Chap09 Problems

Problem 9-4
March 1 Cash 2,000,000.00

Note payable - bank 2,000,000.00
April 1 Cash 980,000.00

Sales discount 20,000.00
Accounts receivable 1,000,000.00
June 1 Cash 2,000,000.00

Sept. 1 Note payable - bank 2,000,000.00

Interest expense (12% x 2,000,000 x 6/12) 120,000.00
Cash 2,120,000.00
Problem 9-5
#1
2011
Oct. 1 Cash 3,600,000.00
Discount on note payable (10% x 4,000,000) 400,000.00
1 Interest expense (400,000 x 3/12) 100,000.00

Discount on note payable 100,000.00
2012
Oct. 1 Note payable - bank 4,000,000.00
Cash 4,000,000.00
Dec. 31 Interest expense 300,000.00

Discount on note payable 300,000.00
#2
Current liabilites:
Note payable - bank (Note3) 4,000,000.00
Discount on note payable (300,000.00)
Carrying amount 3,700,000.00
Note 3 - note payable - bank
Accounts of P5,000,000 are pledged to secure the bank loan of 4,000,000

Problem 9 - 6
May 1 Accounts receivable - assigned 800,000

Accounts receivable 800,000
1 Cash (640,000 - 200,000) 620,000

Service charge 20,000
Note payable - bank 640,000
5 Sales return 30,000

Accounts receivable - assigned 30,000
10 Cash 490,000
Sales discount (2% x 500,000) 10,000
June 1 Note payable - bank 490,000

Interest expense (2% x 640,000) 12,800
Cash 502,800
7 Allowance for doubtful accounts 10,000

20 Cash 200,000
July 1 Note payable - bank (640,000-490,000) 150,000

Interest expense (2% x 150,000) 3,000
Cash 153,000
1 Accounts receivable 60,000


Less: Collections 690,000
Sales discount 10,000
Sales return 30,000
Worthless accounts 10,000 740,000
Balance 60,000
VALIX 9-7
July 1 Accounts receivable - assigned 1,500,000.00
1 Cash (1.125M - 60,000) 1,065,000.00

Service charge (4% x 1.5M) 60,000.00
Aug 1 Note payable - bank 800,000.00

Accounts receivable - assigned 800,000.00
1 Interest expense 22,500.00

Cash 22,500.00
Sept 1 Cash 168,500.00

Interest expense 6,500.00
Note payable - bank 325,000.00
Accounts receivable 200,000.00

Collections by bank 500,000.00

Less: payments of loan (1.125M - 800,000) (325,000.00)
Excess collection 175,000.00
Less: interest (2% x 325,000) (6,500.00)
Cash remittance from bank 168,500.00
Problem 9 - 8
July 1 Accounts receivable - assigned 500,000.00

1 Cash (400,000 - 10,000) 390,000.00

Service charge (2% x 500,000) 10,000.00
Aug. 1 Cash 330,000.00

1 Interest expense (1% x 400,000) 4,000.00

Cash 330,000.00
Sept. 1 Cash 170,000.00

1 Interest expense (1% x 74,000) 740.00

Cash 74,740.00
Problem 9 - 9
Requirement a
Dec. 1 Accounts receivable - assigned 1,500,000.00

1 Cash 1,250,000.00
Service charge 50,000.00
31 Cash 970,000.00
Sales discount 30,000.00
Accounts receivable - assigned 1,000,000.00
31 Interest expense (1% x 1,300,000) 13,000.00

Cash 970,000.00
Requirement b
The accounts receivable - assigned with a balance of P500,000 should be classified as current
asset and included in trade and other receivables.
The note payable - bank of P343,000 should be classified and presented as a current liability.
The company should disclose the equity in assigned accounts as foloows:

Note payable - bank (343,000.00)
Equity in assigned accounts 157,000.00
Problem 9 - 10
July 1 Accounts receivable - assigned 800,000.00

1 Cash (640,000 - 24,000) 616,000.00

Service charge (3% x 800,000) 24,000.00
Aug. 1 Interest expense (1% x 640,000) 6,400.00

