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CEDRICK P.

DELA ROSA

Easy
1. Orr Company prepared an aging of accounts receivable on December 31, 2016 and
determined that net realizable value of the accounts receivable was P 2,500,000.

Allowance for doubtful accounts on Jan.1 280,000


Accounts written off as uncollectible 230,000
Accounts Receivable on December 31 2,700,000
Uncollectible accounts recovery 50,000

What amount should be recognized as doubtful accounts expense for the current year?
(Problem 19-1, Practical Accounting 1, Valix , 2016)
2. Seiko Company reported the following balances after adjustment at year-end:
2016 2015
Accounts Receivable 5,250,000 4,800,000
Net Realizable Value 5,100,000 4,725,000
During 2016, the entity wrote off accounts totalling P 160,000 and collected P 40,000 on
accounts written off in previous year.
What amount should be recognized as doubtful accounts expense for the year ended Dec.
31,2016?
(Problem 19-2, Practical Accounting 1, Valix, 2016)

3. Roanne Company used the allowance method of accounting for uncollectible accounts.
During the current year, the entity had charged P800,000 to bad debt expense, and
wrote off accounts receivable of P 900,000 as uncollectible.
What was the decrease in working capital?
(Problem 19-3, Practical Accounting 1, Valix, 2016)
Moderate

1. Tara Company provided the following information pertaining to accounts receivable on


Dec.31,2016:
Days Outstanding Estimated Amount Estimated
uncollectible
0 – 60 1,200,000 1%
61 – 120 900,000 2%
Over 120 1,000,000 60,000
3,100,000

During the current year, the entity wrote off P70,000 in accounts receivable and recovered P
40,000 that had been written off in prior years.
On January 1,2016, the allowance for uncollectible accounts was P100,000.
Under the aging method, what amount of allowance for uncollectible accounts should be
reported on Dec. 31, 2016?
(Problem 19-6, Practical Accounting 1, Valix, 2016)

2. Delta Company sold goods to wholesaler on terms 2/15, net 30. The entity had no cash
sales but 50% of the customer took advantage of the discount.
The entity used the gross method of recording sales and accounts receivable.
An analysis of the trade accounts receivable at year-end revealed the following:
Age Amount Collectible
0 -15 days 2,000,000 100%
16- 30 days 1,400,000 95%
31-60 days 400,000 90%
Over 60 days 200,000 50%
4,000,000
What amount should be reported as allowance for doubtful accounts at the year-end?
(Problem 19-8, Practical Accounting 1, Valix, 2016)

3. On January 1 ,2016, Jamin Company had a credit balance of P 260,000 in the allowance
for uncollectible accounts. Based on past experience, 2% of credit sales would be
uncollectible.
During the current year, the entity wrote off P 325,000 of uncollectible accounts. Credit sales for
the year totaled P 9,000,000.
On December 31, 2016, what amount should be reported as allowance for uncollectible
accounts?
(Problem 19-10, Practical Accounting 1, Valix, 2016)

Difficult

1. Kalibo Bank loaned P 5,000,000 to Catician Company on January 1, 2014. The terms of
the loan require principal payments of P 1,000,000 each year for 5 years plus interest at
8%.

The first principal and interest payment is due on January 1, 2015. Caticlan Company
made the required payments during 2015 and 2016.

However, during 2016 Caticlan Company began to experience financial difficulties,


requiring Kalibo Bank to reassess the collectability of the loan.

On December 31, 2016, Kalibo Bank has determined that the remaining principal
payment will be collected buy the collection of interest is unlikely. Kalibo Bank did not
accrue the interest in December 31, 2016.

What is the loan impairment loss on December 31, 2016?


What is the interest income for 2017?

(Problem 25-2, Practical Accounting 1, Valix, 2016)

2. On December 31, 2016, Oregon Bank recorded an investment of P 5,000,000 in a loan


grated to a client. The loan has a 10% effective interest rate payable annually every Dec.
31. The principal is due in full at maturity on December 31, 2019.

Unfortunately, the borrower is experiencing significant financial difficulty and will have
difficult time in making full payment.

The bank projected the entire principal will be paid at maturity and 4% or P200,000 will
be paid annually on December 31 of the next three years. There is no accrued interest
on December 31, 2016.

What is the loan impairment loss for 2016?

(Problem 25-6, Practical Accounting 1, Valix, 2016)


3. On December 31, 2016, London Bank granted a P 5,000,000 loan to a borrower with
10% state rate payable annually and maturing in 5 years. The loan was discounted at
the market interest rate of 12%. Unfortunately, the financial condition of the borrower
worsened because of lower revenue.

On December 31, 2018, the bank determined that the borrower would pay back only P
3,000,000 of the principal at maturity.

However, it was considered likely that the interest would continue to be paid on the P
5,000,000 loan.

What is the amount of cash paid to the borrower on December 31, 2016?
What is the carrying amount of the loan receivable on December 31, 2018?

(Problem 25-7, Practical Accounting 1, Valix, 2016)


Chastyn V. Ramos

Easy:

1. Banaba Co. reported the following information at the end of its first year of
operation, December 31, 2016:

Bad debt expense for 2016 271,000

Uncollectible accounts written off during 2016 35,400

Net realizable value of accounts receivable 895,000

What is the accounts receivable balance in December 31, 2016?

Source: Auditing Problems (Gerardo S. Roque)

2. The following information pertains to ACACIA, INC. for the year ended December
31, 2016:
Credit sales during 2016 4,450,000
Collection of accounts written off in prior periods 170,000
Worthless accounts written off in 2016 191,000
Allowance for doubtful accounts, Jan. 1, 2016 155,000

Acaqcia, Inc provides for doubtful accounts based on 1 1/2% of credit sales

What is the balance of the allowance for doubtful accounts at December 31,
2016?

Source: Auditing Problems (Gerardo S. Roque)

3. Mahogany company’s analysis and aging of its accounts receivable at December


31, 2016, disclosed the following:
Accounts receivable 460,000
Accounts estimated to be uncollectible (per aging) 95,000
Allowance for bad debts (per books) 103,000

What is the net realizable value of Mahogany’s receivables at December 31,


2016?
Source: Auditing Problems (Gerardo S. Roque)

Moderate:

1. The following information is from Gumamela Corp.’s first year of operations:


a. Machine purchased 450,000
b. Ending merchandise inventory 123,000
c. Collections from customers 150,000
d. All sales are on account and goods
Sell at 30% above cost

What is the accounts receivable balance at the end of the company’s first year of
operations?

Source: Auditing Problems (Gerardo S. Roque)

2. Sunflower Company sells a variety of imported goods. By selling on credit,


Sunflower cannot expect to collect 100% of its accounts receivable. At December
31, 2016, Sunflower reported the following in its statement of financial position:
Accounts receivable 2,197,500
Allowance for doubtful accounts ( 133,500 )
Accounts receivable, net 2,064,000

During the year ended December 31, 2016, Sunflower earned sales revenue of
537,702,500 and collected cash of 528,070,500 from customers. Assume bad
debts expense for the year was 1% of sales revenue and that Sunflower wrote off
uncollectible accounts receivable totalling 5,439,500. What is the accounts
receivable balance at December 31, 2016?

Source: Auditing Problems (Gerardo S. Roque)

3. (Refer to problem no. 2) What is the December 31, 2016, balance of the
Allowance for Bad Debts account?

