DO IT YOURSELF:
PROBLEM NO. 1
Presented below are unaudited balances of selected accounts of OPLOK COMPANY as of
December 31, 2016:
Unaudited Balances, 12/31/16
Selected Accounts
Debit
Credit
Cash
Accounts receivable
Allowance for doubtful accounts
Net sales
P 300,000
1,000,000
10, 000
P 5,760,000
Additional information are as follows:
a. Goods amounting to P50,000 were invoiced for the accounts of Juliet Store & Co., recorded
on January 2, 2017 with terms of net, 60 days, FOB shipping point. The goods were shipped to
Variety Store on December 30, 2016.
b. The bank returned on December 29, 2016, a customer’s check for P5,000 marked “DAIF”, but
no entry was made.
c. CATHY COMPANY estimates that allowance for uncollectible accounts should be one-half
percent (½%) of the accounts receivable balance as of year-end. No provision has yet been
made for 2016.
REQUIRMENTS
1. Adjusted allowance for doubtful accounts on December 31, 2016
2. Adjusted Bad debts expense on 2016
3. Adjusted balance of Accounts receivable on December 31, 2016
SOLUTION
Adjusted Accounts receivable (1,000,000 + 50,000 + 5,000)
Multiply by ½%
Allowance for doubtful accounts
Add: Debit Balance
Adjusted Bad debts expense
P1, 055,000
.05
P 52, 750
10,000
P 62,750
PROBLEM NO. 2
The Notes Receivable account of CATHY Co. has a debit balance of P320, 000 on December
31, 2017. There was no balance of notes receivable at the beginning of the year. Your analysis
of the account reveals the following:
1) Notes amounting to P 925,000 were received from customers during the year.
2) Notes of P 482,000 were collected on due dates. On November 1, 180-day note amounted to
P 122,000 and 1-year note amounted to P 25,000, with both have a stated rate of 12% and
dated October 1 were discounted at the Family Bank at an interest rate of 15%. The Notes
Receivable account was credited for the notes discounted.
3) P 98, 000 of the notes discounted was paid on maturity date while note for P 24,000 was
dishonored and was charged back to Notes Receivable account.
4) Cash of P 30,000 was received as partial payment on notes not yet due. The amount
received was credited to Liability on Partial Payment account.
5) A note for P 20,000 was pledged as collateral for a bank loan.
Requirement:
1. Assuming that CATHY Co. will use a Notes Receivable Discounted account. Compute the
adjusted Notes receivable for December 31, 2017.
2. Compute for the Total Accrued Interest Receivable that will be credited in discounting of
notes.
3. What is the Carrying Amount of discounted notes receivable at the time of discounting?
SOLUTION
1. Notes Receivable Unadjusted Balance
(P 925,000- 482,000- 147,000 + 24,000)
Partial collection
Outstanding Notes Receivable discounted:
Notes Receivable discounted
Collected at maturity
Dishonored Notes
Dishonored note
P 320,000
(P 30,000)
P 147,000
(98,000)
(24,000 )
Adjusted Balance
25,000
( 24,000 )
P 291,000
2. Accrued Interest Receivable:
For 180-day note (P 122,000 x 12% x 1/12)
For 1-year note (P25,000 x 12% x 1/12)
Total Accrued Interest Receivable
1,220
250
1,470
3. Carrying amount of Notes Discounted:
For 180-day notes:
Principal
Accrued Interest
For 1-year notes:
Principal
Accrued Interest Receivable
Total Carrying Amount
P 122,000
1,220
P25,000
250
123,220
25,250
P 148,470
PROBLEM NO. 3
On January 1, 2017, Goodlife Company reported the following:
Accounts Receivables
Allowance for doubtful accounts
2,000,000
100,000
1. Cash sales of the entity amount to P600,000 and represent 8% of gross sales
2. 80% of the credit sales customers do not take advantage of the 5/10, n/30 terms.
3. Customers who did not take advantage of the discount paid P4,950,000.
4. It is expected that cash discounts of P10,000 will be taken accounts receivable
outstanding at December 21, 2017.
5. Sales returns amounted to P 80,000. All returns were from charge sales
6. During the year accounts totaling P60,000 were written off as uncollectible.
Recoveries during the year amounted to P5,000. This amount is not included in the
collections.
7. The allowance for doubtful accounts is adjusted to that it represents a certain
percentage of the outstanding accounts receivable at year-end.
REQUIREMENTS:
A. Prepare Journal Entries
SOLUTION:
1. Cash
Accounts Receivable
Sales
600,000
6,900,000
7,500,000
2. Cash
Sales Discount
Accounts receivable
1,311,000
3. Cash
4,950,000
69,000
1,380,000
Accounts receivable
4,950,000
4. Sales Discount
Allowance for doubtful accounts
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
5,000
Cash
5,000
5,000
Accounts Receivable
7. Doubtful accounts
Allowance for doubtful accounts
5,000
21,500
Required allowance – December 31 (5% x 2,430,000)
less: allowance before adjustments
Doubtful accounts
21,500
P 121,500
100,000
P 21,500
PROBLEM NO. 4
Awesome company provided the following transactions
May
1
Elegant company assigned P 800,000 of accounts receivable to a bank in
consideration for a loan.
