Act1104

Quiz no. 3

Problem 1
Your Company, Pau Corporation, provided for uncollectible accounts receivable under the
allowance method since the start of its operations to December 31, 2018. Provisions were made
monthly at 2% of credit sales; doubtful accounts written off were charged to the allowance
account; recoveries of accounts previously written off were credited to the allowance account.
Pau Corporation’s usual credit terms are net 30 days.
The credit balance in the Allowance for doubtful accounts was P260,000 at January 1, 2018.
During 2018, credit sales totaled P18,000,000, interim provisions for doubtful accounts were
made at 2% of credit sales, P180,000 of doubtful accounts were written off, and recoveries of
accounts previously written off amounted to P30,000. Pau Corporation installed a computer
system in November 2018 and an aging of accounts receivable was prepared for the first time
as of December 31, 2018. A summary of the aging is as follows:
Balance in Each Estimated %
Classification by Month’s of Sale Category Uncollectible
November – December 2018 2,280,000 2%
July – October 2018 1,200,000 15%
January –June 2018 800,000 25%
Prior to January 2018 260,000 80%
Based on the review of collectability of the account balances in the “prior to January 1, 2018”
aging category, additional receivables totaling P120,000 were written off as of December 31,
2018. Effective with the year ended December 31, 2018, Pau Corporation adopted a new
accounting method for estimating the Allowance for doubtful accounts at the amount indicated
by the year end aging analysis of accounts receivables.
Questions:
A. Journalize the transactions for 2018. (Credit sales, interim provisions, doubtful accounts
written off, additional accounts written off at year end based on aging, recoveries of
accounts previously written off and adjustments to provisions for doubtful accounts at
year end)
Credit sales
Accounts receivable 18,000,000
Sales 18,000,000
Interim Provision
Doubtful account expense 360,000
Allowance for doubtful accounts 360,000
18,000,000 x 2%
Accounts written off
Allowance for doubtful accounts 180,000
Accounts receivable 180,000
Recoveries
Accounts receivable 30,000
Allowance for doubtful accounts 30,000

Cash 30,000
Accounts receivable 30,000
Additional write off
Allowance for doubtful accounts 120,000
Accounts receivable 120,000

Adj to provision
Doubtful
B. Prepare two T-Accounts (Allowance for Doubtful Accounts and Accounts Receivables)
and post all transactions for 2018 including beginning balance and year end
adjustments.

Accounts Receivables Allowance for Doubtful Accounts

---------------------------------------------------- ----------------------------------------------------------
Bal before adj 4,540,000 : : 260,000 beg bal
: : 180,000 Interim
: write off 180,000 : 30,000 recovery
: 120,000 +w-off 120,000 : 367,600 A’ prov
: :
----------------------------------------------------- -----------------------------------------------------------
Bal after adj 4,420,000 : : 537,600 ending bal
C. Answer the following questions:
1. How much is the adjusted balance of Accounts Receivable at December 31, 2018?
4,420,000
2. How much is the adjusted balance of the Allowance for doubtful accounts at
December 31, 2018? 537,600
3. How much is the adjusted doubtful accounts for the year 2018? 547,600
4. The recorded allowance for doubtful accounts should be increases by ________.
367,600-180,000 = 187,600
5. Compute the Net Realizable Value at December 31, 2018.
4,420,000 – 537,600 = 3,882,400
Problem 2
The note receivable from sale of machineries bears interest at 12% per annum. The note is
payable in 3 annual installments of P3,000,000 plus interest on the unpaid balance every April
1. The initial principal and interest payment was made on April 1, 2019.

Required:

1. Compute the present value of Machineries at April 1, 2018.

Prin Payt Int Payt Total PV rate Total PV
2019 3,000,000 1,080,000 4,080,000 .8928 3,642,624
2020 3,000,000 720,000 3,720,000 .7972 2,965,584
2021 3,000,000 360,000 3,360,000 ,7118 2,391,648
or 8,999,856
9,000,000
2. Prepare amortization table.
Not needed the amort table because PV = total NR
3. Prepare entries:
a. Sale of machineries on April 2, 2018
Notes Receivable 9,000,000
Machineries/Sale 9,000,000
b. Collection of principal and interest on April 1, 2019.
Cash 4,080,000
Notes receivable 3,000,000
Interest revenue 1,080,000

Problem 3
The corporation sold Equipment with original cost of P1,500,000 and accumulated depreciation
of P700,000, to Camil Company on January 1, 2018, in exchange for a P1,200,000 non-interest
bearing note due on December 31, 2019. The note had no ready market, and there was no
established exchange price for the equipment. The prevailing interest rate for a note of this type
at January 1, 2018, was 12%. The present value factor of 1 for two periods at 12% is 0.797
while the present value factor of ordinary annuity of 1 for two periods at 12% is 1.690.