Source: Auditing Problems (Gerardo S. Roque)

Difficult:
1. The following amounts are shown on the 2016 and 2015 financial statements of
San Francisco Co.:
2016 2015
Accounts receivable ? 470,000
Allowance for Bad debts 20,000 10,000
Net Sales 2,600,000 2,400,000
COGS 1,900,000 1,752,000

San Francisco Co.’s accounts receivable turnover for 2016 is 6.5 times. What is
the accounts receivable balance at December 31, 2016?

Source: Auditing Problems (Gerardo S. Roque)

2. The policy of ILANG-ILANG, INC. is to debit the bad debt expense for 3% of all
new sales. The following are the company’s sales and allowance for bad debts
for the past four years:
Year Sales Year-End Balance
2013 3,000,000 45,000
2014 2,950,000 56,000
2015 3,120,000 60,000
2016 2,420,000 75,000

What are the amounts of accounts written off in 2014, 2015, and 2016?

Source: Auditing Problems (Gerardo S. Roque)

3. Pilipinas hotel manages an extensive network of boutique hotels in the country.


The company has significant receivables from three customers, 250,000 due
from Tayuman hotel, 450,000 due from Malabon hotel, and 400,000 due from
Batangas hotel. Pilipinas hotel has other receivables totalling 225,000.

Pilipinas determines that receivables from Malabon hotel is impaired by 75,000


and the Batangas hotel receivables is impaired by 100,000. The receivables from
Tayuman hotel is not considered impaired. Pilipinas also considered that a
composite rate of 5% is appropriate to measure impairment on all ther accounts
receivable.

After recognizing the impairment loss, what amount of receivables should


Pilipinas hotel report in its statement of financial position?

Source: Auditing Problems (Gerardo S. Roque)


GAGATAM, CHRISTIANETH N.
AUDITING PROBLEMS
EASY : VALIX
1. Jay company provided the following data relating to accounts receivable for the current
year:
Accounts receivable, January 1 650,000
Credit sales 2,700,000
Sales returns 75,000
Accounts written off 40,000
Collections from customers 2,150,000
Estimated future sales returns at December 31 50,000
Estimated uncollectible accounts at 12/31 per aging 110,000

Q: What amount should be reported as net realizable value of accounts receivable on December 31?

2. Frame company has an 8% note receivable dated June 30, 2016, in the original amount of
₱ 1, 500,000. Payments of ₱500,000 in principal plus accrued interest are due annually on
July 1, 2017, 2018 and 2019.

Q: What is the balance of note receivable on July 1, 2017?

Q: In the June 30,2018 statement of financial position, what amount should be reported as a current
asset for interest on the note receivable?

3. Orr Company prepared an aging of accounts receivable on December 31, 2016 and
determined that the net realizable value of the accounts receivable was ₱2,500,000.
Allowance for doubtful accounts on January 1 280,000
Accounts written off as uncollectable 230,000
Accounts receivable on December 31 2,700,000
Uncollectable accounts recovery 50,000

Q: What amount should be recognized as doubtful accounts expense for the current year?

MODERATE: VALIX

1. Appari Bank granted a loan to a borrower on January 1, 2016. The interest rate on the loan is
10% payable annually starting December 31, 2016. The loan matures in five years on
December 31, 2020.
Principal amount 4,000,000
Original fee received from borrower 350,000
Direct origination cost incurred 61,500
The effective rate on the loan after considering the direct origination cost incurred and
origination fee received is 12%.

Q: What is the carrying amount of the loan receivable on January 1, 2016?

Q: What is the interest income for 2016?

2. On January 1, 2016. Oceanic Bank made a ₱1,000,000, 8% loan. The ₱ 80,000 interest is
receivable at the end of each year, with the principal amount to be received at the end of five
years. At the end of 2016, the first year’s interest of ₱ 80,000 has not yet been received
because the borrower negotiated a restructuring of the loan. The payment of all of the
interest for 5years will be delayed until the end of the 5 year loan term. In addition, the
amount of principal repayment will be dropped from ₱1,000,000 to ₱500,000.
The PV of 1 at 8% for 4 periods is .735. No interest revenue has been recognized in 2016 in
connection with the loan.

Q: What is the loan impairment loss on December 31, 2016?

3. On December 31, 2016, Macedon Bank has a 5year loan receivable with a face value of
₱5,000,000 dated January 1, 2015 that is due on December 31, 2019. Interest on the loan is
payable at 9% every December 31. The borrower paid the interest that was due on December
31, 2015 but informal the bank that interest accrued in 2016 will be paid at maturity date.
There is a high probability that the remaining interest payments will not be paid because of
financial difficulty. The prevailing market rate of interest on December 31, 2016 is 10%. The PV
of 1 for three periods is .772 at 9%, and .751 at 10%.

Q: What is the loan impairment loss to be recognized on December 31, 2016?

DIFFICULT: ROQUE

Presented below are unrelated situations. Answer the questions relating to each situation.
1. ORCHIDS Company’s accounts receivable at December 31, 2016, had a balance of ₱1,200,000.
The allowance for bad debts account had a credit balance of ₱40,000. Net sales in 2016 were
₱6,704,000 (net of sales discounts of ₱56,000). An aging schedule shows that ₱150,000 of the
outstanding accounts receivable are doubtful.

Q: What is th adjusting entry for estimated bad debt expense?

2. The following selected transactions occurred during the year ended December 31, 2016:

Gross sales (cash and credit) 750,000

Collections from credit customers, net of 2% cash discount 245,000

Cash sales 150,000

Uncollectible accounts written off 16,000


Credit memos issued to credit customers for sales returns and allowances 8,400

Cash refunds given to cash customers for sales returns and allowances 12,640

Recoveries on accounts receivable written off in prior years (not included in

cash received stated above). 5,421

At year end, the company provides for estimated bad debt losses by crediting the allowance
for Bad Debts account for 2% of its net credit sales for the year.

A. What is the company’s net credit sales in 2016?


B. What is the bad debt expense for 2016?

3. Coconut company estimates its bad debt expense to be 3% of net sales. The company’s
unadjusted trial balance at December 31, 2016, included the following accounts:
DEBIT CREDIT
Allowance for bad debts ₱8,000
Sales 2,600,000
Sales returns and allowance ₱45,000

Q: What is the company’s bad debt expense for 2016?


Dianna P. Pastrana
Easy

1. COCONUT CO. estimates its bad debt expense to be 3% of net sales. The company’s
unadjusted trial balance at December 31, 2016, included the following accounts:

Debit Credit

Allowance for bad debts P8,000


Sales 2,600,000
Sales returns and allowances P45,000
What is the company’s bad debt expense for 2016?

(CPA Examination Reviewer: AUDITING PROBLEMS 2016-2017 Ed. By Gerardo S.


Roque, Problem 2-8, page 154)

2. Jay Company provided the following data relating to accounts receivable for the current
year:

Accounts receivable, January 1 650,000


Credit Sales 2,700,000
Sales returns 75,000
Accounts written off 40,000
Collections from customers 2,150,000
Estimated future sales returns at December 31 50,000
Estimated uncollectible accounts at 12/31 per aging 110,000
What amount should be reported as net realizable value of accounts receivable on
December 31?

