FINANCIAL ACCOUNTING & REPORTING

FAR_02: LOANS AND RECEIVABLES

1) The following transaction (in summary) affecting the accounts receivable of Sharype Company occurred during the
year ended December 31, 2022:
Accounts receivable balance, January 1 674,000
Allowance for bad debt balance, January 1 (credit balance) 24,000
Sales (all on account, terms: 2/10, 1/15, n/60) 3,000,000
Cash received includes the following: 3,200,000
The cash received includes the following:
Customers paying within the 10-day discount period 1,764,000
Customers paying within the 15-day discount period 990,000
Recovery of accounts written off 6,000
Customers paying beyond the discount period ?
Accounts receivable written-off as worthless 22,000
Credit memo for sales return 12,000
It is the company’s policy to provide for uncollectible accounts equal to 1% of sales. How much is the carrying
amount of the accounts receivable as of December 31, 2022?

2) Presented below are unaudited balances of selected accounts of Drain Company as of December 31, 2020:
Debit Credit
Cash 500,000
Accounts receivable 1,300,000
Allowance for uncollectible accounts 8,000
Sales (net) 6,750,000
Additional information:
Goods amounting to P50,000 were invoiced for the account of a customer recorded in January 2, 2021 with terms of
net 60 days, FOB Shipping point. The goods were shipped to customer on December 30, 2020. The bank returned
on December 29, 2020, a customer’s check for P5,000 marked “No sufficient funds” but no entry was made. What is
the correct balance of accounts receivable account at December 31, 2020?

Use the following information for the next two (2) questions:
Starboy Company has the following data relating to accounts receivable for the year ended December 31, 2020:
Accounts receivable, January 1, 2020 480,000
Allowance for doubtful accounts, January 1, 2020 19,200
Sales during the year, all on account, terms: 2/10, 1/15, n/30 2,400,000
Cash received from customers during the year 2,560,000
Accounts written off during the year 17,600
An analysis of cash received from customers during the year revealed that P1,411,200 was received from customers
availing the 10-day discount period, P792,000 from customers availing the 15-day discount period, P4,800 represented
recovery of accounts written off, and the balance was received from customers paying beyond the discount period.
Starboy’s year end balance of allowance for doubtful accounts was estimated to be 5% of the outstanding accounts
receivable as at December 31, 2020, based on the aging of the accounts.
3) What was the balance of accounts receivable as at December 31, 2020?
4) How much was Starboy’s doubtful accounts expense for the year ended December 31, 2020?

5) Based on the information:

Credit sales 1,720,000
Collections on accounts receivable during the year 1,700,000
Cash sales 8,100,000
Unadjusted balance in Allowance for doubtful accounts 500 debit
Sales returns and allowances for credit sales 40,000
Accounts receivable, beginning of the year 140,000
If bad debts are estimated to be 1½ of ending accounts receivable, in the adjusting entry to recognize bad debts, you
would debit bad debt expense for:
6) Cristine Company revealed the following accounts in the unadjusted trial balance on December 31, 2020:
Debit Credit
Accounts receivable 5,000,000
Allowance for doubtful accounts 50,000
Net credit sales 20,000,000
The entity estimated that 3% of net credit sales will become uncollectible. What amount of allowance for doubtful
accounts should be recognized on December 31, 2020?

7) On December 31, 2022, Sohee company estimated the allowance for doubtful accounts using the year-end aging of
accounts receivable. The following data for are available:
Allowance for doubtful accounts, January 1, 2022 250,000
Provision for uncollectible accounts recorded during 2022 (2% on credit sales of P30,000,000) 600,000
Uncollectible accounts written off 150,000
Recovery of accounts previously written off 80,000
Estimated uncollectible accounts per aging, December 31, 2022 900,000
What is the year-end adjustment to doubtful accounts expense?

