SOLUTION MANUAL
Financial Accounting
Valix and Peralta
Volume One - 2008 Edition
1
CHAPTER 1
Problem 1-1
Problem 1-2
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
D
C
D
D
C
C
B
C
D
A
A
A
D
B
D
B
D
C
C
D
Problem 1-3
1.
2.
3.
4.
5.
C
D
D
A
D
Problem 1-4
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
A
C
A
A
D
A
D
B
D
D
Problem 1-5
Problem 1-6
Problem 1-7
Problem 1-8
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
A
A
A
D
D
D
B
D
C
D
Problem 1-9
1.
2.
3.
4.
5.
D
D
C
B
C
A
A
C
A
A
A
B
C
A
B
D
D
C
A
A
C
D
D
B
D
B
B
C
C
A
B
D
D
A
B
Problem 1-10
Problem 1-11
Problem 1-12
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
A
B
D
B
A
D
C
A
D
A
C
B
D
A
F
E
J
G
H
I
E
D
B
C
G
H
I
F
J
A
2
Problem 1-13
1. Systematic and rational allocation
as a matching process
2. Comparability or consistency
3. Monetary unit
4. Income recognition principle
5. Time period
6. Going concern and cost principle
7. Accounting entity
8. Materiality
9. Completeness or standard
of adequate disclosure
10. Conservatism or prudence
Problem 1-14
1. Materiality
2. Going concern
3. Income recognition principle
4. Accounting entity
5. Standard of adequate disclosure
6. Comparability
7. Matching principle
8. Cost principle
9. Reliability
10. Time period
Problem 1-15
1. The cost of leasehold improvement should not be recorded as outright expense, but
should be amortized as expense over the life of the improvement or life of the lease,
whichever is shorter. This is in conformity with the systematic and rational allocation
principle of expense recognition.
2. The fact that the customer has not been seen for a year is not a controlling factor to
write off the account. If the account is doubtful of collection, an allowance should be
set up. It is only when there is proof of uncollectibility that the account should be written
off.
3. Advertising cost should be treated as outright expense, by reason of the uncertainty of
the benefit that may be derived therefrom in the future, in conformity with “immediate
recognition principle”.
4. The balance of the cash surrender value should not be charged to loss. In reality, this
is conceived as a prospective receivable if and when the policy is canceled because
of excessive premium in the early stage of policy. The CSV should be classified as
noncurrent investment.
5. The cost of obsolete merchandise should not be included as part of inventory but
charged to expense, as a conservative approach.
6. The excess payment represents goodwill which should not be amortized but subject to
impairment. Conservatism dictates that goodwill should be recognized when paid for.
7. The depreciation is not dependent on the amount of profit generated during the year.
Depreciation is an allocation of cost and therefore should be provided regardless of
the level of earnings.
8. An entry should be made to recognize the inventory fire loss, and such loss should be
treated as component of income.
9. Revenues and expenses of the canteen should be separated from the revenues and
cost of regular business operations in order to present fairly the financial position and
performance of the regular operations.
10. The increase in value of land and building should not be taken up in the accounts. The
use of revalued amount is permitted only when the revaluation is made by
independent and expert appraiser. The expected sales price of P5,000,000 is not
necessarily the revalued amount of the land and building. Moreover, increase in value
is not an income until the asset is sold.
Problem 1-16
1. Accrual assumption
2. Going concern assumption
3. Asset recognition principle
4. Cost principle
5. Liability recognition principle
6. Income recognition principle
7. Expense recognition principle
8. Cause and effect association principle
9. Systematic and rational allocation principle
10. Immediate recognition principle
Problem 1-17
1. Monetary unit assumption
2. Cost principle
3. Materiality
4. Time period
5. Matching principle
6. Substance over form
7. Income recognition principle
8. Comparability or consistency
9. Conservatism or prudence
10. Adequate disclosure or completeness
Problem 1-18
1. The cost of the asset should be the amount of cash paid. No income should be
recognized when an asset is purchased at an amount less than its market value.
Revenue arises from the act of selling and not from the act of buying.
2. The entry should be reversed because the pending lawsuit is a mere contingency. The
contingent loss is simply disclosed. To be recognized in accordance with conservatism,
the contingent loss must be both probable and measurable.
3. The new car should be charged against the president and debited to receivable from
officer, because the car is for personal use.
4
4. The entry is incorrect because no revenue shall be recognized until a sale has taken
place.
5. Purchased goodwill should be recorded as an asset. Under the new standard, goodwill
is not amortized anymore but on each balance sheet date it should be assessed for
impairment.
Problem 1-19
1.
2.
3.
4.
6.
Accrual
Going concern
Accounting entity
Monetary unit
Time period
5
CHAPTER 2
Problem 2-1
Easy Company
Statement of Financial Position
December 31, 2008
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses
Total current assets
Noncurrent assets:
Property, plant and equipment
Long-term investments
Intangible asset
Total noncurrent assets
Total assets
Note
(1)
800,000
450,000
900,000
200,000
2,350,000
(2)
(3)
4,400,000
950,000
800,000
6,150,000
8,500,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade and other payables
Note payable, short-term debt
Total current liabilities
Noncurrent liabilities:
Mortgage payable, due in 5 years
Note payable, long-term debt
Total noncurrent liabilities
Shareholders’ equity:
Share capital, P100 par
Share premium
Retained earnings
Total shareholders’ equity
Total liabilities and stockholders’ equity
(4)
450,000
200,000
650,000
1,500,000
500,000
2,000,000
4,000,000
500,000
1,350,000
5,850,000
8,500,000
Note 1 - Prepaid expenses
Office supplies
Prepaid rent
Total prepaid expenses
50,000
150,000
200,000
6
Note 2 - Property, plant and equipment
Property, plant and equipment
Accumulated depreciation
Net book value
5,600,000
(1,200,000)
4,400,000
Note 3 - Intangible asset
Patent
800,000
Note 4 - Trade and other payables
Accounts payable
Accrued expenses
Total
350,000
100,000
450,000
Problem 2-2
Simple Company
Statement of Financial Position
December 31, 2008
ASSETS
Current assets:
Cash
Trading securities
Trade and other receivables
Inventories
Prepaid expenses
Total current assets
Noncurrent assets:
Property, plant and equipment
Long-term investments
Intangible assets
Total noncurrent assets
Total assets
Note
420,000
250,000
620,000
(2)
(1)
1,250,000
(3)
20,000
2,560,000
(4)
(5)
(6)
4,640,000
2,000,000
300,000
6,940,000
9,500,000
7
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade and other payables
Serial bonds payable - current portion
Total current liabilities
Note
(7)
620,000
500,000
1,120,000
Noncurrent liabilities:
Serial bonds payable - remaining portion
Shareholders’ equity:
Share capital
Share premium
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
2,000,000
5,000,000
500,000
880,000
6,380,000
9,500,000
Note 1 - Trade and other receivables
Accounts receivable
Allowance for doubtful accounts
Notes receivable
Claim receivable
Total
500,000
( 50,000)
150,000
20,000
620,000
Note 2 - Inventories
Finished goods
Goods in process
Raw materials
Factory supplies
Total
400,000
600,000
200,000
50,000
1,250,000
Note 3 - Prepaid expenses
Prepaid insurance
20,000
Note 4 - Property, plant and equipment
Land
Building
Machinery
Tools
Total
Cost
1,500,000
4,000,000
2,000,000
40,000
7,540,000
Accum.
depr.
1,600,000
1,300,000
2,900,000
Book
value
1,500,000
2,400,000
700,000
40,000
4,640,000
8
Note 5 - Long-term investments
Investment in bonds
Plant expansion fund
Total
1,500,000
500,000
2,000,000
Note 6 - Intangible assets
Franchise
Goodwill
Total
200,000
100,000
300,000
Note 7 - Trade and other payables
Accounts payable
Notes payable
Income tax payable
Advances from customers
Accrued expenses
Accrued interest on note payable
Employees income tax payable
Total
300,000
100,000
60,000
100,000
30,000
10,000
20,000
620,000
Problem 2-3
Exemplar Company
Statement of Financial Position
December 31, 2008
ASSETS
Current assets:
Cash and cash equivalents
Trading securities
Trade and other receivables
Inventories
Prepaid expenses
Total current assets
Noncurrent assets:
Property, plant and equipment
Long-term investments
Intangible assets
Other noncurrent assets
Total noncurrent assets
Total assets
Note
(1)
500,000
280,000
640,000
1,300,000
70,000
2,790,000
(2)
(3)
(4)
(5)
5,300,000
1,310,000
3,350,000
150,000
10,110,000
12,900,000
9
LIABILITIES AND SHAREHOLDERS’ EQUITY
Note
Current liabilities:
Trade and other payables
Noncurrent liabilities:
Bonds payable
Premium on bonds payable
Total noncurrent liabilities
(6)
1,000,000
5,000,000
1,000,000
6,000,000
Shareholders’ equity:
Share capital
Reserves
Retained earnings (deficit)
Total shareholders’ equity
Total liabilities and shareholders’ equity
(7)
(8)
7,000,000
700,000
(1,800,000)
5,900,000
12,900,000
Note 1 - Trade and other receivables
Accounts receivable
Allowance for doubtful accounts
Notes receivable
Accrued interest on notes receivable
Total
400,000
( 20,000)
250,000
10,000
640,000
Note 2 - Property, plant and equipment
Land
Building
Equipment
Total
Cost
1,500,000
5,000,000
1,000,000
7,500,000
Accum.
depr.
