FOR PRACTICE SOLVING

1.Wellington Corp. has outstanding accounts receivable totaling P6.5 million as of December 31 and
sales on credit during the year of P24 million. There is also a credit balance of P12,000 in the
allowance for doubtful accounts. If the company estimates that 8% of its outstanding
receivables will be uncollectible, what will be the amount of bad debt expense recognized for
the year?

a. P 532,000
b. P 520,000
c. P1,920,000
d. P 508,000

Solution:
6,500,000 x .08 = 520,000 – 12,000 = 508,000

2. Wellington Corp. has outstanding accounts receivable totaling P3 million as of

December 31 and sales on credit during the year of P15 million. There is also a debit balance of
P12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its
outstanding receivables will be uncollectible, what will be the balance in the allowance for
doubtful accounts after the year-end adjustment to record bad debt expense?

a. P1,200,000 Allowance
b. P 228,000 12,000 252,000 (bad debt expense to be recorded)
c. P 240,000
d. P 252,000 240,000

Solution:
3,000,000 x .08 = 240,000 (estimated uncollectible): the required allowance bal. after
adjustment

Allowance

3. At the close of its first year of operations, December 31, 2022, Ming Company had accounts
receivable of P540,000, after deducting the related allowance for doubtful accounts. During
2022, the company had charges to bad debt expense of P90,000 and wrote off, as uncollectible,
accounts receivable of P40,000. What should the company report on its statement of financial
position at December 31, 2022, as accounts receivable before the allowance for doubtful
accounts?

a. P670,000 AR 590,000
b. P590,000 Less: Allowance 50,000 40,000
90,000
c. P490,000 amortized cost = 540,000
 d. P440,000 50,000 (bal,
end)

Solution:
90,000 – 40,000 = 50,000 + 540,000 = 590,000

4. Before year-end adjusting entries, Dunn Company’s account balances at December 31, 2022, for
accounts receivable and the related allowance for uncollectible accounts were P600,000 and
P45,000, respectively. An aging of accounts receivable indicated that P62,500 of the December
31 receivables are expected to be uncollectible. The cash realizable value of accounts receivable
after adjustment is

a. P582,500. How much is bad debt expense for year 2022? 17,500
b. P537,500. Required allowance bal after adjustment 62,500
c. P492,500. Less: allowance bal. before adjustment 45,000
d. P555,000. Bad debt expense 17,500

Solution:
600,000 – 62,500 = 537,500

5. The following accounts were abstracted from Starr Co.’s unadjusted trial balance at December
31, 2022:

Debit Credit
Accounts receivable 750,000
Allowance for uncollectible accounts 8,000
Net credit sales 3,000,000

Starr estimates that 2% of the gross accounts receivable will become uncollectible. After
adjustment at December 31, 2022, the allowance for uncollectible accounts should have a credit
balance of

a. P60,000. How much should be recorded for bad debt expense for the year 2022? 23,000
b. P52,000. Required allowance bal after adjustments 15,000
c. P23,000. Add: Allowance bal. before adjustment 8,000 (debit)
d. P15,000. Bad debt expense 23,000

Solution:

750,000 x .02 = 15,000

Solution for 6:

360,000 + 1,800,000 – 7,500 – 279,000 = 1,873,500

Solution for 7:

13,590 + 7,500 – 12,000 = 9,090

6. On January 1, 2022, Matiyaga Company has Accounts Receivable of P360,000 and Allowance for
bad debts of P12,000. Sales (all on account ) during 2022 amounted to P1,800,000. During the year
2022, accounts of P7,500 were written off. Analysis of Matiyaga’s accounts receivable at December
31, 2022 revealed the following:

Estimated
Age Amount Uncollectible
0-60 days P 89,000 1%
61-120 days 90,000 3%
Over 120 days 100,000 10%
279,000

There are no other transactions affecting accounts receivable. How much cash is collected from
customers during 2022?

