Chapter 4

Receivables and Related Revenues

MULTIPLE CHOICE – THEORY

1. D 2. C 3. C 4. B 5. D
6. D 7. B 8. B 9. A 10. D

Problem 1 (Fontana Blue)

a. Cost of Sales 20,000

Inventory 20,000

b. Cost of Sales 18,000 Inventory

18,000

c. No adjustment

d. Sales 40,000
Accounts Receivable 40,000

e. Sales 60,000
Accounts Receivable 60,000

Inventory 33,600
Cost of Sales 33,600

f. Sales 120,000
Accounts Receivable 120,000

g. Accounts Receivable 60,000

Sales 60,000

h. No adjustment

i. Accounts Receivable 80,000

Sales 80,000

Cost of Sales 55,000

Inventory 55,000

j. Accounts Receivable 90,000

Sales 90,000

Problem 2 (Magnolia Company)

1. Accounts Payable – B 74,000

Accounts Receivable - B 74,000

2. Accounts Receivable – L 16,200

Accounts Receivable – C 16,200

3. No disposition yet (Customer D)

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4. Sales 24,000
Accounts Receivable – E 24,000

5. Inventory 16,500
Cost of Sales 16,500

6. Sales 60,000
Accounts Receivable - F 15,000
Advances from Customers 45,000

7. Sales 85,000
Accounts Receivable – G 85,000

Inventory 59,000
Cost of Sales 59,000

8. Sales 2,500
Accounts Receivable – H 2,500
10,000 / 200 x (200 – 150) = 2,500

9. Sales 180,000
Accounts Receivable – I 180,000

10. Inventory 120,000

Cost of Sales 120,000

11. Sales Returns and Allowances 5,000

Sales 5,000

Problem 3 (Blooms Company)

Account Per client Adjustment Per audit Not due 1-60 days 61-120 Over 120
Past due days days past
pastdue due
1 12,000 12,000 3,000 8,000 1,000
2 22,000 22,000 22,000
3 97,600 (98,800) 0
4 20,000 20,000 10,000 10,000
5 55,000 55,000 2,220 52,780
6 7,500 7,500 7,500
Total 215,300 (98,800) 116,000 27,220 68,280 11,000 10,000

Age Classification Balance per audit % Required

Uncollectible Allowance

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Receivables and Related Revenues
Not due 27,220 1% 272.20

1-60 days past due 68,280 2% 1,365.60

61-120 days past due 11,000 5% 550.00

Over 120 days past due 10,000 50% 5,000.00

Total P7,187.80

Notes Receivable 100,000

Interest Income 2,400
Accounts Receivable (customer 3) 97,600

Interest Receivable 500

Interest Income 500 Uncollectible Accounts Expense
2,188
Allowance for Doubtful Accounts 2,188
7,188 – 5,000 = 2,188

Problem 4 (Balimbing, Inc.)

Age Per Client Adjustment Per Audit % Uncollectible Required

Allowance
Under 60 days 175,000 175,000 1% 1,750.00
61- 90 days 80,000 4,800 84,800 3% 2,544.00
91 – 120 days 42,000 (2,740) 39,260 6% 2,355.60
Over 120 days 24,000 (4,200) 19,800 25% 4,950.00
Total P321,000 (2,100) 318,860 11,599.00

Required Allowance P11,599

Balance of allowance before final adjustment
22,060 – 4,200 17,860
Adjustment P 6,261

(a) Adjusting entries:

1. Uncollectible Accounts Expense 2,740

Accounts Receivable – 91 – 120 days 2,740

2. Allowance for Doubtful Accounts 4,200

Accounts Receivable – Over 120 days 4,200

3. Accounts Receivable – 61-90 days 4,800

Advances from Customers 4,800

4. Allowance for Uncollectible Accounts 6,261

Uncollectible Accounts Expense 6,261

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Receivables and Related Revenues

(b) Correct balance of Accounts Receivable

P318,860

(c) Correct balance of Uncollectible Accounts Expense

Per Client ( P16,050 – 2,740) P13,310
Adjustment No. 1
2,740
No. 4 (6,261)
Per audit P 9,789

Problem 5 (Esau Industries, Inc.)