2,000,000
200,000
2,200,000
Book
value
1,500,000
3,000,000
800,000
5,300,000
Note 3 - Long-term investments
Land held for speculation
Sinking fund
Preference share redemption fund
Cash surrender value
Total
500,000
400,000
350,000
60,000
1,310,000
Note 4 - Intangible assets
Computer software
Lease rights
Total
3,250,000
100,000
3,350,000
10
Note 5 - Other noncurrent assets
Advances to officers, not collectible currently
Long-term refundable deposit
Total
100,000
50,000
150,000
Note 6 - Trade and other payables
Accounts payable
Notes payable
Unearned rent income
SSS payable
Accrued salaries
Dividends payable
Withholding tax payable
Total
400,000
300,000
40,000
10,000
100,000
120,000
30,000
1,000,000
Note 7 – Share capital
Preference share capital
Ordinary share capital
Total
2,000,000
5,000,000
7,000,000
Note 8 - Reserves
Share premium – preference
Share premium – ordinary
Total
500,000
200,000
700,000
Problem 2-4
Relax Company
Statement of Financial Position
December 31, 2008
ASSETS
Current assets:
Cash
Trade accounts receivable
Inventories
Prepaid expenses
Total current assets
Noncurrent assets:
Property, plant and equipment
Investment in associate
Intangible assets
Total noncurrent assets
Note
400,000
750,000
1,000,000
100,000
(1)
2,250,000
(2)
(3)
5,600,000
1,300,000
350,000
7,250,000
Total assets
9,500,000
11
LIABILITIES AND SHAREHOLDERS’ EQUITY
Note
Current liabilities:
Trade and other payables
Mortgage note payable-current portion
Total current liabilities
(4)
1,750,000
Noncurrent liabilities:
Mortgage note payable, remaining position
Bank loan payable, due June 30, 2010
Total noncurrent liabilities
Shareholders’ equity:
Share capital
Reserves
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
1,350,000
400,000
1,600,000
500,000
2,100,000
(5)
3,000,000
1,400,000
1,250,000
5,650,000
9,500,000
Note 1 - Trade accounts receivable
Accounts receivable
Allowance for doubtful accounts
Net realizable value
800,000
( 50,000)
750,000
Note 2 - Property, plant and equipment
Land
Building
Machinery
Equipment
Total
Cost
500,000
5,000,000
3,000,000
400,000
8,900,000
Accum.
depr.
2,000,000
1,200,000
100,000
3,300,000
Book
value
500,000
3,000,000
1,800,000
300,000
5,600,000
Note 3 - Intangible assets
Trademark
Secret processes and formulas
Total
150,000
200,000
350,000
Note 4 - Trade and other payables
Notes payable
Accounts payable
750,000
350,000
Income tax payable
Accrued expenses
Estimated liability for damages
Total
50,000
60,000
140,000
1,350,000
12
Note 5 - Reserves
Additional paid in capital
Retained earnings appropriated for plant expansion
Retained earnings appropriated for contingencies
Total
300,000
1,000,000
100,000
1,400,000
Problem 2-5
Summa Company
Statement of Financial Position
December 31, 2008
ASSETS
Current assets:
Cash
Bond sinking fund
Trade and other receivables
Inventory
Prepaid expenses
Total current assets
Note
(1)
(2)
700,000
2,000,000
830,000
1,200,000
100,000
4,830,000
Noncurrent assets:
Property, plant and equipment
Investment property
Intangible asset
Total noncurrent assets
Total assets
(3)
(4)
5,500,000
700,000
370,000
6,570,000
11,400,000
LIABILITIES AND EQUITY
Note
Current liabilities:
Trade and other payables
Bonds payable due June 30, 2009
Total current liabilities
(5)
2,050,000
2,000,000
4,050,000
Noncurrent liability:
Deferred tax liability
Equity:
Share capital
Reserves
Retained earnings
Total equity
650,000
(6)
(7)
3,500,000
500,000
2,700,000
6,700,000
Total liabilities and equity
11,400,000
13
Note 1 - Cash
Cash on hand
Cash in bank
50,000
650,000
700,000
Note 2 - Trade and other receivables
Accounts receivable
Allowance for doubtful accounts
Notes receivable
Accrued interest receivable
Total
650,000
( 50,000)
200,000
30,000
830,000
Note 3 - Property, plant and equipment
Land
Building
Furniture and equipment
Total
Cost
1,000,000
5,500,000
2,400,000
8,900,000
Accum.
depr.
2,500,000
900,000
3,400,000
Book
value
1,000,000
3,000,000
1,500,000
5,500,000
Note 4 - Intangible asset
Patent
370,000
Note 5 - Trade and other payables
Accounts payable
Notes payable
Accrued taxes
Other accrued liabilities
Total
1,000,000
850,000
50,000
150,000
2,050,000
Note 6 – Share capital
Authorized share capital, 50,000 shares, P100 par
Unissued share capital
Issued share capital
Subscribed share capital, 10,000 shares
Subscription receivable
Paid in capital
Note 7 - Reserves
5,000,000
(2,000,000)
3,000,000
1,000,000
( 500,000)
500,000
3,500,000
Share premium
Retained earnings appropriated for contingencies
Total
300,000
200,000
500,000
14
Problem 2-6 (Functional method)
Karla Company
Income Statement
Year ended December 31, 2008
Note
Net sales revenue
Cost of sales
Gross income
Other income
Total income
Expenses:
Selling expenses
Administrative expenses
Other expenses
Income before tax
Income tax
Net income
(1)
(2)
7,700,000
(5,000,000)
2,700,000
400,000
3,100,000
(3)
(4)
(5)
(6)
950,000
800,000
100,000
1,850,000
1,250,000
( 250,000)
1,000,000
Note 1 – Net sales revenue
Gross sales
Sales returns and allowances
Sales discounts
Net sales revenue
7,850,000
( 140,000)
( 10,000)
7,700,000
Note 2 – Cost of sales
Inventory, January 1
Purchases
Freight in
Purchase returns and allowances
Purchase discounts
Net purchases
Goods available for sale
Inventory, December 31
Cost of sales
Note 3 – Other income
1,000,000
5,250,000
500,000
( 150,000)
( 100,000)
5,500,000
6,500,000
(1,500,000)
5,000,000
Rental income
Dividend revenue
Total other income
250,000
150,000
400,000
15
Note 4 – Selling expenses
Freight out
Salesmen’s commission
Depreciation – store equipment
Total selling expenses
175,000
650,000
125,000
950,000
Note 5 – Administrative expenses
Officers’ salaries
Depreciation – office equipment
Total administrative expenses
500,000
300,000
800,000
Note 6 – Other expenses
Loss on sale of equipment
Loss on sale of investment
Total other expenses
50,000
50,000
100,000
Natural method
Karla Company
Income Statement
Year ended December 31, 2008
Net sales revenue
Other income
Total
Expenses:
Increase in inventory
Net purchases
Freight out
Salesmen’s commission
Depreciation
Officers’ salaries
Other expenses
Income before tax
Note
(1)
(2)
(3)
(4)
(5)
(6)
7,700,000
400,000
8,100,000
( 500,000)
5,500,000
175,000
650,000
425,000
500,000
100,000
6,850,000
1,250,000
Income tax
Net income
( 250,000)
1,000,000
16
Note 1 – Net sales revenue
Gross sales
Sales returns and allowances
Sales discounts
Net sales revenue
7,850,000
( 140,000)
( 10,000)
7,700,000
Note 2 – Other income
Rental income
Dividend revenue
Total other income
250,000
150,000
400,000
Note 3 – Increase in inventory
Inventory, December 31
Inventory, January 1
Increase in inventory
1,500,000
1,000,000
500,000
Note 4 – Net purchases
Purchases
Freight in
Purchase returns and allowances
Purchase discounts
Net purchases
5,250,000
500,000
( 150,000)
( 100,000)
5,500,000
Note 5 – Depreciation
Depreciation – store equipment
Depreciation – office equipment
Total
125,000
300,000
425,000
Note 6 – Other expenses
Loss on sale of equipment
50,000
Loss on sale of investment
Total
50,000
100,000
17
Problem 2-7
Masay Company
Statement of Cost of Goods Manufactured
Year Ended December 31, 2008
Raw materials – January 1
Purchases
Raw materials available for use
Less: Raw materials – December 31
Raw materials used
Direct labor
Factory overhead:
Indirect labor
Superintendence
Light, heat and power
Rent – factory building
Repair and maintenance – machinery
Factory supplies used
Depreciation – machinery
Total manufacturing cost
Goods in process – January 1
Total Cost of goods in process
Less: Goods in process – December 31
Cost of goods manufactured
200,000
3,000,000
3,200,000
280,000
2,920,000
950,000
250,000
210,000
320,000
120,000
50,000
110,000
60,000
1,120,000
4,990,000
240,000
5,230,000
170,000
5,060,000
Cost of sales method
Masay Company
Income Statement
Year ended December 31, 2008
Net sales revenue
Cost of goods sold
Gross income
Other income
Total income
Expenses:
Selling expenses
Note
(1)
(2)
7,450,000
(5,120,000)
2,330,000
210,000
2,540,000
(3)
(4)
830,000
Administrative expenses
Other expense
Income before tax
Income tax expense
Net income
(5)
(6)
590,000
300,000
1,720,000
820,000
( 320,000)
500,000
18
Note 1 – Net sales revenue
Sales
Sales returns and allowances
Net sales revenue
(
7,500,000
50,000)
7,450,000
Note 2 – Cost of goods sold
Finished goods – January 1
Cost of goods manufactured
Goods available for sale
Finished goods – December 31
Cost of goods sold
360,000
5,060,000
5,420,000
( 300,000)
5,120,000
Note 3 – Other income
Gain from expropriation
Interest income
Gain on sale of equipment
100,000
10,000
100,000
210,000
Note 4 – Selling expenses
Sales salaries
Advertising
Depreciation – store equipment
Delivery expenses
Total
400,000
160,000
70,000
200,000
830,000
Note 5 – Administrative expenses
Office salaries
Depreciation – office equipment
Accounting and legal fees
Office expenses
Total
150,000
40,000
150,000
250,000
590,000
Note 6 – Other expense
Earthquake loss
300,000
19
Nature of expense method
Masay Company
Income Statement
Year Ended December 31, 2008
Net sales revenue
Other income
Total income
Expenses:
Decrease in finished goods
and goods in process
Raw materials used
Direct labor
Factory overhead
Salaries
Advertising
Depreciation
Delivery expenses
Accounting and legal fees
Office expenses
Other expense
Income before tax
Income tax expense
Net income
Note
(1)
(2)
(4)
7,450,000
210,000
7,660,000
(3)
130,000
2,920,000
950,000
(5)
1,120,000
(6)
550,000
160,000
(7)
110,000
200,000
150,000
250,000
(8)
300,000
6,840,000
820,000
( _320,000)
500,000
Note 1 – Net sales revenue
Sales
Sales returns and allowances
Net sales revenue
(
7,500,000
50,000)
7,450,000
Note 2 – Other income
Gain from expropriation
Interest income
100,000
10,000
Gain on sale of equipment
100,000
210,000
Note 3 – Decrease in finished goods and goods in process
Finished goods
Goods in process
Total
January 1
360,000
240,000
600,000
December 31
300,000
170,000
470,000
Decrease
60,000
70,000
130,000
20
Note 4 – Raw materials used
Raw materials – January 1
Purchases
Raw materials available for use
Raw materials – December 31
Raw materials used
200,000
3,000,000
3,200,000
280,000
2,920,000
Note 5 – Factory overhead
Indirect labor
Superintendence
Light, heat and power
Rent – factory building
Repair and maintenance – machinery
Factory supplies used
Depreciation – machinery
Total
250,000
210,000
320,000
120,000
50,000
110,000
60,000
1,120,000
Note 6 – Salaries
Sales salaries
Office salaries
Total
400,000
150,000
550,000