(Practical Financial Accounting Volume 1 by Conrado Valix and Christian Aris Valix,
Problem 18-2, page 211)

3. Ladd Company provided the following data for the current year:
Allowance for doubtful accounts- January 1 180,000
Sales 9,500,000
Sales returns and allowances 800,000
Sales discounts 200,000
Accounts written off as uncollectible 200,000
The entity provided for doubtful accounts expense at the rate of 3% of net sales.

What is the allowance for doubtful accounts at year-end?

(Practical Financial Accounting Volume 1 by Conrado Valix and Christian Aris Valix,
Problem 19-11, page 231)

Moderate
On January 1, 2014, MELON CORP. loaned P3,000,000 to Debtor Company. Under the loan
agreement, Debtor Company is to make an annual principal payment of P600,000 for 5 years
plus interest at 8%. The first principal and interest payment is due on January 1, 2015. The
required payments were made by Debtor Company for 2015 and 2016. However, during 2016,
Debtor Company began to face financial difficulties, requiring Melon Corp. to reevaluate the
collectability of the loan. On December 31,206, Melon Corp. determines that it will be able to
collect the remaining principal, but is unlikely that the interest will be collected.
The following present value factors are taken from the table of the present values:
Present value of 1 at 8% for:
1 period 0.92593
2 periods 0.85734
3 periods 0,79383

1. What is the present value of the expected future cash flows as of December 31, 2016?
2. What is the amount of loan impairment on December 31, 2016?
3. Assuming that Melon Corp.’s assessment of the collectability of the loan has not
changed, what amount of interest income should be recognized for 2017?

(CPA Examination Reviewer: AUDITING PROBLEMS 2016-2017 Ed. By Gerardo S. Roque,


Problem 2-23, page 195)

Difficult
Problem 1: On January 2, 2016, a tract of land that originally cost P800,000 was sold by
Vietnam Rose Company. The company received a P1,200,000 note as payment. It bears
interest rate of 4% and is payable in 3 annual installments of P400,000 plus interest on the
outstanding balance. The prevailing rate of interest for a note of this type is 10%.
The present value table shows the following present value factors of 1 at 10%:
Present value factor of 1 for 3 periods 0.75132
Present value factor of 1 for 2 periods 0.82645
Present value factor of 1 for 1 period 0.90909
Present value of an ordinary annuity
Of 1 for 3 periods 2.48685
1. What amount of gain on sale of land should be recognized on January 2, 2016?

(CPA Examination Reviewer: AUDITING PROBLEMS 2016-2017 Ed. By Gerardo S. Roque,


Problem 2-20, page 189)

Problem 2: YOKOHANA BANK loaned P5,500,000 to Bargain Company on January 1, 2016.


The initial loan repayment terms include a 10% interest rate plus annual principal payments of
P1,100,000 on January 1 each year. Bargain made the required interest payment in 2016 but
did not make the P1,100,000 principal payment nor the P550,000 interest payment for 2017.
Yokohana is preparing its annual financial statements on December 31, 2017. Bargain is having
financial difficulty, and Yokohana has concluded that the loan is impaired.
Analysis of Bargain’s financial condition on December 31,2017, indicates the principal payments
will be collected, but the collection of interest is unlikely. Yokohana did not accrue the interest
on December 31, 2017.
The projected cash flows are:
December 31, 2018 P1,750,000
December 31, 2019 2,000,000
December 31, 2020 1,750,000

5,500,000

2. What is the loan impairment loss on December 31, 2017?


3. What is the interest income to be reported by Yokohana Bank in 2018?

(CPA Examination Reviewer: AUDITING PROBLEMS 2016-2017 Ed. By Gerardo S. Roque,


Problem 2-22, page 193)
OSTULANO, ELGENEROSE B.

EASY:

1. In the December 31, 2018 statement of financial position of Mildred Company, the current receivables
consisted of the following:
Trade accounts receivable 930,000
Allowance for uncollectible accounts ( 20,000)
Claim against shipper for goods lost
In transit (November 2018) 30,000
Selling price of unsold goods sent by
Mildred on consignment at 130% of cost
(not included in Mildred’s ending inventory) 260,000
Security deposit on lease of warehouse
Used for storing some inventories 300,000
Total 1,500,000

On December 31, 2018, what total amount should be reported as trade and other receivables under current
assets?

2. The following information pertains to Jasmine Co.:


Credit sales for the year ended Dec 31, 2018 450,000
Credit balance in allowance for bad debts – Jan 1, 2018 10,800
Bad debts written off during 2018 18,000

According to past experience, 3% of Jasmine’s credit sales have been uncollectible. After provision is made for bad
debt expense for the year ended December 31, 2018, the allowance for uncollectible accounts balance would be?

3. The following information pertains to Honey Co.’s accounts receivable at December 31, 2018:
Days Estimated Outstanding Amount % Uncollectible
0 – 60 120,000 1%
61 – 120 90,000 2%
Over 120 100,000 6%

During 2018, Honey wrote off P7,000 in receivables and recovered P4,000 that had been written off in prior years.
Honey’s December 31, 2018, allowance for uncollectible accounts was P22,000. Under the aging method, what
amount of allowance for uncollectible accounts should Honey report at December 31, 2018?

MODERATE:

1. Volter Company sold accounts receivable without recourse for P530,000. Volter received P500,000 cash
immediately from the factor. The remaining P30,000 will be received once the factor verifies that none of the
accounts receivable is in dispute. The accounts receivable had a face amount of P600,000. Volter had
previously established an allowance for bad debts of P25,000 in connection with these accounts. What is the
loss on factoring that will be recognized by Volter Company?

For questions 2 & 3:


Sad Co. is a dealer in equipment. On December 31, 2018, Smile Co. sold an equipment in exchange for a
noninterest bearing note requiring five annual payments of P500,000. The first payment was made on December
31, 2019. The market interest for similar notes was 8%. The relevant present value factors are:

PV of 1 at 8% for 5 periods 0.68


PV of an ordinary annuity of 1 at 8% for 5 periods 3.99

2. In its December 31, 2018 statement of financial position, what should Smile Co report as note receivable?
3. What interest income should be reported for 2019?

HARD:

For questions 1 – 3:
Smile Bank loaned P5,000,000 to Dream Company on January 1, 2017. The terms of the loan require principal
payments of P1,000,000 each year for 5 years plus interest at 8%. The first principal and interest payment is due on
January 1, 2018. Dream Company made the required payments during 2018 and 2019. However, during 2019
Dream Company began to experience financial difficulties, requiring Smile to reassess the collectibility of the loan.
On December 31, 2019, Smile Bank has determined that the remaining principal payment will be collected but the
collection of the interest is unlikely. Smile Bank did not accrue the interest on December 31, 2019. The present
value of 1 at 8% is as follows:

For one period 0.926


For two periods 0.857
For three periods 0.794

1. What is the loan impairment loss on December 31, 2019?


2. What is the interest income to be reported by Smile Bank in 2020?
3. What is the carrying amount of the loan receivable on December 31, 2020?

