empleo-answer-key-intermediate-accounting

lOMoARcPSD|13860191 Empleo- answer key Intermediate accounting BS Accountancy (Pontifical and Royal University of Santo Tomas, The Catholic University of the Philippines) StuDocu is not sponsored or endorsed by any college or university Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 CHAPTER 1 CASH AND CASH EQUIVALENTS PROBLEMS 1-1. Classification of accounts 1. A 6. A 11. A 16. A 17. B 2. A 7. B 12. B 18. B 19. A 3. A 8. B 13. A 20. B 4. B 9. B 14. A 5. A 10. A 15. A 1-2. (Money Company) Checking account in Metrobank P105,200 30,800 Savings account at Far East Bank 1,250 Petty cash fund (1,500 – 250) 4,200 Cash on hand (undeposited sales receipts) 65,000 Cash in foreign bank (in equivalent pesos) Customers’ check on hand: 14,000 23,120 Traveler’s check 62,000 Manager’s check P305,570 Unreleased check payable to supplier but recorded as disbursement Total amount of cash Alternative computation: Reported total P330,820 Adjustments: Sinking fund cash ( 35,000) ( 52,000) Short term treasury bills ( 250) Unreplenished petty cash expenses Unreleased check payable to supplier but recorded as disbursement 62,000 Correct cash balance P305,570 The outstanding checks of P15,200 was ignored since the given balance of cash is a cash balance per books. Short-term treasury bills of P52,000 is reported as part of trading securities unless there is an indication of a maturity of three months or less in which case, they are included as part of cash and cash equivalents. The unreleased check payable to supplier and recorded in the cash disbursements journal should be restored back to cash. Meanwhile, sinking fund cash of P35,000 is reported as a noncurrent financial asset. 1-3. (Cotton Company) (a) P180,000 Reported checkbook balance ( 65,000) Adjustments: ( 20,000) Customer’s post dated check included in the balance 15,000 Customer’s check returned by bank marked DAIF P110,000 Company check recorded but not yet mailed Cash reported on December 31, 2019 statement of financial position 65,000 (b) Accounts Receivable 65,000 20,000 Cash in Bank 15,000 Accounts Receivable 20,000 Cash in Bank Cash in Bank 15,000 Accounts Payable Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents 1-4. (Grain Company) (a) P2,205,600 Balance per general ledger Non-cash items: P 20,000 Customer’s DAIF checks returned by bank 750,000 1,308,600 Cash in BDO earmarked for purchase 5,200 P 897,000 of equipment 500,000 IOUs from employees 25,400 Cash in sinking fund Customers’ post dated checks 8,000 Travel advances Correct cash balance Customers’ DAIF checks, IOUs and customers’ post dated checks are reported as receivables; travel advances are prepaid expenses; while savings account in BDO earmarked for office equipment and cash in sinking fund are reported as noncurrent financial assets. No adjustment was made on undeposited checks from customers and traveler’s checks since they are proper inclusions in the cash balance. (b) 45,400 Accounts Receivable (20,000 + 25,400) 5,200 Receivable from Employees 8,000 Prepaid Travel Expense Cash Sinking Fund 500,000 Cash Fund for Equipment 750,000 Cash 1,308,600 1-5. (Rod Company) Petty cash (10,000 – 1,250) P 8,750 Cash on hand (625,000 – 17,500) 607,500 Cash in bank- General (525,000 + 12,500) 537,500 Cash in bank, Payroll (320,000 + 10,000) 330,000 Total P1,483,750 IOU from an employee and customers’ post dated check are receivable items; the bank overdraft in another bank is reported as a current liability (offset can be made only if the accounts are with the same bank); the savings deposit is a non-current item since it is intended for a non-current purpose (for plant acquisition). Alternative computation: Reported total P1.980,000 Adjustments: (1,250) IOUs from employees (17,500) Customer’s post-dated check 12,500 Overdraft in another bank 10,000 Unreleased check deducted in payroll account (500,000) Savings deposit intended for equipment acquisition P1,483,750 Correct amount of cash 2 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents 1-6. (Latte Company) Cash and cash