Note 7 – Depreciation
Depreciation – store equipment
Depreciation – office equipment
Total
70,000
40,000
110,000
Note 8 – Other expense
Earthquake loss
300,000
Problem 2-8
Youth Company
Income Statement
Year ended December 31, 2008
Net sales revenue
Cost of goods sold
Gross income
Expenses:
Selling expenses
Administrative expenses
Other expense
Income before tax
Income tax expense
Net income
Note
(1)
(2)
(3)
(4)
(5)
8,870,000
(5,900,000)
2,970,000
690,000
580,000
340,000
1,610,000
1,360,000
( 360,000)
1,000,000
21
Note 1 – Net sales revenue
Sales
Sales returns and allowances
Net sales revenue
9,070,000
( 200,000)
8,870,000
Note 2 – Cost of goods sold
Beginning inventory
Purchases
Transportation in
Purchase discounts
Goods available for sale
Ending inventory
Cost of goods sold
1,500,000
5,750,000
150,000
( 100,000)
5,800,000
7,300,000
(1,400,000)
5,900,000
Note 3 – Selling expenses
Depreciation – store equipment
Store supplies
Sales salaries
Total
110,000
80,000
500,000
690,000
Note 4 – Administrative expenses
Officers’ salaries
Depreciation – building
Office supplies
Total
Note 5 – Other expense
400,000
120,000
60,000
580,000
Uninsured flood loss
340,000
22
Problem 2-9
Christian Company
Statement of Cost of Goods Manufactured
Year Ended December 31, 2008
Purchases
Freight in
Total
Increase in raw materials
Raw materials used
Direct labor
Factory overhead:
Indirect labor
Depreciation – machinery
Factory taxes
Factory supplies expense
Factory superintendence
Factory maintenance
Factory heat, light and power
Total manufacturing cost
Decrease in goods in process
Cost of goods manufactured
1,600,000
80,000
1,680,000
( 100,000)
1,580,000
1,480,000
600,000
50,000
130,000
120,000
480,000
150,000
220,000
1,750,000
4,810,000
90,000
4,900,000
Christian Company
Income Statement
Year Ended December 31, 2008
Note
Sales revenue
Cost of goods sold
Gross income
Expenses:
Selling expenses
8,000,000
(5,100,000)
2,900,000
(1)
(2)
800,000
Administrative expenses
Income before tax
Income tax expense
Net income
(3)
930,000
1,730,000
1,170,000
( 170,000)
1,000,000
Note 1 – Cost of goods sold
Cost of goods manufactured
Decrease in finished goods
Cost of goods sold
4,900,000
200,000
5,100,000
23
Note 2 – Selling expenses
Sales salaries
520,000
Advertising
120,000
Delivery expense
160,000
Total
800,000
Note 3 – Administrative expenses
Office supplies expense
30,000
Office salaries
800,000
Doubtful accounts
100,000
Total
930,000
Problem 2-10
Ronald Company
Statement of Cost of Goods Manufactured
Year Ended December 31, 2008
Materials – January 1
Purchases
Freight on purchases
1,120,000
1,600,000
220,000
Purchase discounts
Materials available for use
Less: Materials – December 31
Materials used
Direct labor
Factory overhead:
Heat, light and power
Repairs and maintenance
Indirect labor
Other factory overhead
Factory supplies used (300,000 + 660,000 – 540,000)
Depreciation – factory building
Total manufacturing cost
Goods in process – January 1
Total cost of goods in process
Less: Goods in process – December 31
Cost of goods manufactured
(
20,000)
1,800,000
2,920,000
1,560,000
1,360,000
2,000,000
600,000
100,000
360,000
340,000
420,000
280,000
2,100,000
5,460,000
360,000
5,820,000
320,000
5,500,000
24
Ronald Company
Income Statement
Year Ended December 31, 2008
Note
Net sales revenue
Cost of goods sold
Gross income
Other income
Total income
Expenses:
Selling expenses
Administrative expenses
Income before tax
Income tax expense
Net income
Note 1 – Net sales revenue
(1)
(2)
6,980,000
(5,400,000)
1,580,000
160,000
(3)
1,740,000
200,000
340,000
540,000
1,200,000
( 200,000)
1,000,000
Sales
Sales returns and allowances
Net sales revenue
7,120,000
( 140,000)
6,980,000
Note 2 – Cost of goods sold
Finished goods – January 1
Cost of goods manufactured
Goods available for sale
Finished goods – December 31
Cost of goods sold
420,000
5,500,000
5,920,000
( 520,000)
5,400,000
Note 3 – Other income
Interest revenue
160,000
25
Problem 2-11
Reliable Company
Statement of Retained Earnings
Year Ended December 31, 2008
Retained earnings – January 1
Prior period error – overdepreciation in 2007
Change in accounting policy from FIFO to weighted average
method – credit adjustment
Corrected beginning balance
Net income
Decrease in appropriation for treasury share
Total
Cash dividends paid to shareholders
Current appropriation for contingencies
Retained earnings – December 31
200,000
100,000
150,000
450,000
1,300,000
200,000
1,950,000
( 500,000)
( 100,000)
1,350,000
Problem 2-12
Net income
3,000,000
Loss from fire
Goodwill impairment
Loss on sale of equipment
Gain on retirement of bonds payable
Gain on life insurance settlement
Adjusted net income
( 50,000)
( 250,000)
( 200,000)
100,000
450,000
3,050,000
Gondola Company
Statement of Retained Earnings
Year ended December 31, 2008
Balance – January 1
Compensation of prior period not accrued
Correction of prior period error – credit
Adjusted beginning balance
Net income – adjusted
Stock dividend
Loss on retirement of preference share
Appropriated for treasury share
Balance – December 31
2,600,000
( 500,000)
400,000
2,500,000
3,050,000
( 700,000)
( 350,000)
(1,000,000)
3,500,000
26
CHAPTER 3
Problem 3-1
1.
2.
3.
4.
5.
D
A
A
C
B
6.
7.
8.
9.
10.
Problem 3-2
D
B
C
C
A
1.
2.
3.
4.
5.
D
D
C
A
C
6.
7.
8.
9.
10.
D
D
B
D
B
Problem 3-3
a. Undeposited collections
Cash in bank – PCIB
Cash in bank – PCIB (for payroll)
Cash in bank - PCIB (savings deposit)
Money market instrument – 90 days
Total cash and cash equivalents
b. Accounts receivable (15,000 + 25,000)
60,000
500,000
150,000
100,000
2,000,000
2,810,000
40,000
Cash in foreign bank
Advances to officers
Sinking fund cash
Trading securities
Bank overdraft
Cash
100,000
30,000
450,000
120,000
50,000
690,000
Problem 3-4
Adjusting entries on December 31, 2008
a. Cash
Accounts payable
100,000
b. Cash
Accounts payable
50,000
c. Accounts receivable
Cash
100,000
50,000
200,000
d. Accounts receivable (20,000 + 60,000 + 30,000)
110,000
Money market placement
1,000,000
Cash in closed bank
50,000
Advances to employee
30,000
Pension fund
400,000
Cash
200,000
1,590,000
27
Cash and cash equivalents:
Demand deposit (see below)
Time deposit – 30 days
Petty cash fund
Total
Demand deposit per book
Undelivered check
Postdated check delivered
Window dressing of collection
Adjusted balance
1,450,000
500,000
10,000
1,960,000
1,500,000
100,000
50,000
( 200,000)
1,450,000
Problem 3-5
1. Cash on hand
Postdated check
Adjusted cash on hand
500,000
(100,000)
400,000
2. Petty cash fund
Unreplenished petty cash expenses
20,000
( 2,000)
Postdated employee check
Adjusted petty cash
( 3,000)
15,000
3. Security Bank current account
Postdated company check delivered
Adjusted balance
1,000,000
200,000
1,200,000
4. Cash on hand
Petty cash fund
Security Bank current account
PNB current account No. 1
PNB current account No. 2
BSP Treasury bill – 60 days
Total cash and cash equivalents
(
400,000
15,000
1,200,000
400,000
50,000)
3,000,000
4,965,000
*The BPI Time deposit of P2,000,000 is shown as noncurrent investment because it is
restricted for land acquisition.
5. Accounts receivable
Cash on hand
Expenses
Receivable from employee
Petty cash fund
Security Bank current account
Accounts payable
100,000
100,000
2,000
3,000
5,000
200,000
200,000
28
Problem 3-6
1. Cash on hand
NSF customer check
Postdated customer check
Adjusted on hand
500,000
( 40,000)
( 60,000)
400,000
2. Currency and coins
Check drawn payable to petty cashier
Adjusted petty cash
1,000
14,000
15,000
3. Cash in bank
Undelivered company check
Postdated company check delivered
Adjusted cash in bank
4. Accounts receivable (40,000 + 60,000)
Cash on hand
Advances to employees
2,000,000
100,000
150,000
2,250,000
100,000
100,000
3,000
Cash short or over
Petty cash fund
Cash in bank (100,000 + 150,000)
Accounts payable
2,000
5,000
250,000
250,000
Problem 3-7
1. Cash on hand
NSF customer check
Postdated customer check
Adjusted cash on hand
200,000
( 35,000)
( 15,000)
150,000
2. Petty cash fund:
Currency and coins
5,000
3. Philippine Bank current account
Undelivered company check
Postdated company check delivered
Adjusted balance
5,000,000
25,000
45,000
5,070,000
4. Cash on hand
Petty cash fund
Philippine Bank current
Manila Bank current
Asia Bank time deposit
Total cash and cash equivalent
150,000
5,000
5,070,000
4,000,000
2,000,000
11,225,000
29
5. Accounts receivable
Cash on hand
50,000
50,000
Receivable from officer
Expenses
Cash short or over
Petty cash
2,000
12,000
1,000
Philippine Bank current
Accounts payable
70,000
City Bank current
Bank overdraft
15,000
70,000
100,000
100,000
Problem 3-8
Fluctuating Fund System
Imprest Fund System
1. Petty cash fund
Cash in bank
10,000
2. Postage
Supplies
Transportation
Miscellaneous expense
Petty cash fund
1,500
5,500
1,200
800
3. Petty cash fund
Cash in bank
10,000
1. Petty cash fund
Cash in bank
10,000
10,000
2. No entry
9,000
14,000
14,000
3. Petty cash fund
Postage
Supplies
Transportation
Miscellaneous expense
Cash in bank
5,000
1,500
5,500
1,200
800
14,000
Problem 3-9
Fluctuating Fund System
1. Petty cash fund
Cash in bank
10,000
2. Postage
Supplies
Petty cash fund
1,500
2,000
3. Transportation
Miscellaneous expense
Cash in bank
1,000
500
Imprest Fund System
10,000
1. Petty cash fund
Cash in bank
10,000
10,000
2. No entry
3,500
3. No entry
1,500
4. No entry
30
Fluctuating Fund System
4. Supplies
Accounts payable
Petty cash fund
1,000
3,000
5. Petty cash fund
Cash in bank
9,000
6. Postage
Supplies
Transportation
Petty cash fund
2,000
3,000
4,000
7. Petty cash fund
Cash in bank
Imprest Fund System
4,000
9,000
5. Postage
1,500
Supplies
3,000
Transportation
1,000
Miscellaneous expense
500
Accounts payable
3,000
Cash in bank
9,000
6. No entry
9,000
19,000
19,000
7. Petty cash fund
Postage
Supplies
Transportation
Cash in bank
10,000
2,000
3,000
4,000
19,000
Problem 3-10
Fluctuating Fund System
May 2 Petty cash fund
Cash in bank
10,000
10,000
29 Postage
Supplies
Transportation
Miscellaneous expense
Petty cash fund
1,000
3,000
2,500
1,500
8,000
Imprest Fund System
May 2 Petty cash fund
Cash in bank
10,000
10,000
29 Postage
Supplies
Transportation
Miscellaneous expense
Petty cash fund
Petty cash fund
Cash in bank
June 30 Supplies
Accounts payable
Transportation
Petty cash fund
2,000
1,000
1,000
July
4,000
1 Petty cash fund
Supplies
Postage
Transportation
4,000
1,000
3,000
2,500
1,500
8,000
8,000
8,000
June 30 Supplies
Accounts payable
Transportation
Petty cash fund
2,000
1,000
1,000
4,000
2,000
1,000
1,000
To reverse the adjustment made
on June 30.