Required:
1. Compute the present value of Equipment at January 1, 2018.
PV = 1,200,000 x .797
= 956,400

2. Prepare amortization table.

Effective Interest Carrying Value
1/1/2018 956,400
12/31/2018 956,400 x 12% = 114,768 1,071,168
12/31/2019 1,071,168 x 12% =128,540 1,200,000
128,832

3. Prepare all entries required from January 1, 2018 to December 31, 2018 ( Sale,
amortization and collection.)
January 1, 2018
Notes receivable 1,200,000
Accumulated deprc.- Equipt 700,000
Equipment 1,500,000
Gain on sale of Equipt 156,400
Discount on NR 243,600

December 31, 2018

Discount on NR 114,768
Interest revenue 114,768
Problem 4
A tract of land was sold by the corporation to Maypagasa pa Company on July 1, 2018, for
P6,000,000 under an installment sale contract. Maypagasapa Company signed a 4-year 11%
note for P4,200,000 on July 1, 2018, in addition to down payment of P1,800,000. The equal
annual payment of principal and interest on note will be P1,353,750 payable on July 1, 2019,
2020, 2021 and 2022. The land had an established cash price of P6,000,000, and its cost to the
corporation was P4,500,000. The collection of the installment on this note is reasonably
assured.

Required:
1. Compute the present value of Equipment at July 1, 2018.
Cash Price 6,000,000
DP 1,800,000
--------------
Balance 4,200,000
========
2. Prepare amortization table.
Date Total Coll Interest Principal CV
7/1/2018 4,200,000
7/1/2019 1,353,750 462,000 891,750 3,308,250
7/1/2020 1,353,750 363,908 989,842 2,318,408
7/1/2021 1,353,750 255,025 1,098,725 1,219,683
7/1/2022 1,353,750 134,165 1,219,585
134,067 1,219,683 -

3. Prepare all entries required from July 1, 2018 to July 1, 2019 (including accrual of
interest on December 31, 2018)
July 1, 2018
Cash 1,800,000
Notes receivable 4,200,000
Land 4,500,000
Gain on sale on land 1,500,000

July 1, 2019
Cash 1,353,700
Notes receivable 891,750
Interest revenue 462,000

Problem 5
Mari Company required additional cash for its operation and used accounts receivable to raise
such needed cash, as follows:
a. On December 1, 2018 Mari Company assigned on a non notification basis accounts
receivable of P5,000,000 to a bank in consideration for a loan of 90% of the receivables less
5% service fee on the accounts assigned. Mari Company signed a note for the bank loan. On
December 31, 2018, Mari Company collected assigned accounts of P3,000,000 less discount of
P200,000. Mari Company remitted the collections to the bank in partial payment for the loan.
The bank applied first the collections to the interest and the balance to the principal. The agreed
interest is 1% per month on the loan balance.
b. Mari Company sold P1,550,000 of accounts receivable for P1,340,000. The receivables had
a carrying amount of P1,470,000 and were sold outright on a non recourse basis.
c. On June 30, 2018, Mari Company discounted at a bank a customer’s P600,000, 6-month,
10% note receivable dated April 30, 2018. The bank discounted the note at 12% .
Required:
Journalize the above transactions.

a. Accounts receivable assigned 5,000,000

Accounts receivable 5,000,000

Cash [(5,000,000 x 90%) – 250,000) 4,250,000

Finance charge ( 5,000,000 x 5%) 250,000
NP-Bank 4,500,000

Cash 2,800,000
Sales discount 200,000
AR Assigned 3,000,000
 Notes payable (2,800,000-45,000) 2,755,000
Interest expense (4,500,000 x 1%) 45,000
Cash 2,800,000

b. Cash 1,340,000
Allowance for D/A 80,000
Loss on factoring (1,470,000-1,340,000) 130,000
Accounts receivable 1,550,000

c. Interest earned : 600,000 x 10% x 2/12 = 10,000

Interest to maturity : 600,000 x 10% x 6/12 = 30,000
Maturity value : 600,000 + 30,000 = 630,000
CV : 600,000 + 10,000 = 610,000
Discount : 630,000 x 12% x 4/12 = 25,200
Proceeds : 630,000 – 25,200 = 604,800
610,000 – 604,800 = 5,200 loss

