Virgen Milagrosa University Foundation

College of Business Administration and Accountancy

APPLIED AUDITING
Audit of Receivables

Trade and other receivables: Definition, Classification, Measurement, Presentation

Review of the sales and collection cycle
Accounts Receivable; Estimation of Allowance for Doubtful Accounts; Write-off and Recoveries
Notes Receivables; interest and non-interest bearing; short-term and long-term
Loan Receivables and Impairment Loss
Receivable Financing

Review questions:
Abe Company sold merchandise on credit to Bee Company for $1,000 on July 1, with terms of 2/10, net /30. On July 6, Bee returned
$200 worth of merchandise claiming the materials were defective. On July 8, Abe received a payment from Bee and credited Accounts
Receivable for $350. On July 24, Bee Company paid the remaining balance on its account.
1.
2.

See Abe Company information above. How much was the total Sales Discounts given to Bee during July?
See Abe Company information above. What was the total cash received from Bee during July?

The following information was abstracted from the records of the Norrick Corporation:
Accounts Receivable, December 31, 2014 ............
Allowance for Doubtful Accounts before adjustment,
December 31, 2014 ...............................
Sales--2014........................................
Sales Discounts--2014 .............................
Sales Returns--2014 ...............................

$ 590,000
18,000
2,180,000
18,000
27,000

(dr)

3. Prepare the adjusting entry for doubtful accounts expense under each of the following assumptions:
(A) 3 percent of outstanding accounts receivable are uncollectible.
(B) 1.5 percent of 2014 net sales are uncollectible.
(C) An aging schedule of the accounts shows that $21,400 of the accounts are uncollectible.
Teeming Company uses the allowance method of accounting for bad debts. The following summary schedule was prepared from an
aging of accounts receivable outstanding on December 31 of the current year.
No. of Days
Outstanding
0-30 days
31-60 days
Over 60 days

Amount
$500,000
200,000
100,000

The following additional information is available for the current year:

Net credit sales for the year ..................
Allowance for Doubtful Accounts:
Balance, January 1 .............................
Balance before adjustment, December 31 .........
4.
a.
b.
c.
d.
5.
a.
b.
c.
d.

Probability
of Collection
.98
.90
.80
$4,000,000
45,000
4,000

(cr)
(dr)

See Teeming Company information above. If Teeming bases its estimate of bad debts on the aging of accounts receivable,
doubtful accounts expense for the current year ending December 31 is
$47,000.
$48,000.
$50,000.
$54,000.
See Teeming Company information above. If Teeming determines bad debt expense using 1.5 percent of net credit sales, the net
realizable value of accounts receivable on the December 31 balance sheet will be
$738,000.
$740,000.
$744,000.
$750,000.

For the month of December, the records of Former Corporation show the following information:
Cash received on accounts receivable ..................
Cash sales ............................................
Accounts Receivable, December 1 .......................
Accounts Receivable, December 31 ......................
Accounts Receivable written off as uncollectible ......

$ 70,000
60,000
160,000
148,000
2,000

6.
a.
b.
c.
d.

The corporation uses the direct write-off method in accounting for uncollectible accounts receivable. What are the gross sales for
the month of December?
$144,000
$130,000
$118,000
$120,000

An analysis and aging of accounts receivable of the Gibson Company at December 31, 2014, showed the following:
Accounts Receivable ..................................
Allowance for Doubtful Accounts
(before adjustment) ................................
Accounts estimated to be uncollectible ...............
7.
a.
b.
c.
d.

$800,000
36,000
76,800

(cr)

Compute the net realizable value of the accounts receivable of Gibson Company at December 31, 2014.
$804,000
$799,200
$723,200
$727,200

An analysis and aging of the accounts receivable of Mahi Company at December 31 revealed the following data:
Accounts Receivable .................................
Allowance for Doubtful Accounts (before adjustment)..
Accounts estimated to be uncollectible ..............
8.
a.
b.
c.
d.

$450,000
25,000
32,000

(cr)

The net realizable value of the accounts receivable at December 31 should be

$450,000.
$443,000.
$425,000.
$418,000.