15 Petty cash fund
Supplies
Postage
Transportation
Miscellaneous expense
Cash in bank
5,000
3,500
1,500
1,500
500
July 15 Supplies
1,500
Postage
500
Transportation
500
Miscellaneous expense
500
Petty cash fund
3,000
12,000
Petty cash fund
Cash in bank
12,000
12,000
31
Problem 3-11
2008
Nov. 2
30
Dec. 31
2009
Petty cash fund
Cash in bank
10,000
Postage
Supplies
Petty cash fund
Cash in bank
2,000
5,000
10,000
Postage
Supplies
Special deposit
Petty cash fund
3,000
4,000
2,000
10,000
17,000
9,000
Jan. 1
2
31
Petty cash fund
Postage
Supplies
Special deposit
9,000
3,000
4,000
2,000
No entry
Postage
Supplies
Accounts payable
Cash short or over
Cash in bank
5,000
6,000
7,000
1,000
19,000
Problem 3-12
Requirement 1
2008
Dec. 1 Petty cash fund
Cash in bank
10,000
10,000
20 Selling expenses
Miscellaneous expenses
Equipment
Cash in bank
5,000
2,000
2,000
31 Receivable from employee
Selling expenses
Transportation
Petty cash fund
2,000
1,500
500
9,000
4,000
2009
Jan. 1 Petty cash fund
Receivable from employee
Selling expenses
Transportation
4,000
2,000
1,500
500
32
2009
Jan. 15 No entry
31 Selling expenses
Administrative expenses
Transportation
Purchases
Cash in bank
2,000
2,000
1,500
1,200
6,700
Requirement 2
Petty cash
Less: Petty cash expenses from December 21, 2008 to January 31, 2009:
Selling expenses (1,500 + 500)
2,000
Administrative expenses
2,000
Transportation (500 + 1,000)
1,500
10,000
Purchases
Petty cash before replenishment
1,200
Problem 3-13 Answer B
Problem 3-14 Answer C
Problem 3-15 Answer A
Problem 3-16 Answer A
Petty cash fund
Undeposited collections
Cash in bank
Total
50,000
1,100,000
2,500,000
3,650,000
Payroll account
Value added tax account
Traveler’s check
Money order
Petty cash fund
Total
6,700
3,300
2,500,000
1,000,000
300,000
700,000
40,000
4,540,000
Problem 3-17 Answer C
Checking account #101
Checking account #201
Time deposit account
90-day Treasury bill
Total cash and cash equivalent
1,750,000
( 100,000)
250,000
500,000
2,400,000
Problem 3-18 Answer B
Cash in First Bank
Change fund
Petty cash fund
Total
5,000,000
50,000
15,000
5,065,000
Problem 3-19 Answer B
Cash balance per book
Credit adjustment
Adjusted cash balance
6,000,000
(1,600,000)
4,400,000
33
Note receivable
Accounts receivable (400,000 + 200,000)
Cash
1,000,000
600,000
1,600,000
Problem 3-20 Answer A
Checkbook balance
Postdated customer check
NSF check
Undelivered company check
Adjusted balance
Problem 3-21 Answer A
8,000,000
(2,000,000)
( 500,000)
1,500,000
7,000,000
Cash on hand
Cash in bank
Petty cash
Saving deposit
Total deposit
2,400,000
3,500,000
40,000
2,000,000
7,940,000
Problem 3-22 Answer B
Problem 3-23 Answer A
Problem 3-24 Answer A
Problem 3-25 Answer A
Cash on hand and in bank
Time deposit
Saving deposit
Total
5,000,000
6,000,000
1,000,000
12,000,000
Problem 3-26 Answer B
Currencies
Coins
Accommodation check
Total
4,000
1,000
6,000
11,000
Problem 3-27 Answer C
Coins and currency
Replenishment check
Total
2,000
4,000
6,000
Problem 3-28 Answer C
Total petty cash
Currency and coins
Amount of replenishment
10,000
( 3,000)
7,000
34
CHAPTER 4
Problem 4-1
1.
2.
3.
4.
5.
D
A
B
C
C
Problem 4-2
6.
7.
8.
9.
10.
C
D
C
A
B
11.
12.
13.
14.
15.
C
B
A
C
C
Balance per book
Add: CM for note collected
Total
Less: DM for service charge
Adjusted book balance
65,000
30,000
95,000
2,000
93,000
Balance per bank
Add: Deposit in transit
Total
Less: Outstanding checks:
No. 102
105
107
Adjusted bank balance
108,000
80,000
188,000
15,000
30,000
50,000
95,000
93,000
Adjusting entries:
1. Cash in bank
Note receivable
30,000
2. Bank service charge
Cash in bank
2,000
30,000
2,000
Problem 4-3
Balance per book
Add: CM for note collected
Total
Less: DM for service charge
NSF check
Book error (52,000 – 25,000)
Adjusted book balance
110,000
45,000
155,000
5,000
10,000
27,000
42,000
113,000
35
Balance per bank
Add: Deposit in transit
Erroneous bank debit
Total
Less: Outstanding checks:
No. 770
775
777
Adjusted bank balance
Adjusting entries:
135,000
60,000
8,000
20,000
30,000
40,000
68,000
203,000
90,000
113,000
1. Cash in bank
Bank service charge
Note receivable
45,000
5,000
50,000
2. Bank service charge
Accounts receivable
Accounts payable
Cash in bank
5,000
10,000
27,000
42,000
Problem 4-4
Balance per book
Add: CM for note collected
Total
Less: DM for service charge
Adjusted book balance
2,840,000
270,000
3,110,000
5,000
3,105,000
Balance per bank
Add: Deposit in transit
Total
Less: Outstanding checks:
No. 116
122
124
125
Adjusted bank balance
3,265,000
450,000
3,715,000
60,000
180,000
120,000
250,000
610,000
3,105,000
Adjusting entries:
1. Cash in bank
Bank service charge
Note receivable
Interest income
2. Bank service charge
Cash in bank
270,000
10,000
250,000
30,000
5,000
5,000
36
Problem 4-5
Balance per book
Add: Note collected by bank
Total
Less: Bank service charge
NSF check
Adjusted book balance
Balance per bank
Deposit in transit
5,000,000
2,150,000
7,150,000
50,000
500,000
550,000
6,600,000
4,450,000
3,000,000
Total
Less: Outstanding checks
Adjusted bank balance
7,450,000
850,000
6,600,000
Adjusting entries:
1. Cash in bank
Bank service charge
Note receivable
Interest income
2,150,000
50,000
2. Bank service charge
Accounts receivable
Cash in bank
50,000
500,000
2,000,000
200,000
550,000
Problem 4-6
Book balance
Add: Collection of note
Interest on note
Book error on check no. 175
Total
Less: Bank service charge
Payment for light and water
NSF check
Adjusted book balance
Bank balance
Add: Deposit in transit
Total
Less: Bank error
Outstanding checks
Adjusted bank balance
1,405,000
2,500,000
150,000
45,000
2,695,000
4,100,000
5,000
245,000
220,000
470,000
3,630,000
5,630,000
750,000
6,380,000
1,100,000
1,650,000
2,750,000
3,630,000
37
Adjusting entries:
1. Cash in bank
Note receivable
Interest income
Accounts payable
2. Bank service charge
Light and water
Accounts receivable
2,695,000
2,500,000
150,000
45,000
5,000
245,000
220,000
Cash in bank
470,000
Problem 4-7
a. Balance per book – April 30
Credit memo for note collected
Outstanding checks:
No. 1331
1332
1334
1335
Total
Less: Bank service charge
NSF check
Undeposited collections
Balance per bank – April 30
1,100,000
60,000
40,000
30,000
60,000
10,000
140,000
1,300,000
5,000
25,000
270,000
300,000
1,000,000
b. Adjusting entries:
1. Cash in bank
Note receivable
60,000
2. Bank service charge
Accounts receivable
Cash in bank
5,000
25,000
60,000
30,000
c. Balance per book – April 30
CM for note collected
Bank service charge
NSF check
Adjusted cash in bank
1,100,000
60,000
(
5,000)
( 25,000)
1,130,000
38
Problem 4-8
a. Balance per bank
Add: Undeposited collections
NSF check
DM for safety deposit
Unrecorded check
Total
Less: Checks outstanding
3,500,000
550,000
50,000
5,000
125,000
650,000
730,000
4,230,000
Overstatement of creditor’s check
Understatement of customer’s check
Balance per book
180,000
270,000
1,100,000
3,130,000
b. Adjusting entries:
1. Cash in bank
Accounts payable
Accounts receivable
450,000
2. Accounts receivable
Bank service charge
Accounts payable
Cash in bank
50,000
5,000
125,000
270,000
180,000
180,000
c. Balance per book
Overstatement of creditor’s check
Understatement of customer’s check
Total
Less: NSF check
DM for safety box
Unrecorded check
Adjusted book balance
3,130,000
270,000
180,000
3,580,000
50,000
5,000
125,000
180,000
3,400,000
Problem 4-9
Balance per book
Add: Proceeds of bank loan
Note collected by bank
Total
Less: Service charge
Customer’s check charged back
Adjusted book balance
2,700,000
940,000
435,000
1,375,000
4,075,000
10,000
50,000
60,000
4,015,000
39
Balance per bank
Add: Deposit in transit
Incorrect deposit
Erroneous bank charge
Erroneous debit memo
Total
Less: Outstanding checks
Erroneous bank credit
4,000,000
475,000
90,000
150,000
200,000
600,000
300,000
915,000
4,915,000
900,000
Adjusted bank balance
4,015,000
Adjusting entries:
1. Cash in bank
Bank service charge
Interest expense (60,000 x 1/6)
Prepaid interest expense
Loan payable (940,000/94%)
Note receivable
Interest income
1,375,000
5,000
10,000
50,000
1,000,000
400,000
40,000
2. Bank service charge
Accounts receivable
Cash in bank
10,000
50,000
60,000
Problem 4-10
Balance per book (squeeze)
Add: Proceeds of bank loan