Use the following information for the next two (2) questions:
Pearl Company began operations on January 1, 2020. On December 31, 2020, Pearl provided for uncollectible
accounts based on 1% of annual credit sales. On January 1, 2021, Pearl changed its method of determining its
allowance for uncollectible accounts by applying certain percentage to the accounts receivable aging as follows:
Days past invoice date Percent deemed to be uncollectible
0-30 1
31-90 5
91-180 20
Over 180 80
In addition, Pearl wrote off all accounts receivable that were over 1-year old. The following additional information relates
to the year ended December 31, 2020 and 2021:
2021 2020
Credit sales 6,000,000 5,600,000
Collections 5,830,000 4,800,000
Accounts written off 54,000 none
Recovery of accounts previously written off 14,000 none
Days past invoice date @ 12/31
0-30 600,000 500,000
31-90 160,000 180,000
91-180 120,000 90,000
Over 180 50,000 30,000

8) What is the allowance for doubtful accounts on December 31, 2021?

9) What is the provision for uncollectible accounts for the year ended December 31, 2021?
 Use the following information for the next two (2) questions:
On January 1, 2017, Suba Company sold a transportation equipment with a historical cost of P1,000,000 and
accumulated depreciation of P300,000 in exchange for cash of P100,000 and a noninterest bearing note receivable of
P800,000 due on January 1, 2020. The prevailing rate of interest for this type of note is 12%.
10) How much is the interest income in 2017?
11) How much is the carrying amount of the receivable on December 31, 2018?

12) On January 1, 2022, Golden Company sold machinery with historical cost of P5,000,000 and accumulated
depreciation of P1,900,000 in exchange for a 3-year, 3%, P3,000,000 note receivable. Principal is due on January 1,
2025 but interest is due annually every December 31. The prevailing interest rate for this type of note is 12%. How
much is the carrying amount of the receivable on December 31, 2022?

Use the following information for the next three (3) questions:
On January 1, 2020 Terrified Company sold a tract of land for P5,250,000 to Magic Company. Magic Company paid
P1,250,000 down and signed a noninterest beaning note for the balance which is due on January 1, 2024. There was
no established exchange price for the land and the note had no ready market. The prevailing interest rate for this type of
the note was 12%.

13. How much is the interest income for the year 2021?
14. How much is the carrying amount of the note on December 31, 2020?
15. How much is the current portion of the note on December 31, 2020?

Use the following information for the next three (3) questions:
On January 1, 2022, Asawani Company sold transportation equipment with a historical cost of P20,000,000 and
accumulated depreciation of P7,000,000 in exchange for cash of P500,000 and a noninterest-bearing note receivable of
P8,000,000 due in 4 equal annual installments starting on December 31, 2022 and every December 31 thereafter. The
prevailing rate of interest for this type of note is 12%.
16) How much is the interest income in 2022?

17) How much is the current portion of the receivable on December 31, 2022?

18) How much is the carrying amount of the receivable on December 31, 2023?

Use the following information for the next two (2) questions:
On January 1, 2022, Hotel Company sold machinery with historical cost of P3,000,000 and accumulated depreciation of
P900,000 in exchange for a 3-year, P2,100,000 noninterest bearing note receivable due in equal semi-annual payments
every July 1 and December 31 starting on July 1, 2022. The prevailing rate of interest for this type of note is 10%.
19) How much is the interest income in 2022?

20) How much is the carrying amount of the receivable on December 31, 2022?

Use the following information for the next two (2) questions:
Hot Issue Company sold one of its machine on January 1, 2021 to Bubble Pop Company in exchange for non interest
bearing note requiring five annual payments of P500,000 or a total of P2,500,000. The machine had a carrying amount of
P1,750,000 in Hot Issue’s book. The first payment is due on December 31, 2021. The market interest for similar notes
was 10% and the relevant present value factors are:
Present value of a single payment at 10% for 5 periods 0.621
Present value of an ordinary annuity of 1 at 10% for 5 periods 3.791
Present value of an annuity due of 1 at 10% for 5 periods 4.170

21) How much is the gain or loss on sale of machine?