equivalents: Savings account with Allied Bank Per books P 900,000 P580,000 Customer’s postdated check (320,000) 1,700,000 Checking account with Allied Bank 9,850 Per books P1,400,000 2,000,000 1,000,000 Issued postdated check 300,000 6,050,000 Bills and coins in the petty cash fund 5,000,000 P16,339,850 Money market fund with BDO that allows check writing Certificate of deposit with term of 90 days Payroll fund with BDO Per books P6,000,000 Unissued but recorded check 50,000 Cash balance with BPI Correct cash and cash equivalents The items not included in cash and cash equivalents shall be presented as follows: Expenses in the statement of comprehensive income (P150 cash P 5,150 shortage in petty cash fund + expense receipts of P5,000) 2,000,000 Current assets: 320,000 Certificates of deposit (with term of 120 days) Accounts receivable (customer’s postdated check) 1,500,000 Non-current assets: Cash fund for retirement of bonds payable Current liabilities 300,000 Accounts payable (PDC issued to supplier) 50,000 Salaries payable (unissued check to employee) 1-7. (Jessie Company) Nov. 20 Petty Cash Fund 5,000 Cash in Bank 5,000 Nov. 20 to No entry 1,500 Dec. 15 1,200 Dec. 16 Transportation Expense 1,300 Representation Expense Dec. 16 –31 Freight-in 920 Repairs Expense 4,920 Cash in Bank No entry Dec. 31 Transportation Expense 340 Supplies Expense 1,400 1,740 Petty Cash Fund 1,740 340 Jan. 1 Petty Cash Fund 1,400 Transportation Expense Supplies Expense Jan. 1-8 No entry 3 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents Jan. 9 Transportation Expense (340 + 120) 460 Supplies Expense (1,400 + 1,300) 2,700 Representation Expense 1,800 Cash in Bank 4,960 9 Petty Cash Fund 3,000 Cash in Bank 3,000 1-8. (Coral Company) (a) Petty cash fund P5,000.00 Amount of cash on hand P 670.40 Total petty cash vouchers: Office supplies P 341,60 4,280.60 4,951.00 Postage 780.00 P 49.00 Representation Transportation 1,000.00 Miscellaneous 1,321.40 Shortage in the petty cash fund 837.60 (b) Office Supplies Expense 341.60 Postage Expense 780.00 Representation Expense 1,000.00 Transportation Expense 1,321.40 Miscellaneous Expense 837.60 Cash Short and Over Petty Cash Fund 49.00 4,329.60 1-9. (Prada Company) 1. May 2 Petty Cash Fund 8,000 Cash in Bank 8,000 2. May 2-20 No entry 3. No entry 4. May 20 Freight-in 2,500 Freight-out 3,000 5. No entry Supplies Expense 6. May 31 800 Cash in Bank 6,300 Freight in Transportation Expense 1,200 Employee Benefit Expense 150 Receivable from Employees* 320 630 Petty Cash Fund (8,000 – 5,700) *(IOU of 500 + short of 130) 2,300 Per count P5,700 Bills and coins Paid petty cash vouchers 2,170 (1,200 + 150 + 320 + 500) P7,870 Total 8,000 Petty cash fund, imprest balance P 130 Cash shortage 4 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents 1-10. (Canon Company) (a) Bills and coins P1,450 PCVs dated July 1-4, 2019 (undisbursed as of June 30) 800 Adjusted balance of petty cash fund Unreleased payroll 2,250 Correct petty cash balance (1,500) P 750 (b) Per count P10,000 P 1,450 Bills and coins 1,500 3,300 PCVs dated June 800 PCVs dated July 1,400 IOU from an employee 2,000 Employee’s post dated check Total per count P 8,950 Cashier’s accountability 11,500 Petty cash fund P 2,550 Unreleased payroll Total accountability Cash shortage (c) Miscellaneous Expenses 3,300 Receivable from Employees (1,400 + 2,000) 3,400 Cash Short/Over 2,550 Petty Cash Fund 9,250 1-11. P10,000 P4,560 (a) 2,000 1,130 1,000 Bills and coins 3,140 Petty cash vouchers dated January 2020 1,800 P6,690 IOUs dated January 2020 ( 2,000) Total 370 P4,690 Unreleased payroll Correct petty cash fund balance, December 31, 2019 P4,560 3,140 (b) Per count 1,130 Bills and coins 1,800 Paid PCV’s 1,000 dated Dec. 2019 dated Jan. 2020 P11,630 IOUs dated Dec. 2019 P12,000 dated Jan. 2020 P 370 Total per count 5,310 Cashier’s accountability Petty cash fund Unreleased payroll Total accountability Cash shortage (c) Expenses Receivables from Employees Cash Short/Over Petty Cash Fund 5 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents 1-12. (Giordano