Proceeds of note collected
Total
Less: Bank service charge
NSF check
Adjusted book balance
Balance per bank (squeeze)
Add: Deposit in transit
Bank error (200,000 – 20,000)
Total
Less: Outstanding checks (750,000 – 50,000)
Adjusted bank balance
2,120,000
500,000
435,000
5,000
50,000
935,000
3,055,000
55,000
3,000,000
3,070,000
450,000
180,000
630,000
3,700,000
700,000
3,000,000
Adjusting entries:
Cash in bank
Bank service charge (5,000 + 15,000)
Accounts receivable
Loan payable
Notes receivable
Interest income
880,000
20,000
50,000
500,000
400,000
50,000
40
Problem 4-11
Balance per book
Add: Proceeds of bank loan
Total
Less: Understatement of check in payment of account
(200,000 – 20,000)
Petty cash fund
5,000,000
516,000
5,516,000
180,000
10,000
190,000
Adjusted book balance
Balance per bank
Add: Undeposited collections
Erroneous bank charge
Deposit omitted from bank statement
Total
Less: Erroneous bank credit
Outstanding checks
Adjusted bank balance
5,326,000
5,500,000
300,000
150,000
50,000
500,000
6,000,000
130,000
544,000
674,000
5,326,000
Adjusting entries:
Cash in bank
Interest expense (84,000 x 2/12)
Prepaid interest expense
Accounts payable
Petty cash fund
Supplies
Transportation
Postage
Loan payable (516,000/86%)
326,000
14,000
70,000
180,000
4,000
2,000
3,000
1,000
600,000
Problem 4-12
Balance per book
Add: Overstatement of check number 765
Check number 555 stopped for payment
Total
Less: Service charge
NSF check
Adjusted book balance
Balance per bank
Add: Undeposited collections
Total
Less: Outstanding checks:
Number 761
762
763
764
765
Adjusted bank balance
1,300,000
20,000
10,000
5,000
85,000
30,000
1,330,000
90,000
1,240,000
1,200,000
275,000
1,475,000
55,000
40,000
25,000
65,000
50,000
235,000
1,240,000
41
Adjusting entries:
1. Cash in bank
Accounts payable
Miscellaneous income
30,000
2. Bank service charge
5,000
20,000
10,000
Accounts receivable
Cash in bank
3. Receivable from cashier
Accounts receivable
Sales discounts
85,000
90,000
40,000
30,000
10,000
Problem 4-13
a. Bank reconciliation – June 30
Book balance
Add: Credit memo for note collected
Total
Less: NSF check
Service charge
Adjusted book balance
Bank balance
Add: Deposit in transit
Total
Less: Outstanding checks
Adjusted bank balance
1,000,000
300,000
1,300,000
100,000
4,000
104,000
1,196,000
1,650,000
400,000
2,050,000
854,000
1,196,000
Bank reconciliation – July 31
Book balance
Add: Credit memo for bank loan
Total
Less: Service charge
Adjusted book balance
1,400,000
500,000
1,900,000
1,000
1,899,000
Bank balance
Add: Deposit in transit
Total
Less: Outstanding checks
Adjusted bank balance
2,650,000
1,100,000
3,750,000
1,851,000
1,899,000
b. Adjusting entries, July 31
1. Cash in bank
Bank loan payable
500,000
500,000
42
2. Bank service charge
Cash in bank
Computation of deposit in transit – July 31
1,000
1,000
Deposit in transit – June 30
Add: Deposits during July:
Book debits
Less: June credit memo for note collected
Total
Less: Deposits credited by bank during July:
Bank credits
Less: July credit memo for bank loan
Deposit in transit – July 31
400,000
4,000,000
300,000
3,700,000
4,100,000
3,500,000
500,000
3,000,000
1,100,000
Computation of outstanding checks – July 31
Outstanding checks, June 30
Add: Checks drawn by company during July:
Book credits
Less: June debit memos for
NSF check
Service charge
Total
Less: Checks paid by bank during July:
Bank debits
Less: July service charge
Outstanding checks, July 31
854,000
3,600,000
100,000
4,000
104,000
2,500,000
1,000
3,496,000
4,350,000
2,499,000
1,851,000
Problem 4-14
a. Reconciliation – October 31
Adjusted book balance
600,000
Bank balance
Add: Deposit in transit
Total
Less: Outstanding checks
Adjusted bank balance
400,000
300,000
700,000
100,000
600,000
Reconciliation – November 30
Book balance
Add: Understatement of collection from customer
Total
Less: Understatement of check disbursement
Adjusted book balance
1,000,000
90,000
1,090,000
270,000
820,000
43
Bank balance
Add: Deposit in transit
Check of Susan Company charged in error
Total
930,000
190,000
200,000
390,000
1,320,000
Less: Outstanding checks
Deposit of Susan Company erroneously credited
Adjusted bank balance
400,000
100,000
500,000
820,000
b. Adjusting entries – November 30
1. Cash in bank
Accounts receivable
2. Accounts payable
Cash in bank
90,000
90,000
270,000
270,000
Computation of outstanding checks – October 31
Outstanding checks – October 31 (squeeze)
Add: Checks issued by depositor:
Book disbursements
Understatement of check paid
Total
Less: Checks paid by bank:
Bank disbursements
Check of Susan Company charged in error
Outstanding checks – November 30
100,000
1,800,000
270,000
2,070,000
2,170,000
1,970,000
( 200,000)
1,770,000
400,000
Computation of deposit in transit – November 30
Deposit in transit – October 31
Add: Cash receipts deposited during November:
Book receipts
2,200,000
Understatement of collection from customer
90,000
Total
Less: Deposits credited by bank during November:
Bank receipts
2,500,000
Deposit of Susan Company erroneously credited
( 100,000)
Deposit in transit – November 30
300,000
2,290,000
2,590,000
2,400,000
190,000
Problem 4-15
a. Reconciliation on July 1
Adjusted book balance
1,270,000
44
Bank balance
Add: Deposit in transit
1,720,000
500,000
Total
Less: Outstanding checks
Adjusted bank balance
2,220,000
950,000
1,270,000
Reconciliation on July 31
Book balance
Add: Note collected by bank
Total
Less: Bank service charge
Adjusted book balance
470,000
1,500,000
1,970,000
20,000
1,950,000
Bank balance
Add: Deposit in transit
Total
Less: Outstanding checks:
Check # 107
108
Adjusted bank balance
2,700,000
400,000
3,100,000
650,000
500,000
1,150,000
1,950,000
b. Adjusting entries on July 31
1. Cash in bank
Note receivable
2. Bank service charge
Cash in bank
1,500,000
1,500,000
20,000
20,000
Computation of deposit in transit – July 1
Deposit in transit – July 1 (squeeze)
Cash receipts per book
Total
Less: Deposits credited by bank
Deposit in transit – July 31
500,000
3,400,000
3,900,000
3,500,000
400,000
Computation of outstanding checks – July 1
Outstanding checks – July 1 (squeeze)
Checks drawn by depositor
Total
Less: Checks paid by bank
Outstanding checks – July 31
950,000
4,200,000
5,150,000
4,000,000
1,150,000
45
Problem 4-16
Balance per book – November 30
Less: Service charge
NSF check
Customer’s note erroneously recorded as cash receipt
Adjusted book balance
500,000
10,000
50,000
100,000
Balance per bank – November 30
Add: Deposit in transit
Total
Less: Outstanding checks
Adjusted bank balance
600,000
120,000
720,000
380,000
340,000
Deposit in transit – October 31
Cash receipts deposited:
Book debits
October collections recorded in November
Customer’s note recorded as cash receipt
Total
Less: Deposits credited by bank:
Bank credits
Correction of bank error
Deposit in transit – November 30
Outstanding checks – October 31
Checks issued by depositor:
Book credits
October bank service charge
Total
Checks paid by bank:
Bank debits
November bank service charge
November NSF check
Outstanding checks – November 30
160,000
340,000
45,000
710,000
( 45,000)
(100,000)
565,000
610,000
500,000
( 10,000)
490,000
120,000
125,000
1,200,000
(
5,000)
(
(
1,195,000
1,320,000
1,000,000
10,000)
50,000)
940,000
380,000
Adjusting entry:
Bank service charge
Accounts receivable
Note receivable
Cash in bank
10,000
50,000
100,000
160,000
46
Problem 4-17
Book balance
Note collected by bank
March
April
Service charge
March
April
NSF check
March
April
Deposit in transit
March 31
April 30
Outstanding checks
March 31
April 30
Bank balance
March 31
200,000
60,000
(
Receipts
800,000
( 60,000)
100,000
8,000)
330,000
8,000)
2,000
( 20,000)
30,000
80,000
(220,000)
178,000
700,000
April 30
280,000
100,000
(
( 20,000)
( 80,000)
Disbursements
720,000
(
2,000)
( 30,000)
(220,000)
178,000
(372,000)
530,000
372,000
500,000
Problem 4-18
Bank balance
Book error on collection
Book error on payment
Bank error on deposit
Bank error on payment
NSF check:
July
August
Note collected by bank:
July
August
Deposit in transit:
July
August
Outstanding checks:
July
August
Book balance
July 31
800,000
Receipts
5,000,000
( 180,000)
Disbursements