22) How much is the interest income for the year 2021?
23) How much is the carrying amount of the notes on December 31, 2021?
24) On January 1, 2022, Lovestruck Company sold machinery costing P2,000,000 with accumulated depreciation of P950,000
in exchange for a 3-year, 3%, P900,000 note receivable. Principal is due in three equal annual installments. Interest on the
outstanding principal balance are also due annually and are to be collected together with the periodic collections on the
principal. The prevailing interest rate for this type of note is 12%. How much is the carrying amount of
the receivable on December 31, 2022?
25) On January 1, 2017, Hope Company sold machinery costing P3,000,000 with accumulated depreciation of
P1,100,000 in exchange for a 3-year, P900,000 interest bearing note receivable due as follows:
Date Amount of installment
December 31, 2017 400,000
December 31, 2018 300,000
December 31, 2019 200,000
Total 900,000
The prevailing rate of interest for this type of note is 10%. How much is the carrying amount of the receivable on
December 31, 2017?
Use the following information for the next two (2) questions:
On January 1, 2017, Stressed Company sold inventory costing P1,800,000 with a list price of P2,200,000 and a cash
price of P2,000,000 in exchange for a P2,400,000 noninterest bearing note due on December 31, 2019.
26) How much is the initial measurement of the receivable?

27) How much is the carrying amount of the receivable on December 31, 2017?
28) On January 1, 2021, Fetty Bank extended a 12%, P1,000,000 loan to Wap, Inc. Principal is due on January 1, 2025
but interests are due annually every January 1. Fetty Bank incurred direct loan origination costs of P88,394 and
indirect loan origination costs of P18,000. In addition, Fetty Bank charged Wap a 2.5-point nonrefundable loan
origination fee. How much is the interest income in 2022?

29) On January 2, 2020, Paramore Company originates a 10-year 7% P4,000,000. The loan carries an annual interest rate of
7% and is repayable at face at the end of year 10 (December 31, 2024). Paramore charges a 1.25% (50,000) non-
refundable loan origination fee to the borrower and also incurs P100,000 in direct origination costs. The contract specifies
that the borrower has an option to pre-pay the instrument’s amortized cost at each exercise date, and that no penalty will be
charged for pre-payment. But at the inception of the contract Para Company expects the borrower not to pre-pay, the
amortization period is equal to the instrument’s full term and for that reason the effective yield rate is
determined at 6.823%. What is the amortized cost of the instrument on December 31, 2021?

Use the following information for the next four (4) questions:
On December 31, 2018, Eunjung Company, a financing institution lent P4,000,000 to Hyomin Corporation due 3 years
after. The loan is supported by an 8% note receivable. Transaction costs incurred to originate the loan amounted to
P248,000, P374,000 was chargeable to Hyomin as origination fees. Interest on the loan are collectible at the end of
each year. The yield rate on the loan is 9.25%
Eunjung was able to collect interest as it became due at the end of 2019. During 2020, however, due to Hyomin
Corporation’s business deterioration and due to political instability and faltering global economy, the company was not
able to collect amounts due at the end 2020. After reviewing all available evidence at December 31, 2020, Eunjung
determined that it was probable that Hyomin would pay back only P3,400,000 is collectible as follows:
December 31, 2022 1,400,000
December 31, 2023 1,000,000
December 31, 2024 600,000
December 31, 2025 400,000
As of December 31, 2020, the prevailing rate of interest for all debt instrument is 14%. Present value factor – complete

30) What is the carrying value of the loans receivables as of December 31, 2019?
31) What is the impairment loss to be recognized in the 2020 statement of comprehensive income?
32) What is the interest income to be recognized in the 2022 statement of comprehensive income?
33) What is the correct carrying value of the loans receivable as of December 31, 2022?
Use the following information for the next two (2) questions:
On December 31, 2021, The Incantation Finance Company had P5,000,000 note receivable from Glyph Company. The note
bears 10% interest. The books reported accrued interest of P500,000 on this date. Because of financial distress being
suffered by Glyph Company, Incantation Finance agreed to the restructuring and modification of the terms of its loan as
follows: reduction of principal to P4,000,000 reduction of interest to 8% payable annually beginning December 31, 2022
accrued interest on December 31, 2021 is condoned and the principal payment was reset to December 31, 2024.