Sept. 1 Cash 91,336.00


Bank loan 640,000.00

August 1 payment 413,600.00
Balance 226,400.00
Collections by bank 320,000.00

Less: Payment of loan 226,400.00
Interest (1% x 226,400) 2,264.00 228,664.00
Remittance from bank 91,336.00
Problem 9 - 11
Cash 400,000.00
Allowance for doubtful accounts 30,000.00
Loss on factoring 70,000.00
Problem 9 - 12
Cash 5,000,000.00
Receivable from factor 300,000.00
Allowance for bad debts 250,000.00
Problem 9 - 13
1. Cash 4,500,000.00
AR factored 6,000,000.00
Factor's holdback (10% x 6,000,000) (600,000.00)
Commission (15% x 6,000,000) (900,000.00)
Cash received 4,500,000.00
AR 6,000,000.00
Commission (900,000.00)
Net sales price 5,100,000.00
Book value of AR (6,000,000 - 200,000) 5,800,000.00
Loss on factoring (700,000.00)
2. Cash 600,000.00
Problem 9 - 14
Feb. 1 Cash 680,000.00

Service charge (5% x 800,000) 40,000.00
Receivable from factor (10% x 800,000) 80,000.00
15 Sales return and allowance 20,000.00

28 Cash (80,000 - 20,000) 60,000.00

Problem 9 - 15
June 1 Accounts receivable 500,000.00

Sales 500,000.00
3 Cash 340,000.00
Sales discount (2% x 500,000) 10,000.00
Commission (5% x 500,000) 25,000.00
9 Sales return and allowances 50,000.00

Sales discount (2% x 50,000) 1,000.00
11 No entry
15 Cash (125,000 - 49,000) 76,000.00

Problem 9 - 16
July 26 Cash 750,000.00

Commission (5% x 1,000,000) 50,000.00
Receivable from factor (20% x 1,000,000) 200,000.00
July 28 Sales return and allowances 50,000.00

Aug. 31 Cash 150,000.00

VALIX 9-17
1. Cash 150,000.00
Service charge (5% x 200,000) 10,000.00
2. Accounts receivable - assigned 300,000.00

Cash 225,000.00
Service charge (5% x 300,000) 15,000.00
3. Doubtful accounts 35,000.00

Required allowance (5% x 1.3M) 65,000.00

Less: allowance - January 1 (30,000.00)
Doubtful accounts 35,000.00
4. The net realizable value of the accounts receivable is included in trade

and other receivables and presented as current assets.
Accounts receivable - unassigned 1,000,000.00

Total 1,300,000.00
Less: Allowance for doubtul accounts (65,000.00)
Net realizable value 1,235,000.00
The receivable from factor of P40,000 is also included in trade and other receivables.
The note payable - bank of P240,000 is classified and presented as current liability.
However, the company should disclose th eequity in assigned accounts as follows:

Note payable - bank (240,000.00)
Equity in assigned accounts 60,000.00
Problem 9 - 18
Books of Motorway Company
1. Cash 2,250,000.00
Allowance fro doubtful accounts 100,000.00
Grpss amount 3,000,000.00

Holdback (10% x 3,000,000) (300,000.00)
Commission (15% x 3,000,000) (450,000.00)
Cash received 2,250,000.00
Sales price (3M x 85%) 2,250,000.00

Carrying amount of accounts receivable (3M - 100,000) 2,900,000.00
Loss on factoring (350,000.00)
2. Cash 250,000.00
Accounts receivable factored 3,000,000.00

Collections by factor 2,500,000.00
Balance - December 31 500,000.00
Receivable from factor per book 300,000.00

Required holdback (10% x 500,000) 50,000.00
Remittance from factor 250,000.00
Books of Freeway Company (factor)
1. Accounts receivable 3,000,000.00

Cash 2,250,000.00
Clients retainer 300,000.00
Commission income 450,000.00
2. Cash 2,500,000.00
3. Clients retainer 250,000.00

Cash 250,000.00
4. Doubtful accounts 20,000.00

Allowance for doubtful accounts (4% x 500,000) 20,000.00
Problem 9 - 19
Jan. 1 Notes receivable 500,000.00

Sales 500,000.00
March 1 Cash 503,500.00

Loss on note discounting 6,500.00
Notes receivable 500,000.00
Interest income 10,000.00
Principal 500,000.00
Interest (500,000 x 12% x 6/12) 30,000.00
Maturity value 530,000.00
Discount (530,000 x 15% x 4/12) 26,500.00
Net proceeds 503,500.00
Accrued interest receivable (500,000 x 12% x 2/12) 10,000.00
Carrying amount of NR 510,000.00

Less: Carrying amount of NR 510,000.00
Loss on note discounting (6,500.00)
July 1 No entry
VALIX 9-20
14-Mar Accounts receivable 2,050,000.00