Aspen Company provides for doubtful accounts expense at the rate of 3 percent of credit sales. The following data are available for
last year:
Allowance for Doubtful Accounts, January 1 .....
$ 54,000
(cr)
Accounts written off as uncollectible during the year ..................................
60,000
Collection of accounts written off in prior years..
(customer credit was re-established) ...........
15,000
Credit sales, year-ended December 31 ...........
3,000,000
9.
a.
b.
c.
d.

The allowance for doubtful accounts balance at December 31, after adjusting entries, should be
$45,000.
$99,000.
$90,000.
$84,000.

The following information is from the records of Sumter, Inc. for the year ended December 31, 2014.
Allowance for Doubtful Accounts, January 1, 2014 ..
Sales, 2014 .......................................
Sales Returns and Allowances, 2014 ................
10.
a.
b.
c.
d.

$ 6,000
2,920,000
32,000

(cr)

If the basis for estimating bad debts is 1 percent of net sales, the correct amount of doubtful accounts expense for 2014 is
$22,800.
$23,200.
$28,880.
$34,880.

Based on the aging of its accounts receivable at December 31, Quanto Company determined that the net realizable value of the
receivables at that date is $760,000. Additional information is as follows:
Accounts Receivable at December 31 ................
Allowance for Doubtful Accounts at January 1 ......
Accounts written off as uncollectible during the
year ............................................
11.
a.
b.
c.
d.

Quanto's doubtful accounts expense for the year ended December 31 is

$80,000.
$96,000.
$120,000.
$160,000.

$880,000
128,000
88,000

(cr)

12. Based on its past collection experience, Base Company provides for bad debts at the rate of 2 percent of net credit sales. On
January 1, 2014, the allowance for doubtful accounts credit balance was $10,000. During 2014, Base wrote off $18,000 of
uncollectible receivables and recovered $5,000 on accounts written off in prior years. If net credit sales for 2014 totaled
$1,000,000, the doubtful accounts expense for 2014 should be
a. $17,000.
b. $20,000.
c. $23,000.
d. $35,000.
Harris, Inc. reported the following balances (after adjustment) at the end of 2014 and 2013.
Total accounts receivable .................
Net accounts receivable ...................

12/31/2014
$105,000
102,000

12/31/2013
$96,000
94,500

13. During 2014, Harris wrote off customer accounts totaling $3,200 and collected $800 on accounts written off in previous years.
Harris doubtful accounts expense for the year ending December 31, 2014 is
a. $1,500.
b. $2,400.
c. $3,000.
d. $3,900.
The following information is available for Closer Company relative to 2014 operations:
Accounts receivable, January 1, 2014
Accounts receivable collected during 2014
Cash sales during 2014
Inventory, January 1, 2014
Inventory, December 31, 2014
Purchases of inventory during 2014
Gross margin on sales
14.
a.
b.
c.
d.

40,000
84,000
20,000
48,000
44,000
80,000
42,000

What is Closer Companys accounts receivable balance at December 31, 2014?

$82,000
$62,000
$20,000
$146,000

15. Sandy Corporation uses the allowance method of accounting for uncollectible accounts. During 2014, Sandy had charged $80,000
to Bad Debt Expense, and wrote off accounts receivable of $90,000 as uncollectible. What was the amount of the decrease in
working capital as a result of these entries?
a. $0
b. $90,000
c. $80,000
d. $10,000
16. The following information is available for Longview Company:
Credit sales during 2014
Allowance for Doubtful Accounts, Dec. 31, 2013
Accounts receivable written off during 2014

50,000
1,800
1,900

As a result of a review and aging of accounts receivable, it has been determined that the Allowance for Doubtful Accounts should
show a balance of $2,400 at December 31, 2014. What amount should Longview record as bad debt expense for the year ended
December 31, 2014?
a. $2,500
b. $1,300
c. $2,400
d. $3,700
17. On December 1, 2014, Laramie Company received a $10,000, 60-day, 6% note from a customer. On December 31, 2014, the
company discounted the note at the bank. The banks discount rate is 9%. What were the proceeds that Barnes received from the
discounting of the note?
a. $10,024.25
b. $9,700.00
c. $9,924.25
d. $10,050.00
18.
a.
b.
c.
d.