34) How much impairment loss should Incantation Finance record on December 31, 2021?
35) How much is the amortized cost at December 31, 2022?
 36) On January 1, 2021, Jenifer Bank extended a 3-year, 12%, P1,000,000 loan to Naga, Inc. at a price that yields an
effective interest rate of 10%. Principal is due at maturity but interest is due annually every December 31.
On December 31, 2021, Naga was delinquent and it was ascertained that the loan was impaired. The loan was
restricted as follows:
• Only the principal amount of P1,000,000 shall be collected from the loan. This is due on December 31, 2023.
• Jenifer Bank waived the collection of interest.
On December 31, 2022, Naga’s credit rating has improved and the loan was again restricted as follows:
• Aside from the principal amount of P1,000,000, which is due on December 31, 2023, a 14% interest will also
be collected.
• The new terms shall be applied prospectively.
How much is the gain on impairment reversal on December 31, 2022? Present value factor – complete.

46) Assume that Optimum Nutrition discounted the note four months prior to its maturity date, what is the proceeds
from discounting the note?

Use the following information for the next two (2) questions:
On July 1, 2021, Heart Company sold (discounted) two, P40,000 interest-bearing notes receivable to the Bank
without recourse. Note – A as a one-year, 10% note that will mature on December 1, 2021. Note – B was a six-
month, 8% note that will mature on October 31, 2021. The bank’s discount rate was 15%.
47) How much is the net proceeds from the discounting of Note – A?

48) What is the gain or loss on the sale of the Note – B?

Use the following information for the next two (2) questions:
On August 31, 2023, an entity discounted with recourse a note at the bank at discount rate of 15%. The note was
received from the customer on August 1, 2023 for 90 days with face amount of P9,000,000 and an interest rate of
12%. The discounting transaction is accounted for as secured borrowing. The customer paid the note to the bank on
October 30, 2023, the date of maturity.
49) What is the interest expense to be recognize on August 31, 2023?

50) The entry on October 30, 2023 will include

Use the following information for the next two (2) questions:
On April 1, 2023, an entity discounted with recourse a 9-month, 10% note dated January 1, 2023 with face of
P6,000,000. The bank discount rate is 12%. The discounting transaction is accounted for as conditional sale with
recognition of contingent liability.
On October 1, 2023, the maker dishonored the note receivable. The entity paid the amount due plus protest of P50,000.
On December 31, 2023, the entity collected the dishonored note in full plus 12% annual interest on the total amount
due.

51) What amount should be recognized as loss on note receivable discounting?

52) What is the total amount collected from the customer on December 31, 2023?
1) Erd and Kim Company operates in an industry that has a high rate of bad debts. On December 31, 2023, before
any year-end adjustments, the accounts receivable balance was P20,000,000 and its allowance for doubtful
accounts balance was P1,500,000. The year-end balance reported for the allowance for doubtful accounts is
based on the following schedule:
Accounts Percent
Time Outstanding Receivable Uncollectible
Under 30 days P 10,000,000 5%
31 – 180 days 5,000,000 10%
181 – 360 days 3,000,000 30%
More than one year 2,000,000 100%

The accounts which have been outstanding for more than one year and 100% uncollectible would be written off
immediately. What should be the doubtful accounts expense for the year ended December 31, 2023?