Reference:
Practical Accounting One by Valix
Intermediate Financial Accounting Part 1A by Millan
Harriet A. Ramos

AUDITING PROBLEMS IN RECEIVABLES


EASY
Problem 1 (Practical Financial Accounting Volume 1, Valix, 2016 Edition pg. 210)
Roxy Company provided the following information relating to accounts receivable for the current
year:
Accounts Receivable 1,300,000
Credit Sales 5,400,000
Collections from customers, excluding recovery 4,750,000
Accounts written off 125,000
Collection of accounts written off in prior year
(customer credit was not reestablished) 25,000
Estimated accounts receivables per aging of
receivables at December 31 165,000

What is the balnce of accounts receivable, before allowance for doubtful accounts on December
31?
a. P 1,825, 000
b. P 1,850,000
c. P 1,950,000
d. P 1,990,000

Problem 2 (Practical Financial Accounting Volume 1, Valix, 2016 Edition pg. 212)
Infra Company provided the following data for the current year:
Sales on account 3,600,000
Notes received to settle accounts 400,000
Provision for doubtful accounts 90,000
Accounts receivable written off 25,000
Purchases on account 3,900,000
Payments to creditors 3,200,000
Discounts allowed by creditors 260,000
Merchandise returned by customers 15,000
Collections received to settle accounts 2,450,000
Notes given to creditors in settlement of accounts 250,000
Merchandise returned to suppliers 70,000
Payment on notes payable 100,000
Discounts taken by customers 40,000
Collections received in settlement of notes 180,000

What is the net realizable value of accounts receivable at year-end?


a. 605,000
b. 890,000
c. 825,000
d. 670,000

Problem 3 (Practical Financial Accounting Volume 1, Valix, 2016 Edition pg. 214)
On December 31, 2016, Miami Company reported that the current receivables consisted of the
following:
Trade accounts receivable 930,000
Allowance for uncollectible accounts ( 20,000)
Claim against shipper for goods lost
in transit in November 30,000
Selling price of unsold goods sent by
miami on consignment at 130% of cost and
not included in Miami’s ending inventory 260,000
Security deposit on lease of warehouse
Used for storing some inventories 300,000
Total 1,500,000

On December 31, 2016, what total amount should be reported as trade and other receivables
under current assets?
a. 940,000
b. 1,200,000
c. 1,240,000
d. 1,500,000

MODERATE
Problem 1 (Practical Financial Accounting Volume 1, Valix, 2016 Edition pg. 225)
Tara Company provided the following information pertaining to accounts receivable on
December 31, 2016:
Days Outstanding Estimated Amount Estimated uncollectible
0-60 1,200,000 1%
61-120 900,000 2%
Over 120 1,000,000 60,000
During the current year, the entity wrote off P 70,000 in accounts receivable and recovered P
40,000 that had been written off in prior years.
On January 1, 2016, the allowance for uncollectible account was P 100,000.
Under the aging method, what amount of allowance for uncollectible accounts should be
reported on December 31, 2016?
a. 190,000
b. 100,000
c. 130,000
d. 90,000

Problem 2 (Auditing Problems, Roque, 2016-2017 Edition, pg. 195)


On January 1, 2014, MELON CORP. loaned P 3,000,000 Debtor Company. Under the loan
agreement, Debtor Company is to make an annual principal payment of P 600,000 for 5 years
plus interest at 8%. The first principal and interest payment is due on January 1, 2015. The
required payments were made by Debtor Company for 2015 and 2016. However, during 2016,
Debtor Company began to face financial difficulties, requiring Melon Corp. determines that it will
be able to collect remaining principal, but it is unlikely that the interest will be collected.
The following present value factors are taken from the table of present values:
Present value of 1 at 8% for:
1 period 0.92593
2 periods 0.85734
3 periods 0.79383

What is the present value of the expected future cash flows as of December 31, 2016?
a. P 1,800,000
b. P 2,146,260
c. P 1,669,962
d. P 1,428,894
Problem 3 (Practical Financial Accounting Volume 1, Valix, 2016 Edition pg. 242)
Sigma Company began operations on January 1, 2015. On December 31, 2015, the entity
provided for doubtful accounts based on 1% of annual credit sales.
On January 1, 2016, the entity changed the method of determining the allowance for doubtful
accounts by aging of accounts receivable.
Days past invoice date Percent uncollectible
0-30 1%
31-90 5%
91-180 20%
Over 180 80%

In addition, the entity wrote off all accounts receivable that were over 1 year old.
The following additional information related to the years ended December 31, 2016 and 2015.
2016 2015
Credit Sales 3,000,000 2,800,000
Collections, including recovery 2,915,000 2,400,000
Accounts written off 27,000 none
Recovery of accounts previously written off 7,000 none

Days past invoice date at December 31


0-30 300,000 250,000
31-90 80,000 90,000
91-180 60,000 45,000
Over 180 25,000 15,000

1. What is the allowance for doubtful accounts on December 31, 2015?


a. 28,000
b. 24,000
c. 26,000
d. 0
2. What is the allowance for doubtful accounts on December 31, 2016?
a. 30,000
b. 39,000
c. 29,150
d. 27,000

3. What amount should be reported as doubtful accounts expense for 2016?


a. 39,000
b. 31,000
c. 38,000
d. 11,000

DIFFICULT
Problem 1 (Auditing Problems, Roque, 2016-2017 Edition, pg. 146)
CALACHUCHI CORP.’s accounts receivable subsidiary ledger shows the following information:

ACCOUNT BALANCE INVOICE


CUSTOMER DEC. 31, 2016 DATE AMOUNT
Aruy, Inc. P 35,180 12/06/16 P 14,000
12/29/16 21,180
Naku Co. 20,920 09/27/16 12,000
08/20/16 8,920
Syak Corp. 30,600 12/08/16 20,000
10/25/16 10,600
Trip Co. 45,140 11/17/16 23,140
10/09/16 22,000
Uy Co. 31,600 12/12/16 19,200
12/02/16 12,400
Xak Corp. 17,400 09/12/16 17,400

The estimated bad debts rates below are based on Calachuchi Corp.’s receivable collection
experience.
Age of Accounts Rate
0 – 30 days 1%
31 – 60 days 1.5%
61 – 90 days 3%
91 – 120 days 10%
Over 120 days 50%

The allowance for bad debts account had a debit balance of P 5,500 on December 31, 2016,
before adjustment.

1. The company’s accounts receivable under “61 – 90 days” category should be


a. P 32,600 c. P 44,600
b. P 44, 320 d. P 42,000

2. The company’s accounts receivable under “91 – 120 days” category should be
a. P 38,320 c. P 29,400
b. P 40,000 d. 12,000

3. The allowance for bad debts to be reported in the statement of financial position at
December 31, 2016, is
a. P 9,699 c. P 4,199
b. P 15,199 d. P 5,500

Problem 2 (Auditing Problems, Roque, 2016-2017 Edition, pg. 166)

The folloqing information is based on a first audit of SABILA COMPANY. The client has not
prepared financial statements for 2014, 2015, or 2016. During these years, no accounts have
been written off as uncollectible, and the rate of gross profit on sales has remained constant for
each three years.

Prior to January 1, 2014, the client used the accrual method of accounting. From January 1,
2014, to December 31, 2016, only cash receipts and disbursements records were maintained.
When sales on account were made, they were entered in the subsidiary accounts receivable
ledger. No general ledger postings have been made since December 31, 2013.