Accounts receivable usually are factored

with recourse on a notification basis.
with recourse on a no-notification basis.
without recourse on a notification basis.
without recourse on a no-notification basis.

19. A firm factors $40,000 of accounts receivable without recourse. The factor agrees to provide financing based on these receivables,
but imposes a 10% fee. In addition, the transferor and transferee agree that $3,000 of sales returns and allowances can be expected
from these accounts. What is the loss or expense to recorded by the transferor?
a. $7,000
b. $4,000
c. $3,000
d. $0
20. On August 1, a firm assigned $30,000 of its $56,000 of accounts receivable. The finance company advanced 90% of the assigned
accounts less a $2,000 fee. Interest is 12% and payable monthly on the beginning-of-period loan balance. A loan payment is
remitted at the end of each month. Each payment includes principal and interest. The amount of each loan payment equals the
cash collected on receivables during the month plus interest on the loan balance.
If $8,000 was collected on accounts receivable during August, the entry for the first loan payment would include a
a. debit to Interest Expense of $280.
b. credit to Cash of $8,000.
c. credit to Account Receivable Assigned of $8,000.
d. debit to Notes Payable of $8,280.
21. Halen Company factored $50,000 of its accounts receivable with recourse. The factor retained 8% for sales adjustments and
charged $3,000 as a financing fee. For simplicity, assume the estimated and actual amounts of the following items are equal:
Sales adjustments
Uncollectible accounts

$2,500
500

Assume the transfer is recorded as a sale by Halen Company. What is the loss or financing expense to be recognized on the transfer?
a. $11,000
b. $6,000
c. $3,000
d. $8,000
22. Orchids Companys accounts receivable at December 31, 2012 had a balance of P1,200,000. The allowance for bad debts account
had a credit balance of P40,000. Net sales in 2012 were P6,704,000 (net of sales discounts of P56,000). An aging schedule shows
that P150,000 of the outstanding accounts receivable are doubtful.
What is the adjusting entry for estimated bad debt expense?
23. The following selected transactions occurred during the year ended December 31, 2012:
Gross Sales (cash and credit)
750,000
Collections from credit customers, net of 2% cash discount
245,000
Cash sales
150,000
Uncollectible accounts written off
16,000
Credit memos issued to credit customers for sales returns and
Allowances
8,400
Cash refunds given to cash customers for sales returns and allowances 12,640
Recoveries on accounts receivable written off in prior years (not
Included in cash received stated above)
5,421
At year-end the company provides for estimated bad debt losses by crediting the Allowance for Bad Debt account for 2% of
its net credit sales for the year.
a. What is the companys net credit sales in 2012?
b. What is the bad debt expense for 2012?
Problem 1
Shown below os GOROSPE COMPANYs aging schedule of its accounts receivable on December 31, 2012.
Customers
AA Co.
BB, Inc.
CC Corp
DD Inc
EE Transport
FF Inc.
GG Co
HH Corp
II Company
Totals

Balance Due
23,000
105,000
87,500
93,500
40,000
31,000
1,000
64,000
60,000
505,000

Current

1-30 days PD
0
62,000
23,000
53,000
0
15,000
1,000
20,000
60,000
234,000

0
20,000
14,500
20.500
0
16,000
0
18,000
0
89,000

The accounts receivable balance per general ledger is 505,000 on December 31, 2012.
The following are audit comments for possible judgments:
Customers

31-60 days PD
23,000
13,000
10,000
10,000
0
0
0
16,000
0
72,000

Over 60 days PD
0
10,000
40,000
10,000
40,000
0
0
10,000
0
110,000

AA Co.
BB, Inc.
CC Corp
DD Inc
EE Transport
FF Inc.
GG Co
HH Corp
II Company

Merchandise found defective; returned by customer on November 10 for credit, but the
credit memo was issued by Gorospe only on January 2, 2013.
Account is good but usually pays late.
Merchandise worth P40,000 destroyed in transit on June 4, 2012. The carrier was billed
on July 1. (see EE transport and II company)
Customer billed twice in error for 10,000. Balance is collectible.
Collected in full on January 15, 2013
Paid in full on December 29, 2012 but not recorded. Collections were deposited January
3, 2013.
Received account confirmation from customer for P11,000. Investigation revealed an
erroneous credit for P10,000. (see HH corp)
Neglected to post P10,000 credit to customers account.
Customer wants to know the reason for receipt of P40,000 credit memo as its accounts
payable balance is P100,000.

