Loans-and-Receivables-handout2

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FAR EASTERN UNIVERSITY – MANILA
INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE
NICANOR REYES SR. ST., SAMPALOC, MANILA
FINANCIAL ACCOUNTING AND REPORTING / PRACTICAL AUDITING
LOANS AND RECEIVABLES (Part 2 of 2)
1)
Separate accounts receivable information for each customer is important because it reveals all of the following
except:
A) When the customer intends to pay outstanding balances.
B) The basis for sending bills to customers.
C) How much each customer has purchased on credit.
D) How much each customer has paid.
E) How much each customer still owes.
2)
A promissory note received from a customer in exchange for an account receivable is recorded by the payee as:
A) A note payable.
B) A note receivable.
C) An account receivable.
D) A cash equivalent.
E) A short-term investment.
3)
4)
The interest accrued on P7,500 at 6% for 90 days is: (Use 360 days a year.)
A) P37.50
B) P450.00
C) P11.25
D) P112.50
E) P1,800.00
The expense recognition (matching) principle, as applied to bad debts, requires:
A) The use of the direct write-off method for bad debts.
B) That bad debts not be written off.
C) That bad debts be disclosed in the financial statements.
D) That expenses be ignored if their effect on the financial statements is unimportant to users'
business
decisions.
E) The use of the allowance method of accounting for bad debts.
5)
If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being
written off, the entry to record the write-off against the allowance account results in:
A) No effect on the expenses of the current period.
B) A reduction in current liabilities.
C) An increase in the expenses of the current period.
D) A reduction in equity.
E) A reduction in current assets.
6)
On October 12 of the current year, a company determined that a customer's account receivable was uncollectible
and that the account should be written off. Assuming the allowance method is used to account for bad debts, what
effect will this write-off have on the company's net income and total assets?
A) Decrease in net income; decrease in total assets.
B) Increase in net income; no effect on total assets.
C) Decrease in net income; no effect on total assets.
D) No effect on net income; no effect on total assets.
E) No effect on net income; decrease in total assets.
7)
On October 12 of the current year, a company determined that a customer's account receivable was uncollectible
and that the account should be written off. Assuming the direct write-off method is used to account for bad debts,
rom
what effect will this write-off have on the company's net income and total assets?
A) Decrease in net income; decrease in total assets.
B) Decrease in net income; no effect on total assets.
C) Increase in net income; no effect on total assets.
D) No effect on net income; no effect on total assets.
E) No effect on net income; decrease in total assets.
8)
A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and
the length of time past due is the:
A) Percent of accounts receivable method.
B) Percentage of sales method.
C) Aging of investments method.
D) Direct write-off method.
E) Aging of accounts receivable method.
9)
On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables
method to estimate bad debt included the following: Accounts Receivable, debit balance of P95,250; Allowance for
Doubtful Accounts, credit balance of P921. What amount should be debited to Bad Debts Expense, assuming 6% of
outstanding accounts receivable at the end of the current year are estimated to be uncollectible?
A) P6,636
10)
B) P5,715
C) P5,660
D) P4,794
E) P5,770
A company has P90,000 in outstanding accounts receivable and it uses the allowance method to account for
uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current
balance (before adjustments) in the allowance for doubtful accounts is an P800 debit. The journal entry to record the
adjustment to the allowance account includes a debit to Bad Debts Expense for:
A) P3,632
B) P3,568
C) P3,600
D) P4,400
E) P2,800
PROBLEM 1
CCC Co. properly reported the following balances on December 31, 2017:
Accounts receivable
P3,000,000
Allowance for doubtful accounts
180,000
Accrued interest receivable – loan
640,000
Loan receivable
8,000,000
Additional information:
A. During 2018, CCC Co. recorded credit sales of P18,000,000 and interim provision for doubtful accounts at 2% of credit sales.
Accounts of P200,000 were written off during the year; P40,000 were subsequently recovered. The balance of accounts receivable on
December 31, 2018 amounted to P4,000,000 and aged as follows:
Classification
1-60 days
61-120 days
121-180 days
181-360 days
More than one year
Balance
P2,000,000
800,000
600,000
400,000
200,000
Estimated uncollectible
1%
5%
10%
25%
P80,000 is definitely uncollectible
The balance is 80% uncollectible
B. The balance of the loan receivable represents the remaining amount loaned to ABC Co. on January 1, 2016. The total amount loaned
in 2016 was P10,000,000. The terms of the loan require principal payments of P2,000,000 each year for 5 years plus interest at 8%.
The first principal and interest payment was due on January 1, 2017. ABC Co. made the required payments during 2017 and 2018.
However, during 2018 ABC Co. began to experience financial difficulties, requiring CCC Co. to reassess the collectibility of the
loan. On December 31, 2018, CCC Co. determines that the remaining principal payment will be collected at maturity but the
collection of interest, which was recorded in the books, is unlikely.
rom
Based on the above and the result of your audit, determine the following: (Round off present value factors to four decimal places, e.g.,
0.8264, 1.7355.)