(a) Correct balance of Trade Accounts Receivable
General Ledger Subsidiary Ledger
Balances per client P 10,536,500 P 5,635,700
Undelivered sales (2,732,900)
Goods consigned to Automatic, Trinoma, etc. (3,260,700)
Collections received from Cebu and Davao branches (1,092,800)
Write off (168,000) (168,000)
Per audit P4,374,900 P4,374,900
(b) Correct balance of Allowance for Uncollectible Accounts
Age Before Adjustment Per Audit % Required
Adjustments Uncollectible Allowance
Current P 4,067,320 (1,092,800) 2,974,520 2% P 59,490
31-60 days 402,440 402,440 5% 20,122
61-90 days 267,320 267,320 10% 26,732
> 90 days 898,620 (168,000) 730,620 30% 219,186
P 325,530

Allowance for Uncollectible Accounts, Per Client P281,255

Additional write off ( 168,000)
Additional provision 212,275*
Balance per audit P325,530

(c) Correct balance of Uncollectible Accounts Expense:

Per client P3,425,625
Additional provisions as a result of audit 212,275
Per Audit P3,637,900

Audit Adjustments:

Sales 2,732,900

Accounts Receivable 2,732,900

Sales 3,260,700

Accounts Receivable 3,260,700

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Receivables and Related Revenues
Allowance for Uncollectible Accounts 168,000

Accounts Receivable 168,000

Uncollectible Accounts Expense 212,275

Allowance for Uncollectible Accounts 212,275

Problem 6 (Smith, Inc.)

(a) Schedule of Trade Notes Receivable

Maker Due Date Per Client Adjustment Per Audit # of Days Interest Accrued
Accrued Rate Interest
Avon Co. 3/30/13 P100,000 (100,000) --
Sara Lee 1/30/13 250,000 (250,000) -- 60 8% P 3,333.
Triumph 7/2//12 30,000 (30,000) -- 60 6% 300
President 4/04/12 800,000 (80,000) --
Mondragon 1/12/13 60,000 -- 60,000 108 9^ 1,620
Elizabeth 8/31/13 200,000 (200,000) -- --
Total P770,000 (710,000) P60,000 P5,253

(b) Adjusting Entries:

Liability on Discounted Notes 100,577
Trade Notes Receivable 100,000
Gain on Sale of Notes Receivable 577
Principal P100,000
Interest for the entire term 3,333
Discount (103,333 x 8% x 4/12) ( 2,756)
Proceeds from discounting P 100,577
Carrying value, date of discounting 100,000
Gain on sale of notes P 577

Subscription Receivable – Preference Share 250,000

Trade Notes Receivable 250,000

Accounts Receivable 30,000

Trade Notes Receivable 30,000
Interest Income 300

Receivable from Officers 800,000

Compensation Expense 66,055
Trade Notes Receivable 800,000
Discount on Notes Receivable from Officers 66,055

Discount on Notes Receivable from Officers (66,055 x 11/12) 60,550

Interest Income 60,550

Depreciation Expense – Equipment 26,667

Accumulated Depreciation – Equipment 26,667

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Receivables and Related Revenues
10% x P400,000 x 8/12

Accumulated Depreciation – Equipment 186,667

Notes Receivable – Non-current 200,000
Loss on Sale of Equipment 53,893
Discount on Notes Receivable 40,560
Equipment (400,000 – 250,000) 200,000
Trade Notes Receivable 200,000

Face P200,000
PV = 200,000 x .7972 159,440
Discount P 40,560

Discount on Notes Receivable 6,378

Interest Income (159,440 x 12% x 4/12) 6,378

Interest Receivable 4,953

Interest Income 4,953
(5,253 – 300 interest income recorded in audit adj. no. 3)

Problem 7 (Glowing Candles)

(a) Non-current Portion of Long-Term Receivables

Notes Receivable from Sale of Division P 500,000
Notes Receivable from Officer 4,000,000
Notes Receivable from Sale of Patents
Face P1,000,000
Less: Discount on Notes Receivable
(202,810 – 23,916) 178,894 821,106
Notes Receivable from Sale of Land 11,236,748

Total P16,557,854

(b) Current Portion of Long-term Receivables:

Notes Receivable from Sale of Division, including interest
Receivable of P60,000 P560,000
Notes Receivable from Sale of Land, including interest
Receivable of P746,667 (2763,252 + 746,667) 3,509,919
Total P4,069,919

(c) Interest Income from Long-term Receivables

On NR from Sale of Division
January 1, 2012 – April 30, 2012 P1,500,000 x 9% x 8/12 P90,000
May 1, 2010 – December 31, 2010 P1,000,000 x 9% x 4/12 30,000
Total P120,000

On NR from Officer
P4,000,000 x 9% P360,000

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Receivables and Related Revenues
On NR from Sale of Patents
P797,190 x 12% x 3/12 P 23,916
On NR from Sale of Land
P2,240,000 x 4/12 P746,667
Total interest income P1,250,583