3,940,000
( 540,000)
( 200,000)
( 400,000)
100,000
(
( 200,000)
600,000
50,000
200,000
( 300,000)
( 300,000)
( 600,000)
480,000
480,000
( 100,000)
1,200,000
100,000
50,000)
August 31
1,860,000
( 180,000)
540,000
( 200,000)
400,000
4,400,000
( 100,000)
650,000
3,600,000
( 650,000)
2,000,000
47
Problem 4-19
Book balance
Bank service charge
November 30
December 31
Collection of note
November 30
December 31
Adjusted book balance
(
Nov. 30
Receipts
Disbursements
Dec. 31
2,032,000
2,568,000
1,440,000
3,160,000
2,000)
( 200,000)
1,830,000
Bank balance
1,890,000
Outstanding checks
November 30
( 180,000)
December 31
Deposit in transit
November 30
80,000
December 31
Check erroneously charged by bank
November 30
40,000
December 31
Adjusted bank balance
1,830,000
(
2,000)
4,000
(
4,000)
200,000
( 300,000)
2,468,000
1,442,000
( 300,000)
2,856,000
2,090,000
1,080,000
2,900,000
( 180,000)
592,000
( 592,000)
(
80,000)
498,000
(
498,000
40,000)
(
2,468,000
50,000)
1,442,000
50,000
2,856,000
Adjusting entry:
Bank service charge
Note receivable
Cash in bank
4,000
300,000
304,000
48
Problem 4-20
Sept. 30
Receipts
Disbursements
Oct. 31
Book balance
1,900,000
1,400,000
2,400,000
900,000
NSF check:
September 30
( 60,000)
( 60,000)
October 31
40,000
( 40,000)
Collection of accounts receivable
September 30
30,000
( 30,000)
October 31
50,000
50,000
Overstatement of check
September 30
90,000
( 90,000)
October 31
________
( 120,000)
120,000
Adjusted balance
1,960,000
1,330,000
2,260,000
1,030,000
Bank balance
Deposit in transit
September 30
October 31
Outstanding checks
September 30
October 31
Adjusted balance
2,100,000
1,200,000
130,000
( 130,000)
260,000
( 270,000)
1,960,000
2,500,000
800,000
260,000
( 270,000)
30,000 ( 30,000)
1,330,000
2,260,000
1,030,000
Adjusting entries on October 31
1. Accounts receivable
Cash in bank
2. Cash in bank
Accounts receivable
Salaries
40,000
40,000
170,000
50,000
120,000
49
Problem 4-21
Balance per book
Bank service charge:
May 31
June 30
NSF check:
June 30
Interest collected:
June 30
Book error:
June 30
Adjusted balance
Balance per bank
Deposit in transit
May 31
June 30
Outstanding checks
May 31
June 30
Adjusted balance
(
May 31
Receipts
Disbursements
June 30
2,500,000
5,300,000
5,400,000
2,400,000
20,000)
(
20,000)
25,000
(
200,000
( 200,000)
75,000
2,480,000
_________
5,375,000
2,700,000
5,500,000
625,000
( 625,000)
500,000
( 845,000)
2,480,000
75,000
(
300,000)
5,305,000
300,000
2,550,000
5,600,000
2,600,000
500,000
(
5,375,000
25,000)
845,000)
550,000
5,305,000
(
550,000)
2,550,000
Adjusting entries on June 30:
1. Cash in bank
Interest income
Equipment
375,000
2. Bank service charge
Accounts receivable
Cash in bank
25,000
200,000
75,000
300,000
225,000
Problem 4-22 Answer A
Balance per book
Bank charges
Customer note collected by bank
Interest on customer note
NSF customer check
Depositor’s note charged to account
Adjusted book balance
4,000,000
( 10,000)
1,500,000
60,000
( 250,000)
(1,000,000)
4,300,000
50
Problem 4-23 Answer B
Balance per bank
Add: Deposit in transit
Total
Less: Outstanding checks
Erroneous bank credit
Adjusted bank balance
2,000,000
200,000
2,200,000
400,000
300,000
700,000
1,500,000
The adjusted cash in bank can also be computed by starting with the balance per book.
Balance per book
Add: Proceeds of note collected
Total
Less: NSF checks (150,000 – 50,000)
Adjusted book balance
850,000
750,000
1,600,000
100,000
1,500,000
Problem 4-24 Answer C
Balance per book
Note collected by bank
Book error (200,000 – 20,000)
NSF check
Bank service charge
Adjusted book balance
8,500,000
950,000
( 180,000)
( 250,000)
( 20,000)
9,000,000
Problem 4-25 Answer A
Problem 4-26 Answer B
Problem 4-27 Answer B
Problem 4-28 Answer D
Balance per ledger
Service charges
Collection of note
Book error
Unrecorded check for traveling expenses
Adjusted book balance
Balance per bank
Deposit in transit
Total
Outstanding checks (squeeze)
Adjusted bank balance
3,750,000
50,000)
1,500,000
( 100,000)
( 500,000)
4,600,000
(
6,200,000
1,400,000
7,600,000
3,000,000
4,600,000
51
Problem 4-29 Answer B
Problem 4-30 Answer A
Problem 4-31 Answer C
Outstanding checks – May 31
Checks issued by depositor in June:
Total credits to cash in June
Service charge in May recorded in June
Total
Checks paid by bank in June:
Checks and charges by bank in June
Service charge in June
NSF check in June
Outstanding checks – June 30
3,000,000
(
9,000,000
100,000)
8,900,000
11,900,000
8,000,000
( 50,000)
(1,000,000)
6,950,000
4,950,000
Problem 4-32 Answer A
Balance per book – June 30
Service charges
Collection by bank
NSF check
Adjusted book balance
Balance per bank – June 30
Deposits outstanding – June 30
Checks outstanding – June 30
Adjusted bank balance
Outstanding checks – May 31
Checks recorded by book in June
Total
Less: Checks recorded by bank in June
Outstanding checks – June 30
Deposits outstanding – May 31
Deposits recorded by book in June
Total
Less: Deposits recorded by bank in June
Deposits outstanding – June 30
2,100,000
50,000)
550,000
( 100,000)
2,500,000
(
2,400,000
500,000
( 400,000)
2,500,000
100,000
2,500,000
2,600,000
2,200,000
400,000
300,000
1,800,000
2,100,000
1,600,000
500,000
Problem 4-33 Answer A
Note collected
Book error (1,930,000 – 1,390,000)
NSF check
Service charge
1,936,000
( 540,000)
( 840,000)
( 47,000)
Net debt to cash
509,000
52
Problem 4-34 Answer A
Problem 4-35 Answer A
Problem 4-36 Answer D
Balance per bank – November 30
December deposits
Total
December disbursements
Balance per bank – December 31
Deposit in transit – December
Outstanding checks – December
Adjusted bank balance – December 31
Balance per book – December 31 (squeeze)
Note collected by bank
NSF check
Service charge
Adjusted book balance
3,600,000
5,500,000
9,100,000
(4,400,000)
4,700,000
700,000
( 500,000)
4,900,000
4,300,000
1,000,000
( 350,000)
( 50,000)
4,900,000
Problem 4-37 Answer A
Bank disbursements for July
Outstanding checks – June 30
Outstanding checks – July 31
Book disbursements for July
9,000,000
(1,400,000)
1,000,000
8,600,000
Problem 4-38 Answer B
Bank receipts for April
Deposits in transit – March 31
Deposits in transit – April 30
Book receipts for April
6,000,000
(1,000,000)
1,500,000
6,500,000
53
CHAPTER 5
Problem 5-1
1.
2.
3.
4.
5.
D
D
D
B
A
6.
7.
8.
9.
10.
Problem 5-2
A
B
C
A
C
1.
2.
3.
4.
5.
A
C
A
A
A
6.
7.
8.
9.
10.
Problem 5-3
A
D
C
C
D
1.
2.
3.
4.
5.
D
B
C
D
A
Problem 5-4
a. Accounts receivable
Notes receivable
Installments receivable
Advances to suppliers
Advances to subsidiary
Claim receivable
Subscriptions receivable
Accrued interest receivable
Customer’s credit balances
Advances from customers
Receivables
b. Accounts receivable
Allowance for doubtful accounts
Notes receivable
Installments receivable
Advances to suppliers
Claim receivable
Subscription receivable
Accrued interest receivable
Total trade and other receivables
775,000
100,000
300,000
150,000
400,000
15,000
300,000
10,000
30,000
20,000
2,000,000
(
775,000
50,000)
100,000
300,000
150,000
15,000
300,000
10,000
1,600,000
c. The advances to subsidiary should be classified as noncurrent and presented as
long-term investment.
The customers’ credit balances and advances from customers should be classified as
current liabilities and included as part of “trade and other payables”.
Problem 5-5
a. Accounts receivable – January 1
Charge sales
Total
Less: Collections from customers
600,000
6,000,000
6,600,000
5,300,000
Writeoff
Merchandise returns
Allowances to customers
Accounts receivable – December 31
35,000
40,000
25,000
5,400,000
1,200,000
54
b. Subscription receivable
Deposit on contract
Claim receivable
Advances to employees
Advances to affiliated
Advances to supplier
Accounts receivable
490,000
150,000
120,000
60,000
10,000
100,000
50,000
c. Accounts receivable
Claim receivable
60,000
Advances to employees
10,000
Advances to supplier
Total trade and other receivables
1,200,000
50,000
1,320,000
d. The subscriptions receivable should be deducted from subscribed share capital.
The deposit on contract should be classified as noncurrent and presented as other
noncurrent asset.
The advances to affiliates should be classified as noncurrent and presented as longterm investment.