2) Batanes Company used the net price method of accounting for cash discounts. In one transaction on December 15,
2024, the entity sold merchandise with a list price of P5,000,000 to a customer who was given a trade discount of
20%. Credit terms were 2/10, n/30. The goods were shipped FOB destination, freight collect. Total freight charge paid
by the customer was P100,000. On December 20, 2024, the customer returned damaged goods billed at a gross
amount of P500,000. The account was outstanding on December 31, 2024. What is the net realizable value of this
account receivable on December 31, 2024?

3) Cristine Company revealed the following accounts in the unadjusted trial balance on December 31, 2020:
Debit Credit
Accounts receivable 5,000,000
Allowance for doubtful accounts 50,000
Net credit sales 20,000,000
The entity estimated that 3% of net credit sales will become uncollectible. What amount of allowance for doubtful
accounts should be recognized on December 31, 2020?

4) Hyelim Company started operations in 2017 and provided the following data:
Purchases for the year 8,000,000
Inventory on December 31, 2017 2,500,000
Collection from customers 3,000,000

The entity sold all of the goods on credit at a gross profit of 20% on cost. What is the balance of accounts
receivable on December 31, 2017?

5) On December 31, 2017, Sunmi Company has an outstanding accounts receivable balance of P130,000,000 broken
down into: 0-60 days outstanding, P50,000,000; 61-120 days outstanding, P40,000,000; 121-365 days outstanding,
P30,000,000; over one year outstanding, P10,000,000. Estimated uncollectible accounts are 2%, 5%, 10% and 25%
respectively. During the current year, Sunmi wrote off P2,500,000 of accounts receivable and recovered P500,000 from
accounts previously written off in prior years. On December 31, 2016, Sunmi had an allowance for doubtful accounts of
P5,000,000. What amount should be reported as doubtful accounts expense for the year ended December 31, 2017?

6) Hyuna Company prepared an aging of accounts receivable on December 31, 2017 and determined that the net
realizable value of the accounts receivable at that date is P5,000,000.
Accounts receivable on December 31, 2016 4,800,000
Accounts receivable on December 31, 2017 5,400,000
Allowance for doubtful accounts on December 31, 2016 600,000
Accounts written off as uncollectible during 2017 500,000
What was the bad debt expense for 2017?
7) Hottest Company uses the gross method of accounting for cash discount. in one of its transactions on December 15,
2016, Hottest Company sold merchandise with a list price of P2,000,000 to a client who was given a trade discount of
20% and 10%. Credit terms given by Hottest Company were 5/10, n/30. The goods were shipped FOB shipping point,
freight collect. Total freight charge paid by the client was P100,000. On December 20, 2016, the client returned damaged
goods originally billed at P200,000. What is the net realizable value of this accounts receivable on December
31, 2016?

8) Natalie Company uses the balance sheet approach in estimating uncollectible accounts expense. An aging analysis
of accounts receivable at December 31, 2016 disclosed the following information:
Age Group total % considered uncollectible
Not yet due 500,000 1%
1 – 30 days past due 300,000 3%
31 – 60 days past due 100,000 10%

What is the net realizable value of Natalie Company’s accounts receivable at December 31, 2016?

Use the following information for the next two (2) questions:
The following transactions affecting the accounts receivable of Gemini Company took place during the year 2021:
Sales (cash and credit) 600,000
Cash received from cash customers 200,000
Cash received from credit customers (P237,650 was received from customers who took advantage of the
discount feature of the company’s credit terms 3/10, n/30) 400,000
Accounts receivable written off as worthless 5,000
Credit memoranda issued to credit customers for sales returns and allowances 25,000
Cash refunds given to cash customers for sales returns and allowances 15,000
Recoveries on accounts receivable written off as uncollectible in prior periods (not included in cash collections
above) 8,500
An aging of receivable indicates that P7,500 of the accounts receivable balance are deemed uncollectible. The following
balances were taken from the December 31, 2020 balance sheet: Accounts receivable – P90,000; Allowance for bad
debts P1,400.
9) What is the accounts receivable ledger balance at December 31, 2021?
10) How much is the bad debts expense reported in the income statement for the year ended December 31, 2021?