Corporation) (a) Giordano Corporation Bank Reconciliation Statement December 31, 2019 Balance per bank statement P13,025 P199,925 Add: Cash on hand for undeposited receipts 35,000 48,025 Deposit in transit P252,950 Total 204,055 Deduct: Outstanding checks Adjusted cash balance P 43,895 P(32,560) Balance per books 252,500 Add: Note receivable collected by bank, incl interest of P2,500 P219,940 Total P42,040 176,045 Deduct: Customer’s NSF check returned by bank P 43,895 Customer’s check for P29,040 erroneously 250,000 2,500 recorded as P94,020 64,980 176,045 Cash sales missing 64,025 1,800 Petty cash fund 5,000 P47,095 Adjusted cash balance P35,000 (b) Adjusting entries: P 5,000 Cash in bank 252,500 4,000 Notes Receivable 16,000 Interest Revenue P25,000 Accounts Receivable (42,040 + 64,980) 107,020 Loss from Theft 64,025 Petty Cash Fund 5,000 Cash in bank Miscellaneous Expenses 1,800 Petty Cash Fund Total Cash on the statement of financial position: Petty cash fund of P3,200 + Cash in bank of P43,895 1-13 David Corporation (a) Deposit in transit (amount debited in the books on November 30, 2019 but not yet credited in the bank records (b) Check #212613 Check #212614 Check #212616 Total outstanding checks, November 30, 2019 6 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents (c) P235,000 David Corporation 35,000 Bank Reconciliation Statement P270,000 November 30, 2019 25,000 Balance per bank statement P245,000 Add Deposit in transit Total Deduct Outstanding checks Adjusted cash balance Balance per books P50,000 P229,700 Add: Note collected by bank 1,800 51,800 Check #212612 for P13,500 erroneously recorded as P15,300 P35,000 P281,500 Total 1,500 Deduct: Not sufficient fund check returned by bank 36,500 P245,000 Bank service charge Adjusted cash balance 1-14. (Pound Company) (a) Balances before adjustments Per Bank Per Books Bank service charge P31,848 P17,194 Debit memo for printed checks ( 109) Outstanding checks (6,728) ( 225) Deposit of July 31 not yet recorded by bank 4,880 Proceeds of a bank loan, net of P300 interest 5,700 Proceeds from customer’s note, including P100 interest (900) 8,100 Check #1210 for P2,100 erroneously deducted by bank as P1,200 800 Stolen check lacking authorized signature deducted by bank in error (760) Customer’s NSF check returned by bank _______ P29,900 Correct cash balance P29,900 (b) Adjusting entry at July 31, 2019 (compound form) Miscellaneous Expenses (109 + 125) 234 Accounts Receivable 760 Interest Expense 300 Cash in Bank 12,806 Bank Loan 6,000 Notes Receivable 8,000 Interest Revenue 100 1-15. (Bench Company) Per Bank Per Books P892,346.30 P590,884.60 Balances before adjustments (333,788.20) Outstanding checks ( 225.00) Receipts of 12/31/19 deposited on 1/2/20 53,172.00 97,000.00 Service charges for December (8,737.40) Proceeds of bank loan omitted from co. records 28,924.10 Deposit of 12/23/19 omitted from bank records 20,350.00 Check of Rome Products charged for lack of counter signature 10.00 Bank error for a deposit of P31,824 recorded as P31,814 26,900.00 __________ Check of Birch Company erroneously charged by bank P699,272.20 Proceeds of note collected by bank 50,000.00 Erroneous debit by bank for bank loan paid by the co. ( 100.00 Bank error for a deposit of P48,071 recorded as P48,171 (18,192.00) Deposit of Birch Co. erroneously credited by bank P699,272.20 Adjusted cash balance 7 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents 1-16. (Amethyst Corporation) P169,263 18,200 Balance per bank statement Deposit in transit, April 30 ( 59,435) Outstanding checks, April 30 2,200 Erroneous charge by bank 1,600 NSF checks not yet redeposited (3,435 – 1,835) Proceeds of note collected by bank ( 7,548) Bank service charge 180 Unadjusted book balance for cash, April 30, 2019 P124,460 1-17. (Silver Company) P380,750 52,000 Balance per bank statement Deposits in transit (58,500) Outstanding checks (67,500 – 9,000) ( 4,000) Erroneous credit by bank Check of Silver Lining charged by bank to Silver Co.’s account 12,000 Correct cash balance P382,250 1-19. Cash balance per books, March 1 