Based on the foregoing information, what should be the adjusted balance of the Accounts receivable trade at December 31, 2012?
Problem 2
Calachuchi Corps accounts receivable subsidiary ledger shows the following information:
Customer
Account Balance, Dec.
Invoice Date
31, 2012
Aruy, Inc
35,180
12/06/12
12/29/12
Naku Co.
20,920
9/27/12
8/20/12
Syak Corp.
30,600
12/08/12
10/25/12
Trip Co.
45,410
11/17/12
10/09/12
Uy Co
31,600
12/12/12
12/02/12
Xak Corp
17,400
9/12/12

Invoice Amount
14,000
21,180
12,000
8,920
23/140
10,600
23,140
22,000
19,200
12,400
17,400

The estimated bad debt rates below are based on Calachuchi Corp.s receivable collection experience.
Age of Accounts
Rate
0-30 days
1%
31-60 days
1.5%
61-90 days
3%
91-120 days
10%
Over 120 days
50%
The allowance for bad debts account had a debit balance of P5,500 on December 31, 2012 before adjustment.
1.

2.
3.

4.
5.

The companys accounts receivable under 61-90 days category should be

a. 32,600
b. 44,320
c. 44,600
d. 42,000
The companys accounts receivable under 91-120 days category should be ____________
The allowance for bad debts to be reported in the statement of financial position at December 31, 2012 is
a. 9,669
b. 15,199
c. 4,199
d. 5,500
What entry should be made on December 31, 2012 to adjust the allowance for bad debts account?
What is the net realizable value of accounts receivable at December 31, 2012?
a. 165,641
b. 171,141
c. 196,039
d. 186,340

Problem 3
The financial statements submitted for your examination by Gerrit Company included the following:
Dec. 31, 2013
Dec. 31, 2014

Accounts Receivable
800,000
Allowance for doubtful accounts
16,000
Sales on account
5,000,000
Cash on account
4,500,000
Among the cash collections was the full recovery of a P20,000 receivable from Charlie Company, a customer whose account had been
written off as worthless late in 2013.
During 2014, it was necessary to write off uncollectible customers accounts totaling P35,000.
On December 1, 2014, a customer settled his account by issuing to Gerrit Company a 10% six month note for P250,000.
At December 31, 2014 the accounts receivable included P150,000 past due accounts. After careful study of all past due accounts, the
management estimated that the probable loss contained therein was 10%. In addition, 5% of current accounts receivable might prove
uncollectible.
1.

2.

3.

4.

5.

1.

What should be the balance of Accounts Receivable as of December 31, 2014?

a. 1015,000
c. 1,265,000
b. 1,035,000
d. 1,515,000
What is the amount of the current accounts receivable that might prove to be uncollectible?
a. 43,000
c. 55,750
b. 44.250
d. 59,250
What is the balance of Allowance for Doubtful Accounts on December 31, 2014 before taking up the doubtful accounts
expense?
a. 1,000 credit
b. 15,000 debit
c. 1,000 debit
d. 15,000 credit
How much doubtful accounts expense should be presented on the income statement for the year ended December 31, 2014?
a. 43,250
c. 58,250
b. 44,250
d. 68,250
What is the net realizable value of the accounts receivable on December 31, 2014?
a. 1,431,750
c. 975,750
b. 1,194,250
d. 956,750
e.
f. Problem 4
g. During your examination of the 2004 financial statements of the RCom you find that the company does not provide
allowance for doubtful accounts ever since it started operations in 2010. The companys practice is to directly write-off
as expense doubtful accounts and credit recoveries to income. The ocmpanys contracts are generally for two years.
h.
i. Upon your recommendation, the company agreed to change its accounts for 2004 and to give effect to doubtful treatment
on the allowance basis. The allowance is to be based on a percentage of sales which is derived from the experience of
prior years. statistics for 2010 to 2014 are shown as follows:
j.
k.
Year of Sale
2010
2011
2012
2013
2014
l.
Charge sales
600,000
1,500,000
1,800,000
1,950,000
1,650,000
m.
n.
Accounts written off and
o.
Year of sale
p.
2010
3,300
q.
2011
9,000
6,000
r.
2012
3,000
24,000
7,800
s.
2013
7,200
27,000
9,000
t.
2014
16,200
30,000
8,400
u.
Recoveries and Year of Sale
v.
2010
600
w.
2011
2,400
x.
2012
3,000
y.
2013
3,600
z.
aa. Accounts Receivable at December 31, 2014 were as follows:
ab.
From 2013 sales
90,000
ac.
From 2014 sales
810,000
ad.
Total
900,000
ae.
af. Required:
ag. Based on the above and the result of your audit, you are to provide the answers to the following:
The average percentage of net doubtful accounts to charge sales that should be used in setting up the 2014 allowance is
a. 2.05
c. 1.90
b. 2.50
d. 1.77