(d) Gain on Sale of land (P20,000,000 – P15,000,000) P 5,000,000

Gain on Sale of Patents

Selling Price P1,000,000 x .79719 P797,190
Carrying value of the patents on 10/01/12
Carrying value 1/01/12 P800,000
Amortization up to 10/01/12
160,000 x 9/12 (90,000)
710,000
Gain on sale of patents P 87,190

Note Receivable from Sale of Land

Date Periodic Payment Applied to Balance of Principal, end
Payment Interest
Principal
09/01/12 P 14,000,000
09/01/13 P5,003,252 P 2,240,000 P 2,763,252 11,236,748
09/01/14 5,003,252 1,797,880 3,205,372 8,031,376

Problem (Goliath Company)

Notes Receivable from Company B

Initial amortized cost = 3,000,000 x .7513 = P2,253,900

Face P3,000,000
Less: Discount on Notes Receivable
Initial discount P3,000,000 – P2,253,900 = P746,100
Interest earned P2,253,900 x 10% x 8/12 = 150,260 595,840
Carrying value, 12/31/12 P2,404,160

Notes Receivable from Company C

Face P1,000,000
Interest Receivable 1,000,000 x 10% x 3/12 25,000
Carrying value of the note P1,025,000
(a) Audit Adjustments:
Interest Receivable 200,000
Interest Income 200,000

Impairment Loss ( Bad Debts) 456,555

Restructured Notes Receivable 1,743,445
Interest Receivable
200,000

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Receivables and Related Revenues
Notes Receivable – Company A 2,000,000

Gain on Sale of Land (400,000 - 400,000

346,100)
Loss on Sale of Land 346,100
Discount on Notes Receivable 746,100

Discount on Notes Receivable 150,260

Interest Income 150,260
2,253,900 x 10% x 8/12

Interest Receivable 25,000

Interest Income 25,000

(b) Carrying value of notes:

Current Assets:

Note Receivable from Company A

P550,000 – (P1,743,445 x 10%) P119,345

Note Receivable from Company C, including

Accrued interest of P25,000 325,000

Total P444,345

Non-current Assets:

Note Receivable from Company A (P1,743,445 – P119,345) P1,624,100

Note Receivable from Company B 2,404,160
Total Non-current Receivables P4,028,260

(d) Impairment Loss

Notes Receivable from Company A

Face P2,000,000
Interest Receivable (still unrecorded) P2,000,000 x 10% 200,000
Carrying value of note P2,200,000
PV of future cash flows P550,000 x 3.1699 1,743,445
Impairment loss P 456,555

Interest Income:

From Company A P200,000

From Company B 150,260
From Company C 25,000
Total P375,260

MULTIPLE CHOICE - PROBLEMS

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Receivables and Related Revenues
1. C 5. C 9. D 13. D 17. C 21. P780,800
2. B 6. A 10. B 14. B 18. A 22. P13,600
3. B 7. C 11. A 15. B 19. A 23. B
4. A 8. A 12. A 16. B 20. D 24. P23,680

Computations

1. P523,000 + P224,000 + P75,000 + P27,000 = P849,000

2-5 2. Accounts 3. Inventories 4. Sales 5. Cost of Sales
Receivable
Per Client P276,500 P425,000 P1,320,000 P842,000
( 8,680) 7,240 (8,680) (7,240)
Adjustments :
(14,200) 12,500 (14,200) (12,500)
(10,000) (10,000)
(6,100) 6,100
(14,000) (14,000)
21,000 (18,200) 21,000 18,200
Per Audit P250,620 P420,440 P1,294,120 P846,560

6.
Classification Balance per audit % Uncollectible Required Allowance
Nov-Dec 2012 P1,080,000 2% P21,600
July – October 2012 650,000 10% 65,000
January – June 2012 420,000 25% 105,000
Prior to 1/01/12 90,000* 70% 63,000
Total P2,240,000 P254,600
Existing allowance = 154,000 – 95,000 + 15,000 + 00 194,000
180,000 – 60,0
Additional uncollectible accounts expense P 60,600

7. Total uncollectible accounts expense = P 180,000 + 60,600 = P240,600

8. Accounts receivable, net = P2,240,000 – 254,600 = P1,985,400

9. Carrying value of the receivable P4,480,000

Present value of future cash inflow = 1,120,000 x 3.0373 = 3,401,776
Impairment loss P1,078,224

10. No impairment loss shall be recognized, the loss évent is a non-adjusting évent, which présents
condition different from that as of the end of the reporting period.

11. No impairment loss shall be recognized on Company Y’s note. The interest to be collected during
the extended term equals the original interest rate of the loan ; the présent value of future cash
inflow shall be equal to the loan’s carrying value.