P115,963.70 Cash receipts during March 246,475.00 Cash disbursements during March P15,341.40 Bank service charge for March 9,000.00 (334,709.10) Cash balance per books at March 31 (2,703.80) (92.00) Cash balance per bank statement Deposit in transit P 27,637.60 Outstanding checks Cash balance reflected per bank 21,637.60 Suspected cash shortage (undeposited collections) P 6,000.00 1-19. (Pearl Corporation) P387,000 P400,000 (1,000) 100,000 Balance per bank statement Add receipts of 12/31/19 not yet deposited (36,000) P500,000 Balance per bank statement before outstanding checks (22,000) Balance per books 328,000 P172,000 Bank service charge for December Paid check for P40,000 recorded as P4,000 Per bank Per books Customer’s check returned by bank marked DAIF P400,000 P387,000 Outstanding checks at December 31, 2019 100,000 (1,000) Proof: (36,000) (172,000) (22,000) Reported balances P328,000 Receipts not yet deposited P328,000 December bank service charge Paid check for P40,000 recorded as P4,000 Customer’s check returned by bank Outstanding checks at December 31 Correct cash balance 8 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents 1-20. (ABC Services, Inc.) ABC Services, Inc. Four-Column Reconciliation November 30-December 31, 2019 December December Disbursements Nov. 30 Receipts P1,211,405.00 Dec. 31 P148,986.00 Balances per bank statement P294,771.00 P1,065,620.00 (40,525.00) 35,191.50 32,925.00 Receipts not yet deposited _____(625.00) (35,191.50) November 30 21,270.00 (21,270.00) P1,205,446.50 _____625.00 P147,344.50 December 31 32,925.00 Outstanding checks November 30 (40,525.00) December 31 Erroneous charge by bank __________ ____________ Correct balances P275,516.00 P1,077,275.00 Balances per books P270,311.00 P1,072,850.00 P1,195,536.50 P147,624.50 Bank service charges (295.00) (295.00) November 30 158.00 December 31 (158.00) Interest credit by bank November 30 5,500.00 (5,500.00) December 31 4,925.00 Uncollectible customer’s check 4,925.00 NSF returned and redeposited 5,947.00 (5,947.00) in December Check #137412 for P2,300 5,000.00 5,000.00 recorded as P3,200 in error Correct balances __________ ____________ _____(900.00) _____900.00 P275,516.00 P1,077,275.00 P1,205,446.50 P147,344.50 1-21. (Bruins Company) Balances per bank statement Bruins Company Outstanding checks: Proof of Cash March 31 March 31 – April 30, 2019 April 30 Deposits in transit April April March 31 Disbursements April 30 March 31 Receipts April 30 Erroneous bank credit P4,357,750 P3,097,250 Undeposited receipts P2,203,500 P5,251,500 (275,000) Erroneous bank debit memo 580,000 (580,000) Adjusted balances (275,000) (45,000) 670,000 125,000 (125,000) P4,617,750 (20,000) 670,000 (20,000) 45,000 P3,212,250 P2,053,500 P5,776,500 Balances per books P2,055,300 P5,567,000 P4,619,800 P3,002,500 Note collected by bank in April 17,000 17,000 Bank service charges (1,800) (1,800) (2,450) March 2,450 April 188,000 Company’s note discounted with 188,000 the bank 200,000 – 4,500 (200,000 x 12% x 6/12) P2,053,500 P5,776,500 (2,700) 2,700 Overstatement in book P4,617,750 4,500 disbursements 9 P3,212,250 Understatement of April receipts Adjusted balances Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 P275,000 35,000 Chapter 1 – Cash and Cash Equivalents (40,000) 1-22. (Lily Company) (50,000) P220,000 (a) August deposits per bank statement Deposit in transit at August 31 P220,000 Deposit in transit at July 31 25,000 Note collected by bank in behalf of Lily Company Cash receipts per books during August (60,000) (10,000) (b) August disbursements per bank statement (35,000) Outstanding checks at August 31 Outstanding checks at July 31 (1,500) Erroneous bank credit in July corrected in August P138,500 NSF check Service charge by bank P150,000 Cash disbursements per books during August 220,000 (138,500) (c) Balance per books at July 31 Cash receipts per books (see a) P231,500 Cash disbursements per books (see b) Unadjusted cash balance per books at August 31 P235,000 or (25,000) Unadjusted bank statement balance at August 31 35,000 (180,000 + 275,000 – 220,000) 