As a result of your examination, the correct data shown in the table below are available:

12/31/13 12/31/16
Accounts Receivable balances:
Less than one year old P 15,400 P 28,200
One to two years old 1,200 1,800
Two to three years old 800
Over three years old 2,200
Total accounts receivable P 16,600 P 33,000

Inventories P 11,600 P 18,800

Accounts Payable for inventory purchased P 5,000 P 11,000

Cash received on accounts receivable in:

2014 2015 2016


Applied to:
Current year collections P 148,800 P 161,800 P 208,800
Accounts of the prior year 13,400 15,000 16,800
Accounts of two years prior 600 400 2,000
Total P 162,800 P 177,200 P 227,600

Cash Sales P 17,000 P 26,000 P 31,200

Cash disbursement for inventory purchased P 125,000 P 141,200 P 173,800


1. The company’s sales revenue for the three-year period amounted to

a. P 658,200 c. P 625,400
b. P 74,200 d. P 415,300

2. What is the aggregate amount of purchases for the three-year period?


a. P 131,000 c. P 434,000
b. P 440,000 d. P 446,000

3. What is the company’s gross profit ratio in each of the three-year period?

a. 33.33% c. 35.16%
b. 28.35% d. 31.15%

Problem 3 (Auditing Problems, Roque, 2016-2017 Edition, pg. 176)

PILIPINAS HOTEL manages an extensive network of boutique hotels in the country. The
company has significant receivables from three customers, P 250,000 due from Tayuman Hotel,
P 450,000 due from Malabon Hotel, and P 400,000 due from Batangas Hotel. Pilipinas has
other receivables totaling P 225,000.

Pilipinas determines that the receivable from Malabon Hotel is impaired by P 75,000 and the
Batangas Hotel receivable is impaired by P 100,000. The receivable from Tayuman Hotel is not
considered impaired. Pilipinas also determines that a composite rate of 5% is appropriate to
measure impairment on all other accounts receivable.

After recognizing the impairment loss, what amount of receivables should Pilipinas Hotel report
in its statement of financial position?

a. P 1,325,000 c. P 1,150,000
b. P 1,126,250 d. P 1,137,500
LARA, JIMEREZEL

Easy (From Practical Financial Accounting Volume 1 by Conrado T. Valix)

1) Problem 18-1 (AICPA Adapted)

IH8U Company provided the following information relating to accounts receivable for the current
year:

Accounts receivable on January 1 1,300,000

Credit sales 5,400,000

Collections from customers, excluding recovery 4,750,000

Accounts written off 125,000

Collection of accounts written off in prior year


(customer credit was not reestablished) 25,000

Estimated uncollectible receivables per aging of


receivables at December 31 165,000

What is the balance of accounts receivable, before allowance for doubtful accounts on December 31?

2) Problem 18-2 (AICPA Adapted)

Walwal Company provided the following data relating to accounts receivable for the current year:

Accounts receivable, January 1 650,000


Credit sales 2,700,000
Sales returns 75,000
Accounts written off 40,000
Collections from customers 2,150,000
Estimated future sales returns at December 31 50,000
Estimated uncollectible accounts at 12/31 per
aging 110,000

What amount should be reported as net realizable value of accounts receivable on December 31?

3) Problem 18-5 (AICPA Adapted)

On December 31, 2018, Golden State Company reported that the current receivables consisted of
the following:

Trade accounts receivable 930,000


Allowance for uncollectible accounts (20,000)
Claim against shipper for goods lost in transit
in November 30,000
Selling price of unsold goods sent by Miami on
consignment at 130% of cost and not included
in Golden State’s ending inventory 260,000
Security deposit on lease of warehouse used for
storing some inventories. 300,000
Total 1,500,000

On December 31, 2018, what total amount should be reported as trade and other receivables under
current assets?

MODERATE (From Practical Financial Accounting Volume 1 by Conrado T. Valix)

1) Problem 18-6 (AICPA Adapted)


Hope Company provided the following information relating to current operations:

Accounts receivable, January 1 4,000,000


Accounts receivable collected 8,400,000
Cash sales 2,000,000
Inventory, January 1 4,800,000
Inventory, December 31 4,400,000
Purchases 8,000,000
Gross margin on sales 4,200,000

What is the balance of accounts receivable on December 31?

2) Problem 23-4 (AICPA Adapted)


On January 1, 2016, Gin Company sold goods to Kid Company. Kid signed a noninterest-bearing note
requiring payment of P600,000 annually for seven years. The first payment was made on January 1,
2016.

The prevailing rate of interest for this type of note at date of issuance was 10%.
Period Present value of 1 at 10% Present value of ordinary annuity of 1 at 10%
6 .56 4.36
7 .51 4.87

What amount should be recorded as sales revenue in January 2016?

3) Problem 18-7 (PHILCPA Adapted)


Jamaica Company revealed a balance of P8,200,000 in the accounts receivable control account at
year-end.

An analysis of the accounts receivable showed the following:

Accounts known to be worthless 100,000


Advance payments to creditors on purchase orders 400,000
Advances to affiliated entities 1,000,000
Customers’ accounts reporting credit balances
arising from sales returns (600,000)
Interest receivable on bonds 400,000
Trade accounts receivable-unassigned 2,000,000
Subscription receivable due in 30 days 2,200,000
Trade accounts receivable-assigned 1,500,000
Trade installements recivable due 1-18 months
including unearned finance charge of 50,000 850,000
Trade accounts receivable from officers, due currently 150,000
Trade accounts on which postdated checks are held
And no entries were made on receipt of checks 200,000
Total 8,200,000

What amount should be reported as trade accounts receivable at year-end?

DIFFICULT (Practical Financial Accounting Volume 1 by Conrado T. Valix)

1) Problem 24-1(IFRS)
Jolo Bank granted a loan to a borrower on January 1, 2016. The interest rate on the loan is 10%
payable annually starting December 31, 2016. The loan matures in five years on December 31,
2020.

Principal amount 4,000,000


Origination fee received from borrower 350,000
Direct origination cost incurred 61,500

The effective rate on the loan after considering the direct origination cost incurred and
origination fee received is 12%.

What is the carrying amount of the loan receivable on January 2016?


What is the interest income for 2016?
What is the carrying amount of the loan receivable on December 31, 2016?
2) Problem 24-2 (IFRS)
International Bank granted a loan to a borrower on January 1, 2016. The interest on the loan is
10% payable annually starting December 31, 2016. The loan matures in three years on
December 31, 2018.

Principal amount 4,000,000


Origination fee charged against borrower 342,100
Direct origination cost incurred 150,000

After considering the origination fee charged against the borrower and the direct origination
cost incurred, the effective rate on the loan in 12%.

What is the carrying amount of the loan receivable on January 1, 2016?


What is the interest income for 2016?

3) Problem 25-3 (IAA)

On January 1, 2016, Oceanic Bank made a P1,000,000, 8% loan. The P80, 000 interest is
receivable at the end of each year, with the principal amount to be received at the end of five
years. At the end of 2016, the first year’s interest of P80, 000 has not yet been received because
the borrower is experiencing financial difficulties. The borrower negotiated a restructuring of
the loan.

The payment of all of the interest for 5 years will be delayed until the end of the 5-year loan
term. In addition, the amount of principal repayment will be dropped from P1, 000,000 to P500,
000.

The PV of 1 at 8% for 4 periods is .735. No interest revenue has been recognized in 2016 in
connection with the loan.

What is the loan impairment loss on December 31, 2016?


What is the interest income for 2017?
KIMBERLY LEDUNA

EASY

1. Nagmahal Company provided the following information relating to current operations:

Accounts Receivable, January 1 4,000,000

Accounts Receivable collected 8,400,000

Cash Sales 2,000,000

Inventory, January 1 4,800,000

Inventory, December 31 4,400,000

Purchases 8,000,000

Gross margin on sales 4,200,000

What is the balance of accounts receivable on December 31?