2.

3.

4.

How much is the doubtful accounts expense for 2014?

a. 32,850
c. 43,800
b. 41,250
d. 54,600
The doubtful accounts expense for 2014 is over (under) stated by
a. 55,950
c. (32,850)
b. 13,350
d. (41,250)
The net realizable value of accounts receivable that should be presented on the December 31, 2014 statement of financial
position is
a. 831,600
c. 868,650
b. 853,800
d. 810,000

5.

1.
2.

3.

4.

5.

6.

1.
2.
3.
4.
5.

1.
2.
3.
4.

e.
The adjusting journal entry necessary to set up the allowance for doubtful accounts as of December 31, 2014 will be
f.
g.
h.
i. Problem 5
j. You are examining the financial of Miss Universe for the year ended December 31, 2014. Your audit of the accounts
receivable and other related accounts disclosed the following information:
The December 31, 2014 debit balance in the Accounts Receivable control account is 788,000.
The only entries in the Bad Debt Expense account were:
a. A credit for P1,296 on December 1. 2014 because Customer A remitted in full for the account charged off October 31,
2014.
b. A debit on December 31 for the amount of the credit allowance for Bad Debts.
The allowance for Bad Debts schedules is presented below:
k.
2014
l.
m.
n.
Debit
o.
Credit
p.
Balance
q.
Jan. 1
r.
s.
t.
u.
v.
14,632
w.
x.
Uncolle
y.
z.
aa.
ab.
ctible:
ac.
ad.
Custome
ae.
1,296
af.
ag.
ah.
rA
ai.
aj.
B
ak.
3,280
al.
am.
an.
ao.
ap.
C
aq.
2,256
ar.
6,832
as.
at.
7,800
au.
Dec. 31
av.
5% of
aw.
ax.
ay.
39,400
az.
47,200
788,000
An aging schedule fo the accounts receivable as of December 31, 2014 and the decisions are as shown in the table below:
ba.
AGE
bb.
Net
bc.
Amount ot which the allowance is to be adjusted after
debit balance
adjustments and corrections have been made
bd.
0-1
be.
372,9 bf.
1%
month
60
bg.
1-3
bh.
307,2 bi.
2%
months
80
bj.
3-6
bk.
88,72 bl.
3%
months
0
bm.
Over 6
bn.
24,00 bo.
Definitely uncollectible, P4,000; P8,000 is considered 50%
months
0 uncollectible; the remainder is estimated to be 80% collectible.
bp.
Total
bq.
792,9 br.
60
There is a credit balance in one account receivable 0-1 month of P8,000; it represents and advance on a sales contract; also
there is a credit balance in one of the 1-3 months accounts receivable of P2,000 for which merchandise will be accepted by
the customer.
The Accounts Receivable control accont is not in agreement with the subsidiary ledger. The differences cannot be located;
and the auditor decides to adjust the control to the sum of the subsidiaries after corrections are made.
bs.
bt. Based on the above and the result of your audit, answer the following:
How much is the adjusted balance of Accounts Receivable as of December 31, 2014?
How much is the adjusted balance of the allowance for Doubtful accounts as of December 31, 2014?
How much is the net adjustment to the allowance for doubtful accounts expense?
How much is the doubtful accounts expense for the year 2016?
How much is the net adjustment to the Doubtful Accounts Expense account?
bu.
bv.
bw. Problem 6
bx. Sigay Bank granted a loan to a borrower in the amount of P5,000,000 on January 1, 2010. The interest rate on the loan is
10% payable annually starting December 31, 2010. The loan matures in five years on December 31, 2014. Sigay incurs
P39,400 of direct loan origination cost and P10,000 of indirect loan origination cost. In addition, Sigay Bank charges the
borrower an 8-point nonrefundable origination fee.
by.
bz. Based on the above data, answer the following (round off present value factors to four decimal places)
The carrying amount of the loan as of January 1. 2010 is
The effective interest rate of the loan is
The interest income to be recognized in 2010
The carrying amount of the loan as of December 31, 2010
ca.
cb. Problem 7
cc. On January 1, 2006, batac Company loaned Badoc Company amounting to 2,000,000 and received a two-year, 6%,
P2,000,000 note. The note calls for annual interest to be paid each December 31. Batac collected the 2006 interest on
schedule. However, on December 31, 2007, based on the Badocs recent financial difficulties, Batac expects that the
2007 interest, which was recorded in the books, will not be collected and that only 1,200,000 of the principal will be