Problem 5-6
Requirement 1
1. Accounts receivable
Sales
3,600,000
3,600,000
2. Notes receivable
Accounts receivable
3. Doubtful accounts
Allowance for doubtful accounts
400,000
400,000
90,000
90,000
4. Allowance for doubtful accounts
Accounts receivable
20,000
5. Sales return
Accounts receivable
15,000
20,000
15,000
6. Cash
Accounts receivable
2,450,000
7. Sales discount
Accounts receivable
45,000
8. Cash
Notes receivable
2,450,000
45,000
150,000
150,000
55
Requirement 2
Notes receivable
250,000
Requirement 3
Accounts receivable
Less: Allowance for doubtful accounts
Net realizable value
670,000
70,000
600,000
Problem 5-7
FOB destination and freight collect
1. Accounts receivable
Freight out
Sales
Allowance for freight charge
500,000
10,000
2. Cash
Sales discount
Allowance for freight charge
Accounts receivable
475,000
15,000
10,000
500,000
10,000
500,000
FOB destination and freight prepaid
1. Accounts receivable
Freight out
Sales
Cash
500,000
10,000
2. Cash
Sales discount
Accounts receivable
485,000
15,000
500,000
10,000
500,000
FOB shipping point and freight collect
1. Accounts receivable
Sales
500,000
500,000
2. Cash
Sales discount
Accounts receivable
485,000
15,000
500,000
FOB shipping point and freight prepaid
1. Accounts receivable
Sales
Cash
510,000
500,000
10,000
56
2. Cash
Sales discount
Accounts receivable
495,000
15,000
510,000
Problem 5-8
1. Accounts receivable
Sales
4,000,000
2. Cash
Sales discount
Accounts receivable
1,470,000
30,000
3. Cash
Accounts receivable
1,000,000
4. Sales return
Accounts receivable
100,000
5. Sales return
Allowance for sales return
40,000
4,000,000
1,500,000
1,000,000
100,000
40,000
Problem 5-9
Gross method
Net method
July 1 Accounts receivable
Sales
49,000
50,000
2 Accounts receivable
Sales
196,000
200,000
12 Cash
196,000
Sales discount
4,000
196,000
Accounts receivable
30 Cash
50,000
July 1 Accounts receivable
Sales
49,000
50,000
2 Accounts receivable
Sales
196,000
200,000
12 Cash
196,000
Accounts receivable
200,000
30 Cash
50,000
Accounts receivable
50,000
49,000
1,000
Accounts receivable
Sales discount forfeited
Problem 5-10
a. Credit sales (75% x 5,000,000)
3,750,000
Doubtful accounts (2% x 3,750,000)
Doubtful accounts
Allowance for doubtful accounts
75,000
75,000
75,000
b. Doubtful accounts (1% x 5,000,000)
Allowance for doubtful accounts
50,000
50,000
57
c. Required allowance
Less: Credit balance of allowance
Doubtful accounts expense
Doubtful accounts
Allowance for doubtful accounts
80,000
20,000
60,000
60,000
60,000
d. Required allowance (10% x 500,000)
Less: Credit balance of allowance
Doubtful accounts expense
Doubtful accounts
Allowance for doubtful accounts
50,000
20,000
30,000
30,000
30,000
Problem 5-11
a. Required allowance (5% x 600,000)
Add: Debit balance in allowance account
Doubtful accounts expense
Doubtful accounts
Allowance for doubtful accounts
30,000
10,000
40,000
40,000
40,000
b. Required allowance
Add: Debit balance in allowance account
Doubtful accounts expense
Doubtful accounts
Allowance for doubtful accounts
c. Doubtful accounts (2% x 1,900,000)
Allowance for doubtful accounts
Problem 5-12
50,000
10,000
60,000
60,000
60,000
38,000
38,000
a. Doubtful accounts (3% x 8,000,000)
Allowance for doubtful accounts
240,000
b. Doubtful accounts
Allowance for doubtful accounts
170,000
240,000
170,000
Allowance – January 1
Doubtful accounts (squeeze)
Recovery
Total
Accounts written off
Allowance – December 31 (8% x 2,000,000)
c. Doubtful accounts
Allowance for doubtful accounts
100,000
170,000
20,000
290,000
130,000
160,000
210,000
210,000
58
Allowance – January 1
Doubtful accounts (squeeze)
Recovery
Total
Accounts written off
Allowance – December 31
100,000
210,000
20,000
330,000
130,000
200,000
Problem 5-13
Requirement a
1. Accounts receivable
Sales
7,000,000
2. Cash
Sales discount
Accounts receivable(2,450,000/98%)
2,450,000
50,000
3. Cash
Accounts receivable
3,900,000
7,000,000
2,500,000
3,900,000
4. Allowance for doubtful accounts
Accounts receivable
30,000
5. Accounts receivable
Allowance for doubtful accounts
10,000
30,000
10,000
Cash
Accounts receivable
10,000
6. Sales return
Accounts receivable
70,000
10,000
70,000
Requirement b
Doubtful accounts
Allowance for doubtful accounts
40,000
40,000
Rate = 40,000/1,000,000 = 4%
Allowance for doubtful accounts – December 31 (4% x 1,500,000)
Less: Allowance before adjustment
Doubtful accounts expense
60,000
20,000
40,000
Requirement c
Accounts receivable – December 31
Allowance for doubtful accounts
Net realizable value
1,500,000
( 60,000)
1,440,000
59
Problem 5-14
Requirement a
1. Cash
Accounts receivable
Sales (800,000/10%)
800,000
7,200,000
8,000,000
2. Cash
Sales discount (5% x 720,000)
Accounts receivable(10% x 7,200,000)
3. Cash
Accounts receivable
684,000
36,000
720,000
5,940,000
5,940,000
4. Sales discount
Allowance for sales discount
10,000
5. Sales return
Accounts receivable
80,000
6. Allowance for doubtful accounts
Accounts receivable
60,000
10,000
80,000
60,000
Accounts receivable
Allowance for doubtful accounts
10,000
10,000
Cash
Accounts receivable
7. Doubtful accounts
Allowance for doubtful accounts
10,000
10,000
70,000
70,000
Required allowance – December 31 (5% x 2,400,000)
Less: Allowance before adjustment
Doubtful accounts
120,000
50,000
70,000
Rate = 100,000/2,000,000 = 5%
Requirement b
Accounts receivable
Less: Allowance for doubtful accounts
Allowance for sales discount
Net realizable value
2,400,000
120,000
10,000
130,000
2,270,000
60
Problem 5-15
Requirement a
1. Accounts receivable
Sales (3,070,000 – 470,000)
2,600,000
2. Cash (2,455,000 – 1,455,000)
Accounts receivable
1,000,000
3. Cash
Sales discount
Accounts receivable (1,455,000/97%)
1,455,000
45,000
1,500,000
2,600,000
1,000,000
4. Allowance for doubtful accounts
Accounts receivable
20,000
20,000
5. Cash
Sales
470,000
6. Sales return and allowances
Accounts receivable
55,000
7. Sales return and allowances
Cash
10,000
470,000
55,000
10,000
8. Accounts receivable
Allowance for doubtful accounts
5,000
5,000
Cash
Accounts receivable
7. Doubtful accounts
5,000
5,000
50,000
Allowance for doubtful accounts
50,000
Credit sales
Less: Sales discount
Sales return and allowances
Net credit sales
2,600,000
45,000
55,000
100,000
2,500,000
Doubtful accounts (2,500,000 x 2%)
50,000
Requirement b
Accounts receivable
Less: Allowance for doubtful accounts
Net realizable value
625,000
60,000
565,000
61
Problem 5-16
1. Accounts receivable – Jan. 1
1,500,000
Sales
7,935,000
Recovery
15,000
Collections
(8,000,000)
Sales discount
( 115,000)
Writeoff
( 55,000)
Sales return
( 30,000)
Accounts receivable – Dec. 31
1,250,000
4,410,000/98%
4,500,000
2,475,000/99%
2,500,000
Sales discount:
2% x 4,500,000
90,000
1% x 2,500,000
25,000
115,000
Problem 5-17
1. Not yet due
1 – 30 days past due
31 – 60 days past due
61 – 90 days past due
Over 90 days past due
Amount
1,700,000
1,200,000
100,000
150,000
1,200,000
3,270,000
Percent of
Uncollectible
5%
25%
50%
100%
Required
allowance
60,000
25,000
75,000
120,000
280,000
2. Allowance – January 1
Receivables
Doubtful accounts expense (squeeze)
Total
Less: Writeoff (235,000 + 30,000)
Required allowance – December 31
170,000
30,000
345,000
545,000
265,000
280,000
3. Accounts receivable
Less: Allowance for doubtful accounts
Net realizable value
3,270,000
280,000
2,990,000
Problem 5-18
1. 1,000,000 x 1%
400,000 x 5%
300,000 x 10%
200,000 x 25%
60,000 x 100%
1,960,000
10,000
20,000
30,000
50,000
60,000
170,000
2. Allowance – January 1
Recoveries
Doubtful accounts (squeeze)
Total
Less: Writeoff (100,000 + 40,000)
Allowance – December 31
3. Doubtful accounts
Allowance for doubtful accounts
90,000
20,000
200,000
310,000
140,000
170,000
20,000
20,000
Correct amount
Recorded (2% x 9,000,000)
Understatement
200,000
180,000
20,000
4. Accounts receivable – December 31
Less: Allowance for doubtful accounts
Net realizable value
1,960,000
170,000
1,790,000
62
Problem 5-19
2005
2006
2007
Total
26,000
29,000
30,000
85,000
2,000
3,000
4,000
9,000
24,000
26,000
26,000
76,000
76,000
Percentage to be used in computing the allowance = ------------------- = 2%
3,800,000
1. Writeoff
Less: Recoveries
Net writeoff
2. Credit sales for 2008
Multiply by bad debt percentage
Provision for doubtful accounts
3. Accounts receivable – January 1, 2008
Add: Credit sales for 2008
Recoveries
Total
Less: Collections in 2008
Writeoff
Accounts receivable – December 31, 2008
4. Allowance for doubtful accounts – January 1
Add: Doubtful accounts for 2008
Recoveries
Total
Less: Writeoff
Allowance for doubtful accounts – December 31
3,000,000
2%
60,000
250,000
3,000,000
5,000
2,615,000
40,000
3,005,000
3,255,000
2,655,000
600,000
20,000
60,000
5,000
65,000
85,000
40,000
45,000
Problem 5-20
1. Accounts receivable – December 31, 2007
Add: Sales for 2008
Recovery of accounts written off
Total
Less: Collection from customers
Accounts written off
Accounts settled by issuance of note
Accounts receivable – December 31, 2008
600,000
5,000,000
10,000
4,360,000
50,000
200,000
2. Allowance for doubtful accounts – December 31, 2007
Add: Recovery of accounts written off
Total
Less: Accounts written off
Allowance before adjustment – December 31, 2008 (debit balance)
5,010,000
5,610,000
4,610,000
1,000,000
30,000
10,000
40,000
50,000
(10,000)
63
3. Required allowance – December 31, 2008
On current accounts (700,000 x 5%)
On past due accounts (300,000 x 20%)
Total
35,000
60,000
95,000
4. Required allowance – December 31, 2008
Add: Debit balance before adjustment
Increase in allowance
95,000
10,000
105,000
5. Doubtful accounts
Allowance for doubtful accounts
105,000
105,000
Problem 5-21
170,000 – 10,000
Rate in 2007 = ------------------------ = .016
10,000,000
258,000 – 20,000
Rate in 2008 = -------------------------- = .017
14,000,000
1. Retained earnings (.016 x 1,250,000)
Allowance for doubtful accounts
2. Allowance – January 1
Recoveries – 2008
Doubtful accounts – 2008 (squeeze)
Total
Less: Writeoff – 2008
Allowance – December 31 (.017 x 2,000,000)
3. Accounts receivable
20,000
20,000
20,000
10,000
92,000
122,000
88,000
34,000
2,000,000
Less: Allowance for doubtful accounts
Net realizable value
34,000
1,966,000
Problem 5-22
1. Allowance – January 1, 2008
Doubtful accounts recorded (2% x 20,000,000)
Recovery
Total
Less: Writeoff (300,000 + 100,000)
Allowance balance before adjustment
500,000
400,000
50,000
950,000
400,000
550,000
2. 5,000,000 x 5%
2,000,000 x 10%
1,000,000 x 25%
500,000 – 100,000 x 75%
Required allowance – December 31, 2008
250,000
200,000
250,000
300,000
1,000,000
3. Doubtful accounts
450,000
Allowance for doubtful accounts (1,000,000 – 550,000)
450,000
64
Problem 5-23
1. Allowance – 1/1/2008 (1% x 2,800,000)
28,000
2. Allowance – 1/1/2008
Doubtful accounts recorded in 2008 (1% x 3,000,000)
Recovery
Total
Writeoff
Allowance before adjustment
28,000
30,000
7,000
65,000
(27,000)
38,000
3. 300,000 x 1%
80,000 x 5%
60,000 x 20%
25,000 x 80%
Required allowance – 12/31/2008
4. Doubtful accounts
Allowance for doubtful accounts (39,000 – 38,000)
3,000
4,000
12,000
20,000
39,000
1,000
1,000
Problem 5-24
2008
Jan. 1
Loan receivable
Cash
Cash
Unearned interest income
4,000,000
4,000,000
342,100
342,100
Dec. 31
Unearned interest income
Cash
150,000
Cash
Interest income
400,000
150,000
400,000
Unearned interest income
Interest income
Date
01/01/2008
12/31/2008
12/31/2009
12/31/2010
(10%)
Interest received
400,000
400,000
400,000
56,948
56,948
(12%)
Interest income
456,948
463,782
471,370*
Amortization
56,948
63,782
71,370
Carrying value
3,807,900
3,864,848
3,928,630
4,000,000
*12% x 3,928,630 equals 471,435, or a difference of P65 due to rounding.