2. Nasaktan Company allowance for doubtful accounts was P1,000,000 at the end of 2016 and
P900,000 at the end of 2015.

For the year ended December 31,2016, the entity reported doubtful accounts expense of
P160,000 in the income statement.

What amount was debited to the appropriate account to write off uncollectible accounts in
2016?

3. On January 1,2016, Gumanda Company had a credit balance of 260,000 in the allowance for
uncollectible accounts. Based on past experience, 2% of credit sales would be uncollectible
accounts. Credit sales for the year totaled P9,000,000.

What is the uncollectible accounts expense for the year?

MODERATE

1. NakamoveON Company used the allowance method of accounting for uncollectible accounts.
During the current year, the entity had charged P800,000 to bad debt expense, and wrote off
accounts receivable of P900,000 as uncollectible.

What was the decrease in working capital?

2. WALANGFOREVER Company provided the following information pertaining to accounts


receivable on December 31,2016:

Days outstanding Estimated Amount Estimated Uncollectible


0-60 1,200,000 1%

61-120 900,000 2%

Over 120 1,000,000 60,000

During the current year, the entity wrote off P70,000 in accounts receivable and recovered P40,000 that
had been written off in prior years.

On January 1,2016, the allowance for uncollectible accounts was P100,000.

Under the aging method, what amount of allowance for uncollectible accounts should be reported on
December 31,2016?

3. At the end of first year of operations, BITTER Company had a net realizable value of accounts
receivable of P5,000,000.

During the year, the entity recorded charges to bad debts expense of P800,000 and wrote off as
uncollectible accounts receivable of P200,000.

What is the year- end accounts receivable balance before the allowance for doubtful accounts?

DIFFICULT

1. OKAY-AKO Company accepted from a customer P100,000 face amount, 6-month, 8% note dated
April 15,2016. On the same date, the entity discounted the note without recourse at a 10%
discount rate.

What amount of cash was received from the discounting?

2. On July 1,2016, OKAYLANGTALAGA-AKO Company sold goods in exchange for P2,000,000, 8-


month, noninterest-bearing note receivable.

At the time of the sale, the market rate of interest was 12%. The entity discounted the note at
10% on September 1,2016.

What was the cash received from discounting?

3. On July 1,2016, OKAYNGALANG-AKO Company sold equipment to ANGKULIT-NYO Company for


P1,000,000. OKAYNGALANG-AKO accepted a 10% note receivable for the entire sales price.

This note is payable in two equal installments of P500,000 plus accrued interest on December
31,2016 and December 31,2017.

On July 1,2017, the entity discounted the note at a bank at an interest rate of 12%.

What is the amount received from the discounting of note receivable?


PETER NEIL B. MADJUS

FOURTH YEAR – BSA

RECEIVABLES

EASY

Problem 1. (Reynaldo R. Ocampo)

Your audit disclosed that on December 31, 2017, the accounts receivable control account of Alilem Co.
had a balance of P2,865,000. An analysis of the accounts receivable account showed the following:

Accounts known to be worthless P 37,500


Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies 375,000
Customer’s accounts reporting credit balance
arising from sales return (225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable – unassigned 750,000
Subscription receivable due in 30 days 825,000
Trade accounts receivable – assigned (Alilem Co.’s
equity in assigned account is P150,000) 375,000
Trade installment receivable due 1 – 18 months
including unearned finance charges of P30,000 330,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held
(no entries were made on receipts of checks) 75,000
P2,865,000

Questions:
1. The trade accounts receivable as of Dec 31, 2017 is
a. P1,147,500 c. P1,485,000
b. P1,522,500 d. P1,447,500
2. The net current trade and other receivables as of December 31, 2017 is
a. P2,647,500 c. P2,272,500
b. P2,610,000 d. P1,822,500
3. How much of the foregoing will be presented under noncurrent assets as of Dec 31, 2017?
a. P1,200,000 c. P 525,000
b. P 375,000 d. P 0
Problem 2. (Reynaldo R. Ocampo)
Cabugao Company provides for doubtful accounts based 3% of credit sales. The following data are
available for 2017.

Credit sales during 2017 P 21,000,000


Allowance for doubtful accounts 1/10/17 170,000
Collection of accounts written off in prior years
(customer credit was reestablished) 80,000
Customer accounts written off as uncollectible
during 2017 300,000

What is the balance in allowance for doubtful accounts at December 31, 2017?
a. P 630,000 c. P 500,000
b. P 420,000 d. P 580,000

Problem 3. (Reynaldo R. Ocampo)


The following accounts were taken from Cervantes Inc.’s statement of financial position at December
31, 2017.
Debit Credit
Accounts receivable P 4,1000,000
Allowance for doubtful accounts 100,000
Net credit sales P 7,500,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for
2017?
a. P 123,000 c. P 223,000
b. P 23,000 d. P 225,000

MODERATE

Problem 1. (GERARDO S. ROQUE)


The following information is from GUMAMELA CORP.’s first year of operations:
1. Merchandise purchased P 450,000
2. Ending merchandise inventory 123,000
3. Collections from customers 150,000
4. All sales are on account and goods sell at
30% above cost.
What is the accounts receivable balance at the end of the company’s first year of operations?
a. P 275,100 c. P 257,200
b. P 290,500 d. P 257,100
Problem 2. (Gerardo S. Roque)
On January 1, 2016, Waling-waling Co. sells its equipment with carrying value of P160,000. The
company receives a non-interest bearing note due in 3 years with a face amount of P200,000. There is
no establised market value for the equipment. The prevailing interest rate for a note of this type is 12%.
The following are the present value factors of 1 at 12%.

Present value of 1 for 3 periods 0.71178


Present value of an ordinary annuity of 1 for 3 periods 2.40183

1. What is the gain or loss to be recognized on the sale of the equipment?


a. P 17,644 c. P 18,044
b. P 20,200 d. P 16,406
2. What is the discount on note receivable on January 1, 2017?
a. P 57,644 c. P 55,644
b. P 55,330 d. P 57,330
3. What is the discount amortization at the end of the third year
(using the effective interest method)?
a. P 21,428 c. P 22,300
b. P 19,620 d. P 19,206

Problem 3. (Gerardo S. Roque)


On January 1, 2014, Melon Corp. loaned P3,000,000 to Debtor Company. Under the agreement, Debtor
Company is to make an annual principal payment of P600,000 for 5 years plus interest at 8%. The frst
principal and interest payment is due on January 1, 2015. The required payments were made by Debtor
Company for 2015 and 2016, Debtor Company began to face financial difficulties, requiring Melon Corp.
to reevaluate the collectibility of the loan. On December 31, 2016, Melon Corp. determines that it will
be able to collect the remaining principal, but is unlikely that the interest will be collected.

The following present value factors are taken from the table of present values:
Present value of 1 at 8% for:
1 period 0.92593
2 periods 0.85734
3 periods 0.79383

1. What is the present value of the expected future cash flows as of December 31, 2016?
a. P 1,800,000 c. P 1,669,962
b. P 2,146,260 d. P 1,428,894
2. What is the amount of loan impairment on December 31, 2016?
a. P 371,106 c. P 730,038
b. P 130,038 d. P 0
DIFFICULT

Problem 1. (Gerardo S. Roque)


YOKOHANA BANK loaned P5,500,000 to BARGAIN CO. on January 1, 2016. The Initial loan repayment
terms include a 10% interest rate plus annual principal payments of P1,100,000 on January 1 each year.
BARGAIN made the required interest payment in 2016 but did not make the P1,100,000 principal
payment nor the P550,000 interest payment for 2017. Yokohana is preparing its annual financial
statements on December 31, 2017. Bargain is having financial difficulty, and Yokohana has concluded
that the loan is impaired.
Analysis of Bargain’s financial condition on December 31, 2017, indicates the principal payments will be
collected, but the collection of interest is unlikely. Yokohana did not accrue the interest on Dec. 31,
2017.