recovered. The 1,200,000 principal amount is expected to be collected in two equal annual installments on December 31,
2009 and December 31, 2011. The prevailing interest rate for similar type of note as of December 31, 2007 is 8%.

1.
2.
3.
4.

1.
2.
3.
4.
5.

cd.
ce. Based on the above data, answer the following: (round off present value factors to four decimal places)
The present value of the expected future cash flows as of December 31, 2007 is
The loan impairment loss in 2007 is
How much is the interest income for the year 2008?
Carrying amount of the loan as of December 31, 2009?
cf.
cg. Problem 8
ch. Your sales cut-off examination revealed the following information:
The December 31 inventory was determined based on a physical count conducted on December 29. Based on such count,
inventory was valued at P360,000
The 2016 ledger shows a Sales balance of P4,000,000.
The companys gross profit rate is 20%.
All customers are within a three-day delivery area of the company plant.
The sales register for December 2016 and January 2017, showed the following details.
ci.
cj. December
ck.
cl.
cm.
Register
cn. Invoice
co. FOB terms
cp. Date Shipped
cq. Amount
Number
cr. 100
cs. DESTINATIO
ct. 12/28
cu. 10,000
N
cv. 101
cw. SHIPPING
cx. 12/30
cy. 12,000
POINT
cz. 102
da. DESTINATIO
db. 12/27
dc. 9,000
N
dd. 103
de. SHIPPING
df. 12/29
dg. 17,500
POINT
dh. 104
di. DESTINATIO
dj. 12/30
dk. 7,200
N
dl. 105
dm. SHIPPING
dn. 12/28
do. 18,000
POINT
dp. January
dq.
dr.
ds.
Register
dt. Invoice
du. FOB terms
dv. Date Shipped
dw. Amount
Number
dx. 106
dy. DESTINATIO
dz. 12/31
ea. 24,000
N
eb. 107
ec. SHIPPING
ed. 12/29
ee. 15,000
POINT
ef. 108
eg. DESTINATIO
eh. 1/02
ei. 22,500
N
ej. 109
ek. DESTINATIO
el. 12/27
em. 30,000
N
en. 110
eo. SHIPPING
ep. 12/31
eq. 5,000
POINT
er.
es. What is the adjusted sale in 2016?
et. What is the adjusted inventory balance at December31, 2016?
eu.
ev. Problem 9
ew.
ex. Unless otherwise identified, the notes receivable of the Quirino Company on December 31, 2015 were trade notes
receivable. On this date the balance of the account, P3,036,915, consisted of the following notes all received during the
calendar year under audit:
ey.
ez.
fa. D
fb.
fc. Rate
fd. Amou
fe. Rema
M
a
Ter
nt
rks
t
e
ff.
fg. O
fh.
fi. 18%
fj. 57,41
fk. Four
A
c
6
6
notes
t
to
.
settle
past
due
1
accou
fl.
fm. O
fn.
fo. 18%
fp. 100,0

c
t
.

fr.

fx.