35,000 Outstanding checks, August 31 1,500 Deposits in transit, August 31 (50,000) NSF check Bank service charges P231,500 Note collected by bank Unadjusted cash balance per ledger at August 31 P235,000 (25,000) (d) Unadjusted bank statement balance 35,000 Outstanding checks Deposits in transit P245,000 Correct cash balance at August 31 or P231,500 (35,000) Unadjusted cash balance per books (1,500) NSF check 50,000 Bank service charges Note collected by bank P245,000 Correct cash balance at August 31 P 6,400 1-23. (Leo Company) 349,000 a. Outstanding checks, July 31, 2019 ( 344,000) Disbursements per books during August P 11,400 Checks cleared during August Outstanding checks, August 31, 2019 P 40,000 320,000 b. Deposits in transit, August 31, 2019 ( 350,000) Deposits per bank records during August P 10,000 Cash receipts per books during August Deposits in transit, July 31, 2019 10 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents 1-24. (VAB, Inc.) Outstanding checks at April 30 P 30,000 Add cash disbursements per books: P90,000 Total credits in all journals during May ( 1,000) 89,000 Less Service charge in April recorded in May Total P119,000 Less checks cleared during May: Checks and charges by bank in May P80,000 Less: May service charge (500) NSF check returned as a bank (10,000) 69,500 charge in May P 49,500 Outstanding checks at May 31 1-25. (Diamond Company) P 4,500 34,880 Deposits in transit at July 31 (29,300) Receipts per books (40,000 – 5,120) Deposits per bank (45,600 – 6,300 – 10,000)) P 10,080 Deposits in transit at August 31 August Receipts Proof: Per bank Per books Reported receipts/credits Deposits in transit, July 31 P45,600 P40,000 Note collected by bank in August Note collected by bank in July recorded (4,500) by the company in August 6,300 Erroneous charge by bank in July (5,120) corrected in August Deposits in transit at August 31 (see above) (10,000) _________ Correct totals 10,080 P41,180 P41,180 1-26. (Real Gem Company) P62,277.00 P37,855.00 (24,750.00) Outstanding checks, 12/31/19 28,309.00 Add checks cleared by bank during December (9,218.00) P66,164.00 Bank disbursements during December Outstanding checks, 11/30/19 Erroneous bank credit in November cleared in December Cash disbursements per books during December 1-27. (Lira Company) P 9,500 30,500 Deposits in transit, August 31 Add cash receipts per general ledger (30,200) Less deposits per bank P 9,800 Deposits in transit, September 30 P 2,000 Outstanding checks, September 30 23,600 Add checks cleared by bank during September Less cash disbursements per general ledger (24,000) Outstanding checks, August 31 P 1,600 11 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents 1-28. (Euro Company) (a) P 1,490 P 3,320 Petty Cash Fund 1,830 13,200 Currency and coins P 19,700 Replenishment check (5,000) 117,000 Cash on hand (1,500) 158,000 Reported amount P291,520 Less: Customer’s NSF check returned P110,200 2,500 Customer’s post dated check 4,300 Cash in Metrobank P162,000 Reported amount (4,000) Add: Undelivered check #1214 Post dated check #1219 Cash in Allied Bank General account Less credit balance in Payroll account Correct cash balance (b) P291,520 Current assets: 880 Cash and cash equivalents (see Note #, #) 65,000 Receivable from employees Non-current assets: Cash Fund for Equipment (see Note#) Note # A right of offset exist in the agreement between Allied Bank and its depositors. Note # Cash and cash equivalents consist of the following: Petty Cash Fund Cash on Hand P 3,320 Cash in Metrobank – Current 13,200 Cash in Allied Bank - General (net of an overdraft in Payroll account of P4,000) 117,000 Total cash and cash equivalents 158,000 P291,520 Note # The cash fund for equipment is kept in a savings account in Security Bank. Said amount is expected to be disbursed in March 2020. 