The projeced cash flows are:


December 31, 2018 P 1,750,000
December 31, 2019 2,000,000
December 31, 2020 1,750,000
P5,500,000

1. What is the loan impairment loss on Dec 31, 2017?


a. P 941,500 c. P 0
b. P 550,000 d. P 5,500,000
2. What is the interest income to be reported by YOKOHANA BANK in 2018?
a. P 501,435 c. P 455,850
b. P 326,435 d. P 550,000
3. What is the carrying value of the loan receivable on December 31, 2019?
a. P 1,590,785 c. P 3,264,350
b. P 1,750,000 d. P 4,558,500

Problem 2. (Reynaldo R. Ocampo)


You were able to obtain the following information from your audit of Magsingal Corporation’s Accounts
Receivable and Allowance for Doubtful Accounts:

 From the general ledger you noted that the Accounts Receivable has a balance of P848,000 as of
December 31, 2010. Below is a transcript of the Allowance for Doutful Accounts:

Debit Credit Balance


January 1 – Balance P20,000
July 31 – Write-off P 16,000 4,000
December 31 – Provision P48,000 P52,000

 The summary of the subsidiary ledger as of December 31, 2010 was totaled as follows:
Debit balances:
Under one month P 360,000
One to six months 368,000
Over six months 152,000
P 880,000

Credit balances:
Alien P 8,000 – Ok; additional billing in Jan., 2011
T. Twister 14,000 – should have been credited to Apol*
Dee Lah 18,000 – Advances on sales contract
*Account is one to six months classification
The customers’ ledger is not in agreement with the accounts receivable control. The client requested
you to adjust the control account to the subsidiary ledger after corrections are made.

 It is agreed that 1 percent is adequate for accounts under one month. Accounts one to six
months are expected to require a reserve of 2 percent. Accounts over six months are analyzed
as follows:
Definitely bad P 48,000
Doubtful (estimated to be 50% collectible) 24,000
Apparently good, but slow (estimated to be 90% collectible) 80,000
P152,000

1. How much is the adjusted balance of Accounts Receivable as of December 31, 2010?
a. P 818,000 c. P 832,000
b. P 846,000 d. P 826,000
2. How much is the adjusted balance of the allowance for doubtful accounts as of December
31, 2010?
a. P 30,680 c. P 30,960
b. P 31,240 d. P30,760
3. How much is the Doubtful Accounts expense for the year 2010?
a. P 74,680 c. P 74, 960
b. P 75,240 d. P 74,760

Problem 3. (Reynaldo R. Ocampo)


The Vigan Company included the following in its notes receivable as of December 31, 2010:
Note receivable from sale of land P 880,000
Note receivable from consultation 1,200,000
Note receivable from sale of equipment 1,600,000

In connection with your audit, you were able to gather the following transactions during 2010 and other
information pertaining to the company’s notes receivable:

 On January 1, 2010, Vigan Company sold a tract of land. The land, purchased 10 years ago, was
carried on Vigan Company’s books at a value of P500,000. Vigan received a noninterest –
bearing note for P880,000. The note is due on December 31, 2011. There is no readily available
market value for the land, but the current market rate of interest for comparable notes is 10%.
 On January 1, 2010, Vigan Company finished consultation services and accepted in exchange a
promissory note with a face value of P1,200,000, a due date of December 31, 2012, and a stated
rate of 5% with interest receivable at the end of each year. The fair value of the services is not
readily determinable and the note is not readily marketable. Under the circumstances, the note
is considered to have an appropriate imputed rate of interest of 10%.

 On January 1, 2010, Vigan Company sold equipment with a carrying amount of P1,600,000 to X
company. As payment, X gave Vigan Company a P2,400,000 note. The note bears an interest
rate of 4% and is to be repaid in three annual installments of P800,000 (plus interest on
outstanding balance). The first payment was received on December 31, 2010. The market price
of the equipment is not reliably determinable. The prevailing rate of interest for notes of this
type is 14%.

Questions: (Round off present value factors to four decimal places and final answers to nearest
hundred)

1. The consultation service fee revenue that should be recognized in 2010 is


a. P1,050,800 c. P 901,600
b. P1,095,800 d. P1,200,000
2. The gain on sale of equipment that should be recognized in 2010 is
a. P331,600 c. P412,400
b. P257,280 d. P800,000
3. The noncurrent notes receivable as of December 31, 2010 is
a. P2,605,706 c. P2,494,000
b. P1,825,800 d. P2,625,700
4. The current portion of long term notes receivables as of December 31, 2010 is
a. P1,600,000 c. P1,468,200
b. P1,680,000 d. P 800,000
5. The interest income to be recognized in 2010 is
a. P464,000 c. P459,500
b. P435,800 d. P156,000
REPOLLO, RENZ A.

EASY
1. Orr Company prepared an aging of accounts receivable on December 31, 2018
and determined that the net realizable value of the accounts receivable was ₱
2,500,000.

Allowance for doubtful accounts on January 1 280,000


Accounts written off as uncollectible 230,000
Accounts receivable on December 31 2,700,000
Uncollectible accounts recovery 50,000

What amount should recognized as doubtful accounts expense for the current
year? (Problem 19-1, Practical Accounting 1, Valix, 2016)

2. At the first year of operations, Water Company had a net realizable value of
accounts receivable of ₱ 5,000,000.

During the year, the entity recorded charges to bed debt expense of ₱ 800,000
and wrote of as uncollectible accounts receivable of ₱ 200,000.

What is the year-end accounts receivable balance before the allowance for
doubtful account? (Problem 19-5, Practical Accounting 1, Valix, 2016)

3. Seiko Company reported the following balances after adjustments at year-end:

2018 2017
Accounts Receivable 5,250,000 4,800,000
Net Realizable Value 5,100,000 4,725,000

During 2018, the entity wrote off accounts totalling ₱ 160,000 and collected ₱
40,000 on accounts written off in previous year.

What amount should be recognized as doubtful accounts expense for the year
ended December 31, 2018? (Problem 19-2, Practical Accounting 1, Valix, 2016)
MODERATE

1. Tara Company provided the following information pertaining to accounts


receivable on December 31, 2018:

Days Outstanding Estimated Amount Estimated Uncollectible


0-60 1,200,000 1%
61-120 900,000 2%
Over 121 1,000,000 60,000

During the current year, the entity wrote off ₱ 70,000 in accounts receivable and
recovered ₱ 40,000 that had been written off in prior years.

On January 1, 2018, the allowance for uncollectible accounts was ₱ 100,000.