gd.
B

1
fs. O
c
t
.
1
fy. O
c
t
.
1
ge. J
u
l
y

12

00

ft.
18

fu. 18%

fv. 100,0
00

fz.
24

ga. 18%

gb. 100,0
00

gf.
36

gg. 18%

gh. 500,0
00

gl.
4

gm. 18%

gn. 251,6
36

gr.
De

gs. 18%

gt. 1,000,
000

gx.
12

gy. 15%

gz. 546,3
87

gj.
C

gp.
M

gk. O
c
t
.
1
gq. F
e
b
.
1

gv.
D

gw. N
o
v
.

nt.
Curre
nt
billing
s are
on a
10day
credit
basis.

gi. This
note is
for a
cash
loan
made
to this
custo
mer.
No
intere
st has
been
collec
ted to
date.
go. All
intere
st
collec
ted on
Oct. 1
gu. Loan
appro
ved in
minut
es
book,
Jan.
20.
On
Aug.
1, this
note
was
pledg
ed as
collat
eral
for a
bank
loan
P500,
000.
ha. Intere
st
payab
le at

hb.
E

1
hc. D
e
c
1
0

1.

2.

3.

4.

a.
b.
c.
d.
e.
f.

1.

2.

3.

4.

hd.
90

he. 18%

hf. 381,4
76

maturi
ty
hg. Intere
st
payab
le at
maturi
ty.

hh.
hi. All of the above notes are considered good except that of A company which is somewhat doubtful. An allowance of 25%
should be established against the notes receivable of this company.
hj.
hk. Based on the above and the result of your audit, compute the following:
Adjusted balance of Trade Notes Receivable as of December 31, 2015?
a. 1,179,499
b. 927,863
c. 2,036,915
d. 1,536,915
Net realizable value of Trade Notes Receivable as of Dec. 31, 2015?
a. 1,447,561
b. 1,947,561
c. 1,090,145
d. 838,509
Interest income for the year ended December 31, 2015?
a. 243,749
b. 253,185
c. 208,185
d. 43,185
Accrued interest income as of December 31, 2015?
a. 253,185
b. 78,749
c. 243,749
d. 198,749
hl.
hm. Problem 10
hn.
ho. In connection with your audit of the Salcedo Corporaton, you ntoed that the companys Notes Receivable consists of the
following:
hp.
A 4-month note dated November 30, 2015 from AA company, P200,000, interest rate 16%; discounted on November 30,
2010 at 16%.
A draft drawn payable 30 days after for P900,000 by the BB company on the Charlie COmpnay in favor of the Delta
Company, endorsed to Salcedo Corp. on December 2, 2015 and accepted on December 4, 2015.
A 90-day note dated November 1, 2010 from E.Dy, P500,000; interst at 16%; the note is for subscription to 5,000 preference
shares of Salcedo Corp. at P100 per share.
A 60-day note dated May 3, 2015 from CC Company, P600,000; interest rate 16%; dishonored at maturity; judgment
obtained on October 10, 2015. Collection within the next twelve months is doubtful.
A 90-day note dated January 4, 2015, from Apol Oreynj, president of Salcedo, P160,000; no interest; note not renewed;
president confirmed.
A 120-day note dated September 14, 2015 from DD Company, P120,000; interest rate, 16%; note is held by bank as
collateral.
hq.
hr. Based on the above and the result of your audit, you are to provide the answers to the following:
The adjusted balance of Notes Receivable as of December 31, 2015 is
a. 2,480,000
b. 1,220,000
c. 1,020,000
d. 900,000
How much of foregoing notes receivable will be reported in the current assets section of the statement of financial position?
a. 1,220,000
b. 2,480,000
c. 1,680,000
d. 1,520,000
How much is the net interest income from the foregoing notes receivable for 2010?
a. 19,093
b. 70,613
c. 166,613
d. 35,093
The adjusted balance of interest receivable as of December 31, 2010?
a. 19,093
b. 5,760

c.
d.
hs.
ht.
hu.
hv.

a.

b.
c.

d.

1.

2.

3.

4.

a.
b.
c.
d.