11) The accounts receivable account on December 31, 2016 of Enkindle Company had a balance of P2,865,000. An
analysis of the accounts receivable account showed the following:
Accounts known to be worthless 37,500
Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies 375,000
Customers’ accounts reporting credit balances arising from sales return (225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable – unassigned 750,000
Subscription receivable for common stock due in 30 days 825,000
Trade accounts receivable – assigned (Finance company’s equity in assigned accounts 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 receipt of checks) 75,000
Total 2,865,000

How much is the total trade and other receivables presented at current asset as of December 31, 2016?
Use the following information for the next two (2) questions:
Packers Company sold goods to wholesalers on terms 2/15, net 30. The entity had no cash sales but 50% of the
customers 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 10,000,000 100%
16 – 30 days 7,000,000 90%
31 – 60days 2,000,000 80%
Over 60 days 1,000,000 50%
20,000,000

12) What amount should be reported as allowance for sale discount at year-end?
13) What is the net realizable value of accounts receivable?

14) From inception of operations in 2019, Alexis Company carried no allowance for doubtful accounts. Uncollectible
accounts were expensed as written off and recoveries were credited to income as collected. On March 1, 2023, after
the 2022 financial statements were issued, a policy was established to maintain an allowance for doubtful accounts
based on historical bad debt loss percentage applied to year-end accounts receivable. The historical bad debt loss
percentage is to be recomputed each year based on all available past years up to a maximum of five years.
Year Credit sales Write-offs Recoveries
2019 1,500,000 15,000 0
2020 2,250,000 38,000 2,700
2021 2,950,000 52,000 2,500
2022 3,300,000 65,000 4,800
2023 4,000,000 83,000 5,000
 The entity reported accounts receivable of P2,000,000 and P3,000,000 on December 31, 2022 and December 31,
2023, respectively. What amount should be reported as allowance for doubtful accounts on December 31, 2023?

15) Bred Company sold goods to wholesalers on terms of 5/15, net 30. The entity has no cash sales but 50% of
customers take advantage of the discount based on past experience. The entity used the gross method of recording
sales. An analysis receivable on December 31, 2023 revealed the following:
Age Amount Collectible
0 – 15 days 5,000,000 100%
16- 30 days 2,000,000 90%
Over 30 days 1,000,000 700,000

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

16) On December 31, 2023, Foster Corporation sold for P750,000 an old machine having an original cost of P1,350,000
and a book value of P600,000. The terms of the sale were as follows:
P150,000 downpayment
P150,000 payable on December 31 each of the next four years

The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction.
What is the amount of interest income should be reported in the statement of comprehensive income for the year
ended December 31, 2026?

17) On July 1, 2022, Joy Company sold a parcel of land to Ash Company for P400,000 under an installment sale
contract. Ash Company made a P120,000 cash down payment on July 1, 2022 and signed a four-year 10% note for
the P 280,000 balance. The equal annual payments of principal and interest on the note shall be P88,332 payable
on July 1 of each year from 2023 through 2026.
The fair value of the land at the date of sale was P400,000. The cost of the land to Joy Company was P300,000.
Collection of the remaining note installments is reasonably assured. Interest income for 2023 is
18) On January 2, 2023 Aira and Kem Company sold equipment with a carrying amount of P6,500,000 in exchange for
P8,000,000 noninterest bearing note due January 2, 2026. There was no established exchange price for the
equipment. The prevailing interest rate for this note on January 2, 2023 was 10%. The present value of 1 at 10% for
three periods is 0.75. In the 2023 income statement, what amount should be reported as interest income?

19) On December 31, 2021, Park Company sold used equipment and received noninterest bearing note requiring
payment of P500,000 annually for 10 years. The first payment is due on December 31, 2022 and the prevailing rate
of interest for this type of note at date of issuance is 12%. Present value factors are as follows:
Present value of 1 at 12% for 10 periods 0.322
Present value of ordinary annuity of 1 at 12% for 10 periods 5.650
In its December 31, 2021 statement of financial position, what should Park Company report as carrying amount of
the note receivable?