Under the aging method, what amount of allowance for uncollectible accounts
should be reported on December 31, 2018? (Problem 19-6, Practical Accounting
1, Valix, 2016)

2. Beach Bank loaned Boracay Company ₱ 7,500,000 on January 1, 2014. The


terms of the loan were payment in full on January 1, 2018 plus annual interest
payment at 11%. The interest payment was made as scheduled in January 1,
2015. However, due to financial setbacks, Boracay Company was unable to
make the 2016 interest payment. Beach Bank considered the loan impaired and
projected the cash flow from the loan on December 31, 2015. The bank accrued
the interest on December 31, 2015, but did not continue to accrue interest for
2016 due to impairment of the loan. The projected cash flows are:

Date of cash flow Amount projected on Dec. 31, 2016


December 31, 2017 500,000
December 31, 2018 1,000,000
December 31, 2019 2,000,000
December 31, 2020 4,000,000

The PV of 1 at 11% is 0.90 for one period, 0.81 for two periods, 0.73 for three
periods, and 0.66 for four periods.

What is the loan impairment loss on December 31, 2016? (Problem 25-1,
Practical Accounting 1, Valix, 2016)
3. On December 31, 2016, Macedon Bank has 5 year loan receivable with a face
value of ₱ 5,000,000 dated January 1, 2015 that is due on every December 31,
2019. Interest on the loan is payable at 9% every December 31.

The borrower paid interest that was due on December 31, 2015 but informed the
bank that interest accrued in 2016 will be paid at maturity date.

There is high probability that the remaining interest payment will not be paid
because of financial difficulty.

The prevailing market rate of interest on December 31, 2016 is 10%. The PV of 1
for three periods is 0.772 at 9% and 0.751 at 10%.

What is the loan impairment loss to be recognized on December 31, 2016?


(Problem 25-4, Practical Accounting 1, Valix, 2016)

DIFFICULT

1. On December 31, 2016, Oregon Bank recorded an investment of ₱5,000,000


in a loan granted to a client. The loan has a 10% effective interest rate
payable annually every December 31. The principal is due in full maturity on
December 31, 2019.

Unfortunately, the borrower is experiencing significant difficulty and will have


difficult time in making full payment.

The bank projected that the entire principal will be paid at maturity date and
4% interest of ₱200,000 will be paid annually on December 31 of the next
three years. There is no accrued interest on December 31, 2016.

The present value of 1 at 10% for three periods is 0.75 and the present value
of an ordinary annuity of 1 at 10% for the three periods is 2.49.

a. What is the loan impairment loss for 2016?


b. What is the interest income for 2017?
c. What is the carrying amount of the loan receivable on December 31,
2017? (Problem 25-6, Practical Accounting 1, Valix, 2016)

2. An aging of Maligaya Campany’s accounts receivable on December 31, 2012,


reveals the following information:
Time Outstanding Amount of Account Receivables
Under 30 days ₱ 80,000
30-60 days 16,000
61-120 days 12,000
121-180 days 8,000
Over 180 days 4,000
Total ₱ 120,000

Based on past experience, the company believes that the following


uncollectible percentages are appropriate: under 30 days, 1.5%; 30-60 days,
3%; 61-120 days, 15%; 121-180 days, 30%; Over 180 days, 60%.

Instructions:
Using the aging of accounts receivable variation of the balance sheet
approach, prepare the adjusting entry on December 31, 2012 to record
estimated bad debts, assuming that the balance in the Allowance for Doubtful
Accounts before adjustments is:
a. 440 Cr
b. 560 Dr
(VI – 13, Auditing Problems, Cabrera, 2012-2013)

3. Harding Corp. operates in an industry that has a high rate of bad debts. On
December 31, 2012, before any year-end adjustments, Harding’s Accounts
receivable balance was ₱600,000 and its Allowance for doubtful accounts
balance was ₱25,000. The year-end balance reported in the statement of
financial position for the Allowance for doubtful accounts will be based on the
aging schedule shown as follows:

Time Outstanding Amount of A/R Probability of Collection


Under 15 days ₱ 300,000 0.98
16-30 days 200,000 0.90
31-45 days 50,000 0.80
46-60 days 50,000 0.70
61-75 days 10,000 0.65
Over 75 days 10,000 0.00

Instructions:
a. What is the appropriate balance for Allowance for Doubtful Accounts on
December 31, 2012?
b. Show how the accounts receivable would be presented on the balance
sheet on December 31, 2012.
(VI – 14, Auditing Problems, Cabrera, 2012-2013)
Goden, Vincent Louise B.

Auditiing Problems (easy)

1. Ladd Company provided the following information for the current year:

Allowance for doubtful accounts- Jan 1 180,000

Sales 9,500,000

Sales return and allowances 800,000

Sales Discounts 200,000

Accounts written off 200,000

The entity provided for doubtful accounts expense at the rate of 3 % of net sales. What is the
allowance of doubtful accounts at year-end?

2. Barr company showed the following at year end:

Allowance for doubtful accounts 16,000 dr

Net Sales 7,100,000

The entity estimated its uncollectible receivables at 2% of net sales. What is the allowance for doubtful
accounts at year-end?

3. Effective with the year ended Dec 31, Hall co. adopted a new accounting method for estimating
the allowance for doubtful accounts at the amount indicated by the year-end aging of accounts
receivable. The following data are available:

Allowance for doubtful accounts, Jan. 1 250,000

Provision for doubtful accounts during the current year

(2% of credit sales of 10,000,000) 200,000

Accounts written off 205,000

Estimated uncollectible accounts per aging on Dec. 31 220,000

After year-end adjustment, what is the doubtful account expense for current year?
Moderate

4. Roth Co. received from a customer a one year, 500,000 note bearing annual interest of 8%. After
holding the note for six months, the entity discounted the note without recourse at 10%

What amount of cash was received from the bank?

5. Star Co. assigned 4,000,000 of accounts receivable as collateral for a 2,000,000 6% loan with
bank. The entity also paid a finance fee of 5% on the transaction upfront.

What amount should be recorded as a gain or loss on the transfer of accounts receivable?

6. Brooked Co. discounted its own 5,000,000 one-year note at a discount rate of 12%, when the
prime rate was 10%. In reporting the note prior to maturity.

What rate should be used for the recording of interest expense?

Difficult

7. Appari Bank granted a loan to a borrower on Jan 1 2013. The interest rate on the loan is 10%
payable annually starting Dec 31, 2013. The loan matures in 5 years on Dec 31, 2017. The data
related to the loan are:

Principal amount 4,000,000

Direct origination cost 61,500

Origination Fee received from a borrower 350,000

The effective interest rate on the loan after considering the direct origination fee received is 12%

What is the carrying amount of the loan receivable on Jan 1, 2013

8. On Dec 1, 2013, Nicole Co. gave Dawn Co a 200,000, 12% loan. Nicole Co. paid Proceeds of
194,000 after deduction of 6,000 non-refundable loan origination fee. Principal and interest are
due in 60 monthly installments of 4,450, Beginning Jan 1 20114. The prepayments yield an
effective interest rate of 12% at present of 200,000 and 13.4% at a present value of 194,000.

What amount should be reported as accrued interest receivable on Dec 31, 2013?

9. On Dec 31, 2013, Oregon Bank recorded an investment of 5,000,000 in a loan granted to a
client. The loan has a 10% effective interest rate payable annually every Dec 31. The principal is
due a t maturity on Dec. 31, 2016. Unfortunately, the borrower is experiencing significant
financial difficulty in making payments. The projected that the entire principal will be paid at
maturity and 4% interest or 200,000 will be paid annually in Dec 31 of the next three years.
There is no accrued interest on Dec. 31 2013.

What is the impairment loss for 2013?