 500,000 = 1,000,000
2. On June 30, 2026, what amount should be reported as accrued interest receivable on the note receivable?
1,000,000 x 80% = 80,000
Problem 5. On December 31, 2024, Chang Company sold a machine in the ordinary course of business to Door Company
in exchange for a noninterest bearing note requiring ten annual payments of P1,000,000. The first payment is due on
December 31, 2024. The market interest rate for similar notes at date of issuance was 8%.

• PV of an ordinary annuity of 1 at 8% for 9 periods 6.25

• PV of an ordinary annuity of 1 at 8% for 10 periods 6.71

Requirements: Compute the following:

1. What amount should be reported as sales revenue? (1,000,000 x 6.25) + 1,000,000 = 7,250,000
2. On December 31, 2024, what is the carrying amount of the note receivable? 6,250,000
3. What amount should be reported as interest income for 2025? 6,250,000 x 8% = 500,000
4. What is the carrying amount of the note receivable on December 31, 2025? 6,250,000 – 500,000 = 5,750,000

Hint: Prepare amortization table for easy computation!

Problem 6. On December 1, 2024, Holland Company assigned specific accounts receivable totaling P5,000,000 on a
nonnotification basis as collateral on a P4,000,000 12% note from a certain bank. In addition to the interest on the note, the
bank also charged a 5% finance fee deducted in advance on the face amount of the accounts receivable assigned of
P5,000,000.

The December 31 collections of assigned accounts receivable amounted to P2,000,000 less cash discount of P200,000. On
December 31, 2024, the entity remitted the collections to the bank in payment for the interest accrued on December 31, 2024
and the note payable.

The entity accepted sales returns of P100,000 on the assigned accounts and wrote off assigned accounts of P300,000.

Requirements:

1. Prepare journal entries to record the transactions.

2. Determine the equity in assigned accounts.

Note payable – Dec 1 4,000,000

Less: Principal payment
Remittance (2,000,000 – 200,000) 1,800,000
Less: Payment for interest (4,000,000 x 12% x 1/12) 40,000 1,760,000
Note payable – Dec 31 2,240,000

Accounts receivable assigned 5,000,000

Less:
Collections 1,800,000
Sales discount 200,000
Sales returns 100,000
Accounts written off 300,000 2,400,000
Balance of AR assigned 2,600,000
Note payable – Dec 31 2,240,000
Equity in assigned accounts 360,000

Problem 7. Company H sold P100,000 of goods on credit to various customers. Based on past experience, the company
estimates that 5% of sales will result in returns. By year-end, customers have returned P4,000 worth of goods. The company
uses the allowance method to account for returns.

Requirements:

1. Prepare the journal entry to record the sales and the estimated returns.
Accounts receivable 100,000
Sales 100,000

Sales returns 5,000

Allowance for sales returns 5,000

2. Prepare the journal entry to record the actual returns during the year.
Allowance for sales returns 4,000
Accounts receivable 4,000

Problem 8. Company A sells goods on credit to a customer with an invoice of P100,000, due in 90 days. On the 30th day,
Company A discounts the invoice at a bank. The bank charges a 6% discount rate for the remaining 60 days.

Requirements:

1. Calculate the discount amount. 100,000 x 6% x 60/360 = 1,000

2. Determine the net proceeds that Company A will receive from the bank. 100,000 – 1,000 = 99,000
3. Prepare the journal entry to record the discounting of the receivable.
Cash 99,000
Interest Expense 1,000
Notes receivable 100,000
 Note: This is a special case where the receivable discounted has no interest, hence the face value of 100,000 is
also the maturity value. It is a different case if the note receivable has interest because you have to compute first for the
maturity value. For example, Company A sells goods on credit to a customer with an invoice of P100,000, due in 90 days
with interest of 3%. On the 30th day, Company A discounts the invoice at a bank. The bank charges a 6% discount rate
for the remaining 60 days.

In this case the maturity value is 100,000 + (100,000 x 3% x 90/360) = 100,750

Therefore, the discount amount is computed as maturity value x discount rate x remaining discount period:
100,750 x 6% x 60/360 = 1,007.50

And the net proceeds/discounted value is 100,750 – 1,007.50 = 99,742.50

The entry will be
Cash 99,742.50
Interest expense 257.50
Notes receivable 100,000

Problem 9. XYZ Company lends P200,000 to a client on January 1, 2024, at an annual interest rate of 6%. The loan term is
3 years, and interest is payable annually on December 31. The principal is due at maturity.

Requirements:

1. Prepare the journal entry to record the loan on January 1, 2024.

Loan Receivable 200,000
Cash 200,000
2. Prepare the journal entry to record the interest income for the year ended December 31, 2024.
Cash 12,000
Interest income 12,000
3. Prepare the journal entry to record the collection of the loan at maturity.
Cash 200,000
Loan Receivable 200,000

Problem 10. On January 1, 2021, ABC Company received a P1,000,000 noninterest bearing note in exchange for land with
carrying amount of P1,000,000. The note is due in four equal annual installments every December 31. The effective interest
rate is 12%, its present value of ordinary annuity is 3.037349.

Requirements

1. Prepare the amortization table.

Present
Date Collection Interest Income Amortization
Value
Jan 1, 2021 759,337
Dec 31, 2021 250,000 91,120 158,880 600,457
Dec 31, 2022 250,000 72,055 177,945 422,512
Dec 31, 2023 250,000 50,701 199,299 223,214
Dec 31, 2024 250,000 26,786 223,214

2. Determine the current and noncurrent portions of the note on December 31, 2021.
Current portion of notes receivable 177,945
Noncurrent portion of notes receivable 422,512
Carrying amount of notes receivable – Dec. 31, 2021 600,457

3. Prepare all the necessary journal entries until maturity date.