Use the following information for the next two (2) questions:
On August 31, 2022, Courageous Company sold goods to Dog Company. Dog Company signed a non-interest bearing note
requiring payment of P80,000 annually for five years. The first payment was made on August 31, 2022. The prevailing rate of
interest for this type of note at the date of issuance was 12%. Information on present value factors is as follows:
Periods Present value of 1 at 10% PV of ordinary annuity of 1 at 10%
4 0.636 3.037
5 0.567 3.605
20) How much should be reported as sales revenue on August 31, 2022?
21) What is the amount of interest income for the year 2022?

Use the following information for the next three (3) questions:
On May 31, 2022, Scourge Company sold equipment with a carrying amount of P450,000 in exchange for a P700,000
non-interest bearing note due May 31, 2025. There was no established exchange price for the equipment. The
prevailing rate of interest for a note of this date was 12%. The present value of 1 at 12%for three periods is 0.7118.

22) How much should Scourge report as interest income in its 2022 income statement?
23) How much should Scourge report as gain (loss) on sale of equipment in its 2022 income statement?

24) On December 31, 2023, Zoe Company sold a building and receive a non interest-bearing note requiring payment of
P1,500,000 annually for five years. The payment is due December 31, 2024 and the prevailing rate of interest on date
of issuance is 10%
Present value of 1 at 10% for 5 periods 0.62
Present value of an ordinary annuity of 1 at 10% for 10 periods 3.79

On December 31, 2023, what is the carrying amount of the note receivable?

Use the following information for the next two (2) questions:
On December 31, 2019 the Manila Finance Company had a P5,000,000 note receivable from Osaka Company. The note
bears 10% interest. The book s reported accrued interest of P500,000 on this date. Because of financial distress being
suffered by Osaka Company, Manila Finance agreed to the restructuring and modification of the terms of its loan to Osaka as
follows: reduction of principal to P4,000,000; reduction of interest to P8% payable annually beginning December 31, 2020;
accrued interest on December 31, 2019 is condoned; and principal payment was reset to December 31, 2022.

25) How much impairment loss should Mania Finance record on December 31, 2019?
26) How much is the amortized cost at December 31, 2020?
27) Cuba Inc. is indebted to Havana under an P8,000,000, 10% four-year note dated December 31, 2023. Annual
interest of P800,000 was paid on December 31, 2024 and 2025. During 2026, Cuba experienced financial difficulties
and is likely to default unless concessions are made. On December 31, 2026, Havana agreed to restructure the
debt as follows:
• Interest of P800,000 due December 31, 2026 was waived.
• Extended the maturity to December 31, 2027.
• The principal amount is reduced to P7,000,000.
• Interest of P770,000 of the new principal will be paid on maturity date.

What is the amount of impairment loss on December 31, 2026?

Use the following information for the next two (2) questions:
On January 2, 2024, Karlos Company originates a 10-year 7%, P4,000,000. The loan carries an annual interest rate of
7% and is repayable at par at the end of, 2029. Karlos Company charges a 1.25% (P50,000) non-refundable loan
origination fee to the borrower and also incurs P100,000 in direct origination costs. The contract specifies that the
borrower has an option to pre-pay the instrument at approximately equal to instrument’s amortized cost at each exercise
date, and that no penalty will be charged for pre-payment. But at the inception of the contract, Karlos expects the
borrower not to pre-pay, the amortization period is equal to the instrument’s full term and for that reason the effective
yield rate is determined at 6.6823%.

28) What is the amortized cost of the instrument on December 31, 2025?
29) What amount of interest income should Karlos Company disclose in its December 31, 2024 statement of
comprehensive income?