a. P1,837,500 b. P1,873,500 c. P1,845,000 d. P1,485,000

7. Using the data for no. 6, How much bad debts expense was reported by Matiyaga FY 2022?
a. P9,090 b. P13,550 c. P9,450 d. P4,00

8. McGlone Corporation had a 1/1/22 balance in the Allowance for Doubtful Accounts of P15,000.
During 2022, it wrote off P10,800 of accounts and collected P3,150 on accounts previously
written off. The balance in Accounts Receivable was P300,000 at 1/1 and P360,000 at 12/31. At
12/31/22, McGlone estimates that 5% of accounts receivable will prove to be uncollectible.
What should McGlone report as its Allowance for Doubtful Accounts at 12/31/22?

a. P7,200
 b. P7,350
c. P10,350
d. P18,000

Solution:
AR balance at year end: 360,000 x .05 = 18,000

9. Sun Inc. factors P2,000,000 of its accounts receivables without guarantee (recourse) for a
finance charge of 5%. The finance company retains an amount equal to 10% of the accounts
receivable for possible adjustments. What would be recorded by Sun as a gain (loss) on the
transfer of receivables?

a. Loss of P100,000
b. Gain of P100,000
c. Loss of P300,000
d. gain of P300,000

2,000,000 x .05 = 100,000

10. Maxwell Corporation factored, with guarantee (recourse), P100,000 of accounts receivable with
Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales
returns, and sales allowances. What amount of cash would Maxwell receive on the sale of
receivables?

a. P97,000
b. P95,000
c. P92,000
d. P100,000

100,000 x .92 = 92,000 (proceeds)

11. Geary Co. assigned P400,000 of accounts receivable to Kwik Finance Co. as security for a loan of
P335,000. Kwik charged a 2% commission on the amount of the loan; the interest rate on the note
was 10%. During the first month, Geary collected P110,000 on assigned accounts after deducting
P380 of discounts. Geary accepted returns worth P1,350 and wrote off assigned accounts totaling
P2,980.

The amount of cash Geary received from Kwik at the time of the transfer was

a. P301,500.
b. P327,000.
c. P328,300.
d. P335,000.
MC 7. ACCOUNTING FOR NON-INTEREST-BEARING NOTE RECEIVABLE

ENTRY MADE TO RECORD THE RECEIPT OF NON-INTEREST-BEARING NOTE

NOTES RECEIVABLE 600,000
SALES 600,000

THE CORRECT ENTRY ON BEG. OF 2020 IS:

NOTES RECEIVABLE 600,000
SALES ( 600,000 x .7938) 476,280
DISC. ON NR 123,720

ENTRY ON DEC. 31, 2O2O TO AMORTIZE DISC.:

DISC. ON NR 38,102
INTEREST REVENUE (476,280 x .08) 38,102

ENTRY ON DEC. 31, 2O21 TO AMORTIZE DISC.:

DISC. ON NR 41,151
INTEREST REVENUE ((476,280 + 38,102) x .08) 41,151

ENTRY ON DEC. 31, 2O22 TO AMORTIZE DISC.:

DISC. ON NR 44,467

ENTRY ON DEC. 31, 2O21 TO AMORTIZE DISC.:

DISC. ON NR 41,151
INTEREST REVENUE ((476,280 + 38,102) x .08) 41,151

INTEREST REVENUE (123,720 – 38,102 – 41,151) 44,467

 12. On March 19, a note receivable with a face value of P50,000 was discounted with JiMin Bank at a
discount rate of 10%. The P50,000 note was dated Feb. 15, 2021 and is due on June 15, 2021. (use 360
days). How much is the proceeds?