1.
2.
3.
4.
5.
6.
7.
Accounts receivable as of December 31, 2018
Allowance for doubtful accounts as of December 31, 2018
The net realizable value of accounts receivable as of December 31, 2018
The over(or under)statement of the recorded doubtful accounts expense in 2018
Loan impairment loss in 2018
Interest income in 2019
Carrying amount of loans receivable as of December 31, 2019
PROBLEM 2
On January 1, 2016, DDD Co. loaned P3,000,000 to DEF Co. The terms of the loan were payment in full on January 1, 2021 plus annual
interest payments at 11%. The interest payment was made as scheduled on January 1, 2017, however, due to financial setbacks DEF Co.
was unable to make its 2018 interest payment. DDD Co. considers the loan impaired and projects the following cash flows from the loan
as of December 31, 2018 and 2019. Assume that DDD Co. accrued the interest at December 31, 2017, but did not continue to accrue
interest due to the impairment of the loan.
Date of flow
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022
December 31, 2023
Amount projected as of
December 31, 2018
December 31, 2019
P200,000
200,000
400,000
600,000
800,000
1,200,000
1,200,000
1,000,000
400,000
Your client requested you to determine the following: (Round off present value factors to four decimal places, e.g., 0.8264, 1.7355.)
8.
9.
10.
11.
12.
13.
Loan impairment loss in 2018
Interest income in 2019 assuming the P200,000 was collected on December 31, 2019
Allowance for loan impairment as of December 31, 2019
Under PFRS 9, gain on reversal of impairment loss in 2019
Interest income in 2020 assuming the P600,000 was collected on December 31, 2020
Carrying amount of loan receivable as of December 31, 2020
PROBLEM 3
EEE Corp. required additional cash for its operation and used accounts receivable to raise such needed cash, as follows:
I.
On December 1, 2018, EEE assigned on a nonnotification basis accounts receivable of P10,000,000 to a bank in consideration for a
loan of 90% of the receivables less a 5% service fee on the accounts assigned. EEE signed a note for the bank loan. On December 31,
2018, EEE collected assigned accounts of P6,000,000 less discount of P400,000. EEE remitted the collections to the bank in partial
payment for the loan. The bank applied first the collection to the interest and the balance to the principal. The agreed interest is 1%
per month on the loan balance.
II. EEE sold P3,100,000 of accounts receivable for P2,680,000. The receivables had a carrying amount of P2,940,000 and were sold
outright on a nonrecourse basis.
III. On June 30, 2018, EEE discounted at a bank a customer’s P1,200,000, 6-month, 10% note receivable dated April 30, 2018. The bank
discounted the note at 12% on the same date. It was a conditional sale.
Based on the audit findings, answer the following:
14. In its December 31, 2018 statement of financial position, EEE Corp. should report note payable as a current liability at
15. EEE Corp.’s equity in the assigned accounts receivable as of December 31, 2018 is
16. The entry to record the sale of accounts receivable would include a
A. Debit to loss on factoring, P420,000
C. Credit to accounts receivable, P2,940,000
B. Debit to loss on factoring, P260,000
D. Credit to cash P2,680,000
rom
17. The proceeds from the note receivable discounted on June 30, 2018 is
18. The entry to record the discounting of the note receivable would include a
A. Debit to interest expense, P10,400
C. Credit to notes receivable, P1,200,000
B. Credit to interest income, P40,000
D. Debit to loss on discounting, P10,400
PROBLEM 4
E Co. showed the following balances on December 31, 2017:
Accounts receivable
Allowance for doubtful accounts
P6,000,000
(180,000)
The following transactions transpired for E Co. during the year 2018:
a.
b.
c.
d.
e.
f.
g.
On May 1, received a P900,000, six-month, 12% interest-bearing note from GHI, a customer, in settlement of an account.
On June 30, factored P1,200,000 of its AR to a finance company. The finance company charged a factoring fee of 5% of the
accounts factored and withheld 20% of the
amount factored.
On August 1, E Co. discounted the GHI note at the bank at 15%.
On November 1, GHI defaulted on the P900,000 note. E Co. paid the bank the total amount due plus a P36,000 protest fee and other
bank charges.
On December 31, E Co. assigned P1,800,000 of its accounts receivable to a bank under a nonnotification basis. The bank advanced
80% less a service fee of 5% of the accounts assigned. E Co. signed a promissory note for the loan.
On December 31, E Co. collected from GHI in full including interest on total amount due at 12% since default date.
On December 31, it is estimated that 5% of the accounts receivable may prove uncollectible.
Based on the above data, compute the following:
19.
20.
21.
22.
23.
24.
25.
Amount of cash received on June 30 factoring
Amount of cash received on August 1 discounting
Amount paid on November 1 default on the P900,000 note
Amount of cash received on December 31 assignment of accounts receivable
Amount of cash received on December 31 collection of accounts of GHI
Balance of allowance for doubtful accounts as of December 31, 2018
The net realizable value of accounts receivable as of December 31, 2018
rom
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