12 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents MULTIPLE CHOICE QUESTIONS Theory MC1 A MC6 D MC11 D MC16 C MC21 A MC2 A MC7 A MC12 D MC17 C MC22 B MC3 C MC8 A MC13 C MC18 C MC23 D MC4 D MC9 A MC14 D MC19 B MC24 B MC5 D MC10 D MC15 A MC20 B MC25 D MC26 D Problems Cash in banks P2,250,000 MC27 C Cash on hand 125,000 MC28 D Total cash MC29 C P2,375,000 MC30 B Checkbook balance Check payable to Bataan properly dated but not included in P50,000 MC31 D checkbook balance MC32 B Correct cash balance 20,000 P70,000 Correct cash balance in Equitable-PCIBank Currency and coins in petty cash fund P320,000 Cash balance, April 30 580 Cash balance per ledger P320,580 Notes receivable in the possession of a collecting agency Post-dated check included in the undeposited receipts P682,250 Bond sinking fund cash (25,000) IOUs signed by employees (10,500) Paid vouchers not yet recorded Correct cash on hand and in banks (127,500) (4,950) OR (6,450) Petty cash fund Checking account in Metrobank P507,850 Undeposited receipts (178,000 – 10,500) Correct cash on hand and in banks P 3,600 336,750 Replenishment entry is 950 167,500 Expenses 50 P507,850 Cash short or over 1,000 Cash in bank P3,800 Currencies 1,200 Coins Company check payable representing salary (accommodation check 12,500 to petty cash custodian P17,500 Correct amount of petty cash fund MC33 C Cash in the fund P 440 Miscellaneous expenses 3,640 Total Amount of fund established P4,080 Cash overage 4,000 P 80 13 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 1 – Cash and Cash Equivalents MC34 B Total bills and coins P1,825 Certified check of general manager 1,500 Replenishment check 5,150 Correct amount of petty cash fund P8,475 MC35 A Amount of petty cash fund established P8,475 P10,000 Total amount in the drawer 1,430 Correct petty cash fund 9,905 Petty cash vouchers not yet replenished P 95 Amount of cash shortage The unused postage stamps of P120 is part of the P280 postage stamps purchased. This means that P120 will be reported as part of prepaid expenses, whereas P160 will be reported as an operating expense. MC36 D Corrected bank statement balance (50,000 + 20,000 – 15,000) P55,000 Correct balance per books before considering interest on note (43,000 – 6,000 + 15,000) 52,000 Interest on the note collected by the bank P 3,000 MC37 B Balance per bank statement P180,500 Deposit in transit 32,500 Outstanding checks Correct cash balance (27,500) P185,500 MC38 B Balance per books P677,600 Bank service charges (580) Check for P8,900 paid by bank but erroneously recorded in the books as P9,800 900 Correct cash in bank balance P677,920 OR Balance per bank statement P653,230 Outstanding checks (98,760) Deposit in transit 123,450 Correct cash in bank balance P677,920 MC39 B Petty cash fund (10,000 – 4,500) Currency and coins counted (undeposited collections) P 5,500 Correct cash on hand balance 95,000 P100,500 MC40 B Deposit in transit, beginning P17,000 Receipts reflected in the books 490,000 Deposits reflected per bank (476,000) Deposit in transit, ending P31,000 MC41 A Outstanding checks, beginning P39,000 490,000 Checks issued (per books) (602,000) Checks cleared by bank (617,000 – 15,000) P47,000 Outstanding checks, ending MC42 C Pre-adjustment cash balance per books P768,370 Net credit adjustment per books (132,274) Outstanding checks Bank statement balance 20,750 P656,846 MC43 B Unadjusted cash balance per books P450,000 Collection by bank 9,400 Customer’s NSF check returned by bank Customer’s check for P4,500 erroneously recorded as P5,400 (3,200) Check written for P790 erroneously recorded as P970 (900) Correct cash balance 180 P455,480 14 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 P1,500 5,000 Chapter 1 – Cash and Cash Equivalents 486,000 MC44 D Petty cash fund 12,000 Customer’s certified check Unrestricted demand deposits P504,500 Undelivered checks written and recorded Total cash P96,000 (4,000) MC45 D Cash account balance 7,000 Post-dated customer’s check included in the cash receipts Undelivered check included in the cash disbursements P99,000 Correct cash balance P850,000 MC46 C Balance, end, per bank (650,000 + 1,300,000 – 1,100,000) 150,000 Deposit in transit, June 30 (84,000) Outstanding checks, June 30 7,500 Check deposit omitted by bank Correct cash balance P923,500 OR Balance per books, June 30 P794,800 Note