The next four questions are based from the following information:

On January 1, 2019, Rose company received from a customer a non-interest bearing notes
receivable for P400,000, due December 31, 2021. The prevailing rate of interest for a note
of this type at this date is 10%. The present value of 1 at 10% for three periods is 0.75

13. How much is the interest income of Rose Company FY 2019? 30,000

Solution:
400,000 x .75 x .10 = 30,000

14. What is the carrying value of the note receivable at Dec. 31, 2019? 330,000

Solution:
(400,000 x .75) + 30,000 = 330,000

15. How much is the interest income of Rose Company FY 2020? 33,000

Solution:
330,000 x .10 = 33,000

16. What is the carrying value of the note receivable at Dec. 31, 2020? 363,000

The next questions are based from the following information:

On January 1, 2021, Tom sold an equipment to Jerry. Tom received P 200,000 as down payment and
received a non-interest bearing note for P600,000 payable in five equal annual installments of P120,000
with the first payment due on December 31,2021. The prevailing rate of interest for this type of note is
12%. The present value (PV) and future value (FV) factors for 5 periods at 12% are:
PV of P1 – 0.57 PV of an annuity of P1- 3.60
FPV of P1 – 1.76 FV of an annuity of P1- 6.35
17. What is the interest revenue for year 2021? 51,840

Solution:
120,000 x 3.60 x .12 = 51,840

18. What is the interest revenue for year 2022? 43,660.80

363,840 x .12 = 43,660.80

19. What is the amortized cost of the note receivable at Dec. 31, 2021? 363,840
51,840 + 432,000 = 483,840 – 120,000 = 363,840

20. On July 1, 2021, West Co. received a P400,000 non-interest-bearing note due on July 1,
2023. The prevailing rate of interest for a note of this type at this date was 10%. The
present value of P1 at 10% for three periods is 0.75. What amount of interest revenue
should be included in West’s 2021 income statement?
Solution:
400,000 x .75 x .10 x 6/12 = 15,000
The next two questions are based from the ff. data

On Dec. 31, 2019, Lemon Corporation has a 10% notes receivable of P5 million from Apple
Company, with accrued interest of P500,000 on this date. Because of financial distress
being suffered by Apple, Lemon agreed to restructure the terms of the loan as follows:

 Reduction of principal to P4,000,000

 Reduction of interest to 8% payable annually beginning Dec. 31, 2020
 Accrued interest on Dec. 31, 2019 is condoned
 Principal payment was reset to Dec. 31, 2021

Questions: round off present value factor to 2 decimal places

21. How much impairment loss was reported by Lemon company on Dec. 31, 2019? 1,638,640
22. At what amount should the restructured notes receivable be reported on Dec. 31, 2019?
3,861,360

Solution for 21 and 22:

Assume PV factor at 4 decimals.
= 4,000,000 x .8265 = 3,306,000
= 320,000 x 1.7355 = 555,360
= 3,306,000 + 555,360 = 3,861,360
= 5,500,000 – 3,861,360 = 1,638,640

23. White company has a 10% notes receivable of P500,000 with accrued interest of P50,000 from Blue
company as at December 31, 2019. Blue company is suffering financial difficulty making it unable to pay
its liability with White company. Thus, both parties has agreed to restructure the debt terms with the
following modifications:

 Extend the payment of the principal for two years.

 Forgive the accrued interest at December 31, 2019.
 Reduce the interest rate to 8%, payable annually.

The present value factors are: .8265 and 1.7355

How much impairment loss should White company recognize on December 31, 2019?

Solution:
500,000 x .8265 = 413,250
40,000 x 1.7305 = 69,420
413,250 + 69,240 = 482,670

500,000 – 482,670 = 67,330

24. Lancer Corp. has the following data relating to its business operations for the year 2022:

Cash balance, January 1, 2022 650,000 Increase in accounts payable P72,000

Cash sales 740,000 Increase in inventory 48,000
Sales on Account 1,300,000 Cost of goods sold 975,000
Decrease in accounts receivable 610,000 Operating expenses paid 1,500,000
Solution:

650,000 + 740,000 + 1,910,000 – 1,500,000 – 951,000 = 849,000

What was Lancer’s cash balance at December 31, 2022?

a. P1,390,000 b. P 951,000 c. P849,000 d. P 110,000
 PLEASE START SOLVING NOW.
You may pattern your computations to the illustrations given.