2009
Dec. 31
Cash
Interest income
400,000
400,000
65
2009
Dec. 31
2010
Dec. 31
Unearned interest income
Interest income
63,782
63,782
Cash
Interest income
Unearned interest income
Interest income
Cash
Loan receivable
400,000
400,000
71,370
71,370
4,000,000
4,000,000
Problem 5-25
2008
Jan. 1
Dec. 31
Loan receivable
Cash
3,000,000
3,000,000
Direct origination cost
Cash
260,300
Cash
Direct origination cost
100,000
100,000
Cash
Interest income
240,000
260,300
240,000
Interest income
Direct origination cost
Date
01/01/2008
12/31/2008
12/31/2009
12/31/2010
2009
Dec. 31
50,382
(8%)
Interest received
(6%)
Interest income
Amortization
240,000
240,000
240,000
189,618
186,595
183,487
50,382
53,405
56,513
Cash
Interest income
Interest income
Direct origination cost
2010
Dec. 31
50,382
Cash
Interest income
Carrying value
3,160,300
3,109,918
3,056,513
3,000,000
240,000
240,000
53,405
53,405
240,000
240,000
66
2010
Dec. 31
Interest income
Direct origination cost
Cash
Loan receivable
56,513
56,513
3,000,000
3,000,000
Problem 5-26
Requirement 1
December 31, 2009 (1,000,000 x .93)
December 31, 2010 (2,000,000 x .86)
December 31, 2011 (3,000,000 x .79)
Total present value of loan
900,000
1,720,000
2,370,000
5,020,000
Requirement 2
Loan receivable – 12/31/2008
Accrued interest (6,000,000 x 8%)
Total carrying value
Present value of loan
Impairment loss
6,000,000
480,000
6,480,000
5,020,000
1,460,000
Requirement 3
2008
Impairment loss
1,460,000
Accrued interest receivable
Allowance for loan impairment
2009
Cash
Loan receivable
Allowance for loan impairment
Interest income (8% x 5,020,000)
2010
Cash
Loan receivable
Allowance for loan impairment
Interest income
Loan receivable – 12/31/2009
Allowance for loan impairment (980,000 – 401,600)
Carrying value – 12/31/2009
480,000
980,000
1,000,000
1,000,000
401,600
401,600
2,000,000
2,000,000
353,728
353,728
5,000,000
( 578,400)
4,421,600
Interest income for 2010 (8% x 4,421,600)
353,728
67
2011
Cash
Loan receivable
Allowance for loan impairment
Interest income
Loan receivable – 12/31/2010
Allowance for loan impairment (578,400 – 353,672)
Carrying value – 12/31/2010
Interest income for 2011 (8% x 2,775,328)
Allowance per book
Difference due to rounding
3,000,000
3,000,000
224,672
224,672
3,000,000
( 224,672)
2,775,328
222,026
224,672
2,646
Problem 5-27
Requirement 1
December 31, 2009 ( 500,000 x .89)
December 31, 2010 (1,000,000 x .80)
December 31, 2011 (2,000,000 x .71)
December 31, 2012 (4,000,000 x .64)
Total present value of loan
445,000
800,000
1,420,000
2,560,000
5,225,000
Requirement 2
Loan receivable
7,500,000
Accrued interest receivable (12% x 7,500,000)
Total carrying value
Present value of loan
Impairment loss
900,000
8,400,000
5,225,000
3,175,000
Requirement 3
2008
2009
2010
Impairment loss
Accrued interest receivable
Allowance for loan impairment
3,175,000
900,000
2,275,000
Cash
Loan receivable
500,000
Allowance for loan impairment
Interest income (12& x 5,225,000)
627,000
627,000
500,000
Cash
Loan receivable
1,000,000
1,000,000
Allowance for loan impairment
Interest income
642,240
642,240
68
Loan receivable – 12/31/2009
Allowance for loan impairment (2,275,000 – 627,000)
Carrying value – 12/31/2009
7,000,000
(1,648,000)
5,352,000
Interest income for 2010 (12% x 5,352,000)
642,240
Problem 5-28
December 31, 2011 ( 360,000 x .772) 277,920
December 31, 2012 ( 360,000 x .708) 254,880
December 31, 2013 ( 360,000 x .650) 234,000
December 31, 2014 (4,360,000 x .596) 2,598,560
Total present value of loan
3,365,360
2008
2009
2010
Face value of loan
Present value of loan
Impairment loss
Cash
Interest income
360,000
Impairment loss
Allowance for loan impairment
634,640
Allowance for loan impairment
Interest income (9% x 3,365,360)
302,882
Allowance for loan impairment
Interest income (634,640 – 302,882)
331,758
4,000,000
3,365,360
634,640
360,000
634,640
302,882
331,758
2011
2012
2013
2014
Cash
Interest income
360,000
Cash
Interest income
360,000
Cash
Interest income
360,000
Cash
Interest income
Loan receivable
360,000
360,000
360,000
4,360,000
360,000
4,000,000
Problem 5-29
12/31/2008
Impairment loss
Allowance for loan impairment
338,500
338,500
The remaining term of the loan is 4 years. Accordingly, the present value
factor for 4 periods is used.
69
Present value of principal (500,000 x .735)
Present value of interest (80,000 x 5 = 400,000 x .735)
Total present value of loan
367,500
294,000
661,500
Loan receivable
Present value of loan
Loan impairment loss
12/31/2009
Allowance for loan impairment
Interest income (8% x 661,500)
1,000,000
661,500
338,500
52,920
52,920
Problem 5-30 Answer B
Accounts receivable-January 1
Credit sales
Collections from customers
Sales return
Accounts written off
Accounts receivable-December 31
Allowance for doubtful accounts
Allowance for sales return
Net realizable value
1,300,000
5,500,000
(5,000,000)
( 150,000)
( 100,000)
1,550,000
( 250,000)
( 50,000)
1,250,000
Problem 5-31 Answer A
Trade accounts receivable
Allowance for doubtful accounts
Claim receivable
Total trade and other receivables
2,000,000
( 100,000)
300,000
2,200,000
Problem 5-32 Answer C
Accounts receivable (squeeze)
Allowance for doubtful accounts (900,000 – 200,000)
Net realizable value
6,700,000
( 700,000)
6,000,000
Problem 5-33 Answer B
Allowance – January 1
Doubtful accounts expense
Recovery of accounts written off
Total
Accounts written off
Allowance – December 31
300,000
650,000
100,000
1,050,000
450,000
600,000
70
Problem 5-34 Answer D
Allowance – January 1
Uncollectible accounts expense (squeeze)
Recovery of accounts written off
Total
Accounts written off
Allowance – December 31 (2,700,000 – 2,500,000)
280,000
100,000
50,000
430,000
(230,000)
200,000
Problem 5-35 Answer A
Allowance – December 2007
Doubtful accounts expense
Total
Accounts written off (squeeze)
Allowance – December 2008
180,000
50,000
230,000
30,000
200,000
Problem 5-36 Answer B
0 –60 days (1,200,000 x 1%)
61 – 120 days (900,000 x 2%)
Over 120 days (1,000,000 x 6%)
12,000
18,000
60,000
Allowance – December 31, 2008
90,000
Allowance – December 31, 2007
Uncollectible accounts expense (squeeze)
Recovery
Total
Accounts written off
Allowance – December 31, 2008
60,000
80,000
20,000
160,000
( 70,000)
90,000
Problem 5-37 Answer D
Allowance for sales discount (5,000,000 x 2% x 50%)
50,000
Problem 5-38 Answer A
Problem 5-39 Answer B
Doubtful accounts expense (3% x 3,000,000 + 10,000)
100,000
Problem 5-40 Answer A
Doubtful accounts expense (2% x 7,000,000)
140,000
71
Problem 5-41 Answer A
Allowance – January 1
Doubtful accounts expense (4% x 5,000,000)
Collection of accounts written off
Total
Accounts written off
Allowance – December 31
40,000
200,000
10,000
250,000
30,000
220,000
Problem 5-42 Answer D
Allowance – January 1
Doubtful accounts expense (squeeze)
Total
Accounts written off
Allowance – December 31
Problem 5-43 Answer A
Problem 5-44 Answer A
250,000
175,000
425,000
205,000
220,000