A cash advance of 80% less service charge of P20,000 was made by the latter.
It was agreed that interest of 2% per month is to be made and that the assignor
continues to make the collections. The entity signed a promissory note for the
loan.
5
The entity issued a credit memo to a customer for a returned merchandise,
P30,000. The account is one of the assigned accounts
June
July
10
Collections of P500,000 of the assigned accounts were made, less 2% discount.
1
Remitted the collections to the bank plus 2% interest for one month.
7
Assigned accounts of P10,000 proved to be worthless.
20
Collections of P200,000 for the accounts assigned were made.
1
Final settlement was made with the bank. Elegant Company accordingly
remitted to the amount due the bank to pay off the loan plus interest charge
REQUIREMENTS:
Prepare journal entries
SOLUTION:
May
1
5
10
June
1
7
20
Accounts receivable – assigned
Accounts receivable
800,000
Cash (640,000 – 20,000)
Service charge
Note payable
620,000
20,000
800,000
640,000
Sales return
Accounts receivable – assigned
30,000
Cash
Sales discount (2% x 500,000)
Accounts receivable – assigned
490,000
Notes payable – bank
Interest expense (2% x 640,000)
Cash
490,000
12,800
Allowance for doubtful accounts
Accounts receivable – assigned
10,000
Cash
200,000
30,000
10,000
500,000
502,800
10,000
Accounts receivable – assigned
July
1
1
200,000
Notes payable – bank (640,000 - 490,000) 150,000
Interest expense (2% x 150,000)
3,000
Cash
153,000
Accounts receivable
Accounts receivable – assigned
60,000
Accounts receivable – assigned
Less: collections
P 690,000
Sales discount
10,000
Sales return
30,000
Worthless accounts
10,000
BALANCE
60,000
P 800,000
740,000
P 60,000
PROBLEM NO. 5
VBN Company provided the following transactions
April
May
June
5
Received from A, a customer, P500,000, 60-day, 12% note, dated April 4, in
payment of an account
19
The note of A was discounted with the bank at 14%
3
Received a P1,000,000, 30-day noninterest bearing note dated May 1 from B, in
payment of an account
16
The note of B was discounted with the bank at 12%
25
Received from C, a customer, a P 1,500,000, 60-day 12% note dated May 15
and made by Company X. Gave the customer credit for the maturity value of the
note less discount.
7
Received notice from the bank that the note of A was not paid on maturity
Paid bank the amount due plus protest fee and other charges of P 20,000.
15
Received a 60-day,12% note, P800,000, dated June 15, from D, a customer for
sale of merchandise.
18
Received full payment from A including interest of 12% on total amount due from
maturity date of original note.
REQUIREMENTS:
A. Prepare journal entries to record the transactions assuming any discounting of note
receivable is accounted for as CONDITIONAL SALE with recognition of a contingent
liability
B. Prepare necessary adjustments on June 30
SOLUTION:
A.)
April 5
19
Notes receivable
Accounts receivable
500,000
Cash
Loss on discounting
Notes receivable discounted
Accounts receivable – assigned
501,075
1,425
500,000
500,000
2,500
Principal
Add: interest (500,000x 12% x 60/360)
Maturity value
Less: discount (510,000 x 14% x 45/360)
Net proceeds
P 500,000
10,000
510,000
8,925
P 501,075
Principal
Accrued interest receivable (500,000 x 12% x 15/360)
Carrying amount of NR
P 500,000
2,500
P 502,500
Net proceeds
Less: Carrying amount of NR
Loss on discounting
May
3
16
Notes receivable
Accounts receivable
1,000,000
Cash
Loss on discounting
Notes receivable discounted
995,000
5,000
Principal
Less: Discount (1,000,000 x 12% x 15/360)
Net proceeds
25
7
15
18
B)
1,000,000
1,000,000
P 1,000,000
5,000
P 995,000
Notes receivable
Interest income
Accounts receivable
Principal
Add: interest (1,500,000 x 12% x 60/360)
Maturity value
June
P 501,075
502,500
(P 1,425)
1,500,000
4,500
1,504,500
P 1,500,000
30,000
P 1,530,,000
Accounts receivable (510,000+20,000)
Cash
530,000
Notes receivable discounted
Notes receivable
500,000
Notes receivable
Sales
800,000
Cash
530,000
500,000
800,000
532,650
Accounts receivable
Interest income (530,000 x 12% x 15/360)
530,000
2,650
Accrued interest receivable
4,000
Interest income (800,000 x 12% x 15/360)
4,000
Notes receivable discounted
Notes receivable
1,000,000
1,000,000