70,613
0
Problem 11

The statement of financial position of Santiago Corporation reported the following long-term receivables as of December
31, 2015:
hw.
Note receivable from sale of plant
9,000,000
hx.
Note receivable from officer
2,400,000
hy. In connection with your audit, you were able to gather the following transactions during 2010 and other information
pertaining to the companys long-term receivables:
The note receivable from the sale of plant 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,
2015.
The note receivable from officer is dated December 31, 2014 earns interest at 10% per annum, and is due on December 31,
2017. The 2015 interest was received on December 31, 2015.
The corporation sold a piece of equipment to Yes, Inc., on April 1, 2015, in exchange for an P1,200,000 non-interest bearing
note due on April 1, 2017. 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 April, 2015 was 12%.
A tract of land was sold by the corporation to NO Co. on July 1, 2015, for P6,000,000 under an installment sale contract. No
Co, signed a 4-year 11% note for P4,200,000 on July 1, 2015, in addition to the down payment of P1,800,000. The equal
annual payments of principal and interest on the note will be P1,353,750 payable on July 1, 2016, 2017, 2018, 2019. 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 installments
on this note is reasonably assured.
hz.
ia. Based on the above and the result of your audit, determine the following:
ib.
Noncurrent notes receivable as of December 31, 2015?
a. 13,556,400
b. 9,664,650
c. 10,556,400
d. 9,750,726
Current portion of long-term notes receivable as of December 31, 2015?
a. 3,891,750
b. 4,353,750
c. 3,000,000
d. 0
Accrued interest receivable as of December 31, 2015?
a. 771,000
b. 4,353,076
c. 540,000
d. 1,011,000
Interest income for the year 2015?
a. 1,281,000
b. 1,637,076
c. 1,367,076
d. 1,512,000
ic.
id. Problem 12
ie.
if. AYOKONA BANK loaned P5,500,000 to KAYAKOPA Company on January 1, 2015. The initial loan repayment terms
include a 10% interest rate plus annual principal payments of P1,100,000 on January 1 each year. KAYAKOPA made the
required interest payment in 2015 but did not make the P1,100,000 principal payment in 2016. AYOKONA BANK is
preparing its annual financial statements on December 31, 2016. KAYAKOPA is having financial difficulty, and
AYOKONA has concluded that the loan is impaired.
ig.
ih. Analysis of KAYAKOPAs financial condition on December 31, 2016 indicates the principal payments will be collected,
but the collection of interest is unlikely. AYOKONA did not accrue the interest on December 31, 2016.
ii.
ij. The projected cash flows are:
ik.
December 31, 2017
1,750,000
il.
December 31, 2018
2,000,000
im.
December 31, 2019
1,750,000
in.
io. What is the loan impairment loss on December 31, 2016?
941,500
550,000
0
5,500,000
ip.
iq. What is the interest income to be reported by AYOKONA BANK in 2017?

a.
b.
c.
d.
a.
b.
c.
d.
a.
b.
c.
d.
a.
b.
c.
d.

1.
2.
3.

501,435
0
455,850
550,000
ir. What is the carrying value of the loan receivable on December 31, 2018?
1,590,785
1,750,000
3,264,350
4,558,500
is. What is the interest income in 2018?
159,079
550,000
455,850
326,435
it. What is the interest income in 2019?
159,079
550,000
326,435
455,850
iu.
iv. Problem 13
iw.
ix. On Jan. 1, 2015, MERON Co. loaned P3,000,000 to WALA co. Under the loan agreement, WALA I to make an annual
principal payment of P600,000 for 5 years plus interest at 8%. The first principal and interest payment is due on January
1, 2016. The required payments were made by WALA for 2016 and 2017. However, during 2017, WALA began to face
financial difficulties, requiring MERON co, to reevaluate the collectability of the loan. On December 31, 2017, MERON
determines that it will be able to collect the remaining principal, but it is unlikely that the interest will be collected.
iy.
iz. Use 5 decimal places for PV Factors.
What is the present value of the expected future cash flows as of December 31, 2017?
What is the amount of loan impairment on December 31, 2017?
Assuming that MERON Co.s assessment of the collectability of the loan has not changed, what amount of interest revenue
should be recognized for 2018?
ja.
jb.
jc.
jd.
je.
jf.
jg.
jh.
ji.
jj.
jk.
jl.
jm.
jn.
jo.
jp. Only what was done for God will last.