Use the following information for the next two (2) questions:
On January 1, 2017, Style Company received a P1,000,000 note receivable from Dream, Inc. Principal payments P200,000
and interest at 12% are due annually at the end of each year for 5 years. The first payment starts on December 31, 2017.

Dream, Inc. made the required payments during 2017 and 2018. However, during 2019, Dream, Inc. began to
experience financial difficulties, requiring Style to reassess the collectability of the note. Because of the loss event, Style
Company did not accrue the interest on December 31, 2019. The current rate of interest on December 31, 2019 is 10%.
Style made the following cash flow projections on December 31, 2019:
Date of expected receipt Amount of cash flow
January 1, 2020 200,000
January 1, 2021 150,000
January 1, 2022 150,000
30) How much is the impairment loss recognized in 2019?
31) How much is the interest income in 2020?

32) Jayree Company factored, with recourse, P400,000 of accounts receivable with Malang Financing Company on October
1, 2022. The finance charge is 3% and 5% of the receivables factored was retained to cover any sales returns and
discounts. On November 1, 2022, Jayree Company discounted without recourse with Malang bank a customer’s
P600,000 non-interest bearing note with an imputed interest rate of 10%, 12-month, dated July 1, 2022. The bank
discounted the note at 12%. What amount of cash did Jayree receive from the above receivable financing?

33) On September 1, Riva Co. assigns specific receivables totaling P750,000 to Pacific Bank as collateral on a P625,000, 12
percent note. Riva Co. will continue to collect the assigned accounts receivable. Pacific also assesses a 2 percent
service charge on the total accounts receivable assigned. Riva Co. is to make monthly payments to Pacific with cash
collected on assigned accounts receivable. Collections of assigned accounts during September totaled P260,000 less
cash discounts of P3,500. What is the proceeds from the assignment of Riva’s accounts receivable on September 1?
34) Simpson Company held a P6,000, 3-month, 15 percent note. One month before maturity, it discounted the note at 10
percent at a local bank. Approximately how much interest did Simpson earn on the note?

35) On August 31, 2020, Earl Company discounted a customer’s note with recourse at a bank with a 15% discount rate. The
note is dated August 1, 2020, has a term of 90 days, has a face value of P6,000,000 and an interest rate of 12%.
Since there was no loss on control of the note, the discounting was treated as secured borrowing. On August 31, the
entry to discount the note includes which of the following?

36) On July 1, 2002, Cornell Corp. received a one-year note with a face value of P900,000 and a stated interest rate of 15
percent in exchange for a machine with a fair value of P1,000,000. Compute the effective interest rate for Cornell Corp.

Use the following information for the next two (2) questions:
On September 1, 2022, Wolverine Company discounted at the bank a customer’s P600,000 interest-bearing note, 6-
month, 10% note receivable dated May 1, 2022. The bank discounted the note at 12%.
37) How much net proceeds did Wolverine receive from this discounted note?

38) Assuming the discounting is without recourse, how much gain or loss should be recognized as a result of discounting?

39) On October 31, 2028, Marvel Company engaged in the following transactions:
• Obtained a P500,000, six-month loan from Phoenix Bank, discounted at 12%. The company pledged P500,000
of accounts receivable as security for the loan.
• Factored P1,000,000 of accounts receivable without recourse on a non-notification basis with Jean Company.
Jean Company charged a factoring fee of 2% of the amount of receivables factored and withheld 10% of the
amount factored.
 What is the total cash received from the financing of receivables?

Use the following information for the next two (2) questions:
On October 31, 2021 Volcanic Touch engaged in the following transaction:
Obtained a P500,000, 6-month loan from Eruption discounted at 12%. The company pledged P600,000 of accounts
receivable as security for the loan.
Factored P1,000,000 of accounts receivable without recourse on a notification basis with Sage Finance Company. Sage
finance charged a factoring fee of 5% of the amount of receivable factored and withheld 10% of the receivable factored.

40) What is the total cash received from financing?

41) How much receivable should be reported on December 31, 2021?