Sales 2,050,000.00
7-Apr Notes receivable 2,000,000.00

Freight out 50,000.00
20-Apr Cash 2,001,750.00

Loss on discounting 8,250.00
Notes receivable discounted 2,000,000.00
Principal 2,000,000.00
Add: Interest (2M x 12% x 60/360) 40,000.00
Maturity value 2,040,000.00
Less: Discount (2.04M x 15% x 45/360) (38,250.00)
Net proceeds 2,001,750.00
Accrued interest receivable (2M x 12% x 10,000.00
Carrying amount of Notes Receivable 2,010,000.00

Less: Carrying amount of Notes Receivable (2,010,000.00)
Loss on discounting (8,250.00)
4-Jun Accounts receivable (2.04M + 10,000) 2,050,000.00

Cash 2,050,000.00

Notes receivable 2,000,000.00
4-Jul Cash 2,070,000.00

Interest income (2M x 12% x 30/360) 20,000.00
Problem 9 - 21
Requirement a
April 5 Notes receivable 500,000.00

19.00 Cash 501,075.00

Notes receivable discounted 500,000.00
Add: Interest (500,000 x 12% x 60/360) 10,000.00
Less: Discount (510,000 x 14% x 45/360) 8,925.00

Loss: Carrying amount of NR 502,500.00
May 3 Notes receivable 1,000,000.00

16.00 Cash 995,000.00

Loss on discounting 5,000.00
Less: Discount (1,000,000 x 12% x 15/360) 5,000.00
May 25 Notes receivable 1,500,000.00

Add: Interest (1,500,000 x 12% x 60/360) 30,000.00
Less: Discount (1,530,000 x 12% x 50/360) 25,500.00
Net credit 1,504,500.00
June 7 Accounts receivable (510,000 + 20,000) 530,000.00

Cash 530,000.00

15 Notes receivable 800,000.00

Sales 800,000.00
June 18 Cash 532,650.00

Interest income (530,000 x 12% x 15/360) 2,650.00
Requirement b - Adjustments on June 30
1. Accrued interest receivable 4,000.00

Accrued interest on D's note
2. Notes receivable discounted 1,000,000.00

To cancel the contingent liability on B's note. This note matured

on May 31. Since there is no notice of dishonor it is assumed that
the said not is paid on the date of maturity.
Problem 9 - 22
May 1 Notes receivable 200,000.00

1.00 Notes receivable 300,000.00

July 30 Accounts receivable 206,000.00

Aug. 1 Cash 306,075.00

Note receivable discounted 300,000.00
Interest (300,000 x 12% x 6/12) 18,000.00
Less: Discount (318,000 x 15% x 3/12) 11,925.00

Less: Carrying amount of NR 309,000.00
Sept. 1 Notes receivable 132,000.00

28 Cash 210,120.00
Oct. 1 Notes receivable 500,000.00

Sales 500,000.00
Nov. 1 Accounts receivable (318,000 + 12,000) 330,000.00

Cash 330,000.00
Dec. 30 Cash 515,000.00

31 Cash 336,600.00
330,000.00
12%
1/ 6
6,600.00
Problem 9 - 23
1. Cash 5,021,250.00
Liability for note receivable discounted 5,000,000.00
Interest (5,000,000 x 12% x 90/360) 150,000.00
Discount (5,150,000 x 15% x 60/360) 128,750.00
Accrued interest receivable (5,000,000 x 12% x 30/360) 50,000.00
Carrying amount of NR 5,050,000.00

Loss: Carrying amount of NR 5,050,000.00
2. Liability for note receivable discounted 5,000,000.00

Problem 9 - 24
Jan. 1 Note receivable 2,000,000.00

Land 1,500,000.00
Gain on sale of land 500,000.00
April 1 Cash 2,021,000.00

Liability for note receivable discounted 2,000,000.00
Interesst income 50,000.00
Interest (2,000,000 x 10% x 9/12) 150,000.00
Discount (2,150,000 x 12% x 6/12) 129,000.00
Accrued interest receivable (2M x 10% x 3/12) 50,000.00
Carrying amount of NR 2,050,000.00

Loss: Carrying amount of NR 2,050,000.00
Interest expense (29,000.00)
Oct. 1 Accounts receivable 2,160,000.00

Cash (2,150,000 + 10,000) 2,160,000.00
1.00 Liability of note receivable discounted 2,000,000.00

Note receivable 2,000,000.00
Dec. 31 Cash 2,224,800.00

Interest income (2,160,000 x 12% x 3/12) 64,800.00
Problem 9 - 25
June 1 Notes receivable 5,000,000

Sales 5,000,000
July 1 Entry in Conditional Sale:

Cash 5,047,000
Loss on Notes Receivable Discounting 3,000
Notes Receivable Discounted 5,000,000
Interest Income 50,000
Entry in Secured Borrowing:

Cash 5,047,000
Interest expense 3,000
Liability for note receivable discounted 5,000,000
Interest income 50,000
Principal 5,000,000
Interest (5,000,000 x 12% x 90/360) 150,000
Maturity value 5,150,000
Discount (5,150,000 x 12% x 60.360) 103,000
Net proceeds 5,047,000
Principal 5,000,000
Accrued interest receivable (5M x 12% x 30/360) 50,000
Carrying amount of NR 5,050,000

Loss: Carrying amount of NR 5,050,000
Interest expense (3,000)
16 Entry in Conditional Sale:

Cash 6,008,500
Loss on Notes Receivable Discounting 16,500
Notes Receivable Discounted 6,000,000
Interest Income 25,000
Entry in Secured Borrowing:

Cash 6,008,500
Interest expense 16,500
Liability for note receivable discounted 6,000,000
Interest income 25,000
Principal 6,000,000
Interest (6M x 10% x 60/360) 100,000
Maturity value 6,100,000
Discount (6,100,000 x 12% x 45/360) 91,500
Principal 6,000,000
Accrued interest receivable (6M x 10% x 15/360) 25,000
Carrying amount of NR 6,025,000

Loss: Carrying amount of NR 6,025,000
Interest expense (16,500)
Aug. 30 Liability for note receivable discounted 6,000,000

Notes receivable 6,000,000
30 Accounts receivable 5,170,000

Cash (5,150,000 + 20,000) 5,170,000
30 Liability for note receivable discounted 5,000,000

Notes receivable 5,000,000
Dec. 30 Cash 5,376,800

Accounts receivable 5,170,000
Interest income (5,170,000 x 12% x 4/12) 206,800

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Problem 9-4

March 1 Cash 2,000,000.00

April 1 Cash 980,000.00

June 1 Cash 2,000,000.00

Sept. 1 Note payable - bank 2,000,000.00

1 Interest expense (400,000 x 3/12) 100,000.00

Dec. 31 Interest expense 300,000.00

Note 3 - note payable - bank

Accounts of P5,000,000 are pledged to secure the bank loan of 4,000,000

May 1 Accounts receivable - assigned 800,000

1 Cash (640,000 - 200,000) 620,000

5 Sales return 30,000

June 1 Note payable - bank 490,000

7 Allowance for doubtful accounts 10,000

July 1 Note payable - bank (640,000-490,000) 150,000

1 Accounts receivable 60,000

Accounts receivable - assigned 800,000

1 Cash (1.125M - 60,000) 1,065,000.00

Aug 1 Note payable - bank 800,000.00

1 Interest expense 22,500.00

Sept 1 Cash 168,500.00

Accounts receivable 200,000.00

Collections by bank 500,000.00

July 1 Accounts receivable - assigned 500,000.00

1 Cash (400,000 - 10,000) 390,000.00

Aug. 1 Cash 330,000.00

1 Interest expense (1% x 400,000) 4,000.00

Sept. 1 Cash 170,000.00

1 Interest expense (1% x 74,000) 740.00

Dec. 1 Accounts receivable - assigned 1,500,000.00

31 Interest expense (1% x 1,300,000) 13,000.00

The company should disclose the equity in assigned accounts as foloows:

Accounts receivable - assigned 500,000.00

July 1 Accounts receivable - assigned 800,000.00

1 Cash (640,000 - 24,000) 616,000.00

Aug. 1 Interest expense (1% x 640,000) 6,400.00

Sept. 1 Cash 91,336.00

Accounts receivable 60,000.00

Bank loan 640,000.00

Collections by bank 320,000.00

Feb. 1 Cash 680,000.00

15 Sales return and allowance 20,000.00

28 Cash (80,000 - 20,000) 60,000.00

June 1 Accounts receivable 500,000.00

9 Sales return and allowances 50,000.00

15 Cash (125,000 - 49,000) 76,000.00

July 26 Cash 750,000.00

July 28 Sales return and allowances 50,000.00

Aug. 31 Cash 150,000.00

2. Accounts receivable - assigned 300,000.00

3. Doubtful accounts 35,000.00

Required allowance (5% x 1.3M) 65,000.00

4. The net realizable value of the accounts receivable is included in trade

Accounts receivable - unassigned 1,000,000.00

Accounts receivable - assigned 300,000.00

Books of Motorway Company

Grpss amount 3,000,000.00

Sales price (3M x 85%) 2,250,000.00

Accounts receivable factored 3,000,000.00

Receivable from factor per book 300,000.00

Books of Freeway Company (factor)

1. Accounts receivable 3,000,000.00

3. Clients retainer 250,000.00