12. Carrying value of the receivable P1,120,000

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PV of future cash inflow = 120,000 + (1,100,000 X .8929) 1,102,190
Impairment loss P 17,810

13. The non-adjusting évent requires disclosure, because even when taken alone, the loss would have
a material effect on the financial condition of 5-6.

14. Sales = (1,900,000 – 350,000) x 150% = P2,325,000 Collections

from customers (1,830,000)
Write off (15,000 – 8,000) ( 7,000)
Gross accounts receivable P 488,000

15. Past due after write off 400,000 – 80,000 P 320,000 Allowance after write
off 250,000 – 80,000 170,000
Additional uncollectible accounts expense P 150,000

16. Current assets = P506,370 – 30,000 selling price of unsold goods

+ 20,000 cost of unsold goods = P496,370

17. Additional allowance required : 120,000 – (65,000 +120,000 – 80,000) = 15,000 Total uncollectible
accounts expense = 120,000 + 15,000 = P135,000

18. Accounts receivable = P1,300,000 + 50,000 + 15,000 = P1,365,000

19. Required allowance = 1,365,000 x .015 = P 20,475

20. Uncollectible accounts expense = 20,475 + 8,000 = P 28,475

21. Accounts receivable = 735,000 + 4,500,000 – 4,200,000 + 16,000 – 20,200

- 250,000 = P780,800

22. (780,800 – 100,800) x 2% = P13, 600

23. 16,200 + 16,000 – 20,200 = P12,000

24. (100,800 x 10%) + (680,000 x 2%) = P 23,680

MEEMEE, Inc.
Adjusting Entries:

1. Miscellaneous Expenses 1,260

Receivables from Officers and Employees 500
Cash – Petty Cash Fund 1,760

2. Other Non-Current Financial Assets 400,625

Cash in Bank 400,000
Interest Income 625
Reclassified Security Bank SA

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Receivables and Related Revenues
3. Cash in Bank – BPI SA 394
Interest Income 394

4. Accounts Receivable – 31 – 60 days overdue 12,800

Cash in Bank – BPI SA 12,800

5. Accounts Receivable – Dishonored Notes 5,500

Cash in Bank – BPI SA 5,500

Notes Receivable Discounted 5,000

Notes Receivable 5,000

6. Cash in Bank – BPI CA Payroll 15,600

Accrued Payroll 15,600
5,200 + 10,400

7. Miscellaneous Expenses 150

Cash in Bank – BPI CA Payroll 150

8. Cash in Bank – BPI CA General 45,200

Accounts Payable 45,200

9. Accounts Payable 900

Miscellaneous Expenses 150
Cash in Bank _ BPI CA General 1,050

10. Accounts Receivable – Current 9,000

Accounts Receivable – 31- 60 days overdue 4,800
Customers’ Credit Balances 13,800

11. Receivables from Officers and Employees 2,000

Accounts Receivable – Current 2,000

12. Allowance for Bad Debts 5,000

Accounts Receivable – over 90 days 5,000

13. Accounts Receivable – Overdue Notes 15,250

Notes Receivable 15,000
Interest Income 250

14. Receivable from Officers and Employees 6,800

Notes Receivable 6,800

15. Interest Receivable 517

Interest Income 517
Creative: P10,000 x 24% x 64/360 = 427
President: P 6,800 x 25% x 19/360 = 90
Total 517

16. Allowance for Bad Debts 4,543

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Receivables and Related Revenues
Bad Debts Expense 4,543

ANALYSIS OF ACCOUNTS RECEIVABLE

Age Class Per Client Adjustment Per Audit % Required
Uncollectible Allowance
Current P362,412 9,000 369,412 ½% 1,847
(2,000)
1-30 days past 202,895 4,550 207.445 1% 2,074
due
31 – 60 days 130,480 12,800 148,080 3% 4,442
past due 4,800
61 – 90 days 17,500 -- 17,500 10% 1,750
past due
Over 90 days 11,387 (5,000) 6,387 50% 3,194
past due
Dishonored -- 5,500 20,750 20% 4,150
notes 15,250
Total required wance P17,457
allo
Balance of nce 22,000
allowa
Adjustment (4,543)

Answers:
(a) Petty Cash P8,240
(b) BPI SA depository 257,794
(c) BPI CA Payroll 76,250
(d) BPI CA Gen Disb. 214,150
(e) Security Bank SA 400,625
(f) Cash 556,434
(g) Accounts Receivable (Gross) 769,574
(h) Allowance for Bad Debts 17,457

(i) Bad Debts Expense 19,457

(j) Notes Receivable 18,000
(k) Liability on Discounted Notes 8,000
(l) Interest Receivable 517
(m) Interest Income 4,586
(n) Receivables from Officers and 9,700
Employees
(o) Customer Credit Balances
13,800

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