Cash 604,800
Loss on discounting 5,200
Notes receivable 600,000
Interest income 10,000

Problem 6
On January 1, 2017, Pau Company loaned Mari Company amounting to P2,000,000 and
received a two-year, 6%, P2,000,000 note. The note calls for annual interest to be paid each
December, Pau Company collected the 2017 interest on schedule. However, on December 31,
2018, based on the Mari’s recent financial difficulties, Pau Company expects that the 2018
interest, which was recorded in the books, will not be collected and that only P1,200,000 of the
principal will be recovered. The P1,200,000 principal amount is expected to be collected in two
equal installments on December 31, 2019 and December 31, 2020. The prevailing interest rate
for similar type of note as of December 31, 2018 is 8%.

Required
Journal entries to record the above transactions from December 31, 2018 to December 31,
2020.

Carrying value (2,000.000 +120,000) 2,120,000

PV of Future Cash Inflow
PV of Principal (600,000 x1.8334) 1,100,000
--------------
Impairment loss 1,020,000
========

Application of Collection
Date Total Collection Interest Principal Carrying
Value
1/1/17 1,100,000
12/31/19 600,000 1,100,000 x 600,000-66,000 566,000
6% = 66,000 = 534,000
12/31/20 600,000 566,000x 6%
=33,960 566,040
34,000 566,000 0

1/1/17 Restructured NR 1,100,000 NR-New 1,200,000

Impairment loss 1,020,000 Impairment loss 1,020,000
NR 2,000,000 NR 2,000,000
Interest receivable 120,000 Interest receivable 120,000
Discount on NR 100,000

12/31/19 Cash 600,000 Cash 600,000

Restructured NR 534,000 Discount on NR 66,000
Interest revenue 66,000 NR-New 600,000
Interest revenue 66,000

12/31/20 Cash 600,000 Cash 600,000

Restructured NR 566,000 Discount on NR 34,000
Interest revenue 34,000 NR-New 600,000
Interest revenue 34,000
Problem 7
Your Accounting Manager instructed you to prepare a four column proof of cash receipts and
disbursements for the month of December 31, 2018.

The bank reconciliation prepared by M&M (resigned accounting supervisor) at November 30 is

reproduced below:

Unadjusted bank balance 96,800 Unadjusted book balance 58,640

Add: Deposits in transit 18,000 Add: CM-Note collected 40,320
Total 114,800 Total 98,960
Less: Outstanding Checks Less: DM- Bank charges 160
No. 276 2,400
282 7,200
284 4,800
285 1,600 16,000
Adjusted bank balance 98,800 Adjusted book balance 98,800

The December bank statement, which has a beginning balance of P96,800, is reproduced
below:
Lugina Bank
Account Name : Umaasa Company

Date Debits Credits

December
1 18,000
2 7,200 40,000
4 24,000
6 48,000
8 400,000 CM83
10 40,000 DM97
11 56,000
16 20,000
18 64,000
21 72,400
28 36,000 80,000
31 4,000 DM98 64,000 CM84
131,200 842,400
DM97 – Customer’s DAIF Check CM83 – Note collected by the bank
DM98 – Service charges CM84 – Account collected by the bank

Umaasa Company’s cash receipts and cash disbursements journals for the ,month of December
2018 are provided below:
Cash Receipts Journal Cash Disbursements Journal
Date OR No. Amount Date Check No. Amount
Dec Dec
1 415 P 40,000 1 286 P 16,000
5 416 48,000 3 287 24,000
10 417 56,000 10 288 32,000
17 418 64,000 14 289 20,000
20 419 72,000 20 290 28,000
27 420 80,000 23 291 36,000
 31 421 88,800 26 292 40,000
28 293 44,000
31 294 48,000
Total 440,800 Total 304,000

Umaasa Company’s Cash in bank ledger appears below:

Cash in bank
----------------------------------------------------------------------------------------------------------
Balance 58,640 : 12/31/18 CDJ 304,000
12/1/18 GJ-CM Nov 40,320 :
12/10/18 GJ-CM 83 400,000 :
12/31/18 CRJ 440,800 :
:
Required:
A. Prepare four column proof of cash.
B. Answer the following Questions:
1. How much is the outstanding checks as of December 31, 2018? P216,800
2. How much is the adjusted book receipts for December 2018?P913,200
3. How much is the adjusted book disbursements for December 2018? P332,000
4. How much is the adjusted cash balance as of December 31, 2018? P680,000
5. How much is the cash shortage as of December 31,2 018? 0