collected by bank 180,000 Service charge (6,000) NSF check returned (48,000) Customer’s check for P37,400 recorded as P34,700 2,700 Correct cash balance P923,500 MC47 D June receipts reported per books Note collected by bank P1,154,800 Customer’s check for P37,400 recorded as P34,700 180,000 Corrected June receipts 2,700 MC48 B June disbursements reported per books P1,337,500 May service charge June service charge P1,123,500 May NSF check returned (4,500) June NSF check returned 6,000 Corrected June disbursements (56,000) MC49 B Outstanding checks, end 48,000 Checks cleared Outstanding checks, beginning P1,117,000 Checks issued/Disbursements per books P25,000 MC50 A December deposits per bank 224,200 Deposit in transit, beginning (78,200) Erroneous bank charge in November cleared (credited) in December P171,000 Cash receipts per books P261,000 MC51 D Balance per bank, December 31 (41,500) Outstanding checks (15,000) Cash balance per books, December 31 P204,500 MC52 C Correct cash balance (45,000 + 10,000 + 8,000) Balance per bank before outstanding checks P217,200 (34,000 – 300 – 3,200 – 3,600 + 2,700) (25,000) Outstanding checks P192,200 P63,000 29,600 P33,400 15 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 CHAPTER 2 RECEIVABLES Discussion Question 19. a. Accounts Receivable b. Receivables from Employees (part of non-trade receivables) – current assets c. Advances to Suppliers – Current assets or deduction from Accounts Payable to the same supplier d. e. Accounts Receivable f. Customers’ Accounts with Credit Balances – Current Liabilities g. Cost of merchandise must be included in inventories h. Accounts Receivable i. Subscriptions Receivable – current asset if collectible within 12 months; otherwise, non- current asset or deduction from Shareholders’ Equity j. Other Non-Trade Receivables – Current asset or non-current asset depending on terms of k. sale l. Advances to Suppliers – Current Assets m. Suppliers’ Accounts with Debit Balances or Advances to Suppliers – Current assets n. Accounts Receivable o. Claims for Income Tax Refund – Current Assets p. Accounts Receivable, amount of loan presented separately as part of liabilities Accounts Receivable Not recognized anymore (for write off) PROBLEMS 2-1. (Ginoo Company) Gross Method 102,600 2019 102,600 Dec. 9 Accounts Receivable-First Lady Sales 50,000 120,000 x 90% x 95% 50,000 10 Accounts Receivable-Men’s World Sales 19 Cash 100,548 102,600 Sales Discounts 2,052 40,000 Accounts Receivable-First Lady 40,000 26 Accounts Receivable-Teens’ Kingdom Sales 31 Sales Discounts 800 Allowance for Sales Discounts 800 2020 Cash 39,200 Jan. 5 Allowance for Sales Discounts 800 Accounts Receivable-Teens’ Kingdom 40,000 9 Cash 50,000 Accounts Receivable-Men’s World 50,000 Net Method 100,548 2019 100,548 Dec. 9 Accounts Receivable-First Lady Sales 102,600 x .0.98 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables Dec. 10 Accounts Receivable-Men’s World 49,000 49,000 Sales 100,548 100,548 19 Cash 39,200 39,200 Accounts Receivable-First Lady 1,000 1,000 Dec. 26 Accounts Receivable-Teens’ Kingdom Sales 31 Accounts Receivable-Men’s World Sales Discount Forfeited 2020 39,200 39,200 Jan. 5 Cash 50,000 50,000 Accounts Receivable – Teens’ Kingdom 9 Cash Accounts Receivable-Men’s World Allowance Method 102,600 2,052 2019 100,548 50,000 Dec. 9 Accounts Receivable-First Lady 1,000 Allowance for Sales Discount 100,548 49,000 Sales 2,052 102,600 10 Accounts Receivable-Men’s World 40,000 Allowance for Sales Discount 800 Sales 1,000 39,200 19 Cash 1,000 Allowance for Sales Discount Accounts Receivable-First Lady 26 Accounts Receivable-Teens’ Kingdom Allowance for Sales Discount Sales 31 Allowance for Sales Discount Sales Discount Forfeited 2020 Cash 39,200 Jan. 5 Allowance for Sales Discount 800 Accounts Receivable-Teens’ Kingdom 50,000 40,000 50,000 9 Cash Accounts Receivable-Men’s World 2-2. (Colleco Supermarket) June 1- Cash in Bank 1,764,000 30 Accounts Receivable – Citibank 2,450,000 Accounts Receivable – Metrobank 1,470,000 Credit Card Service Charges 5,800,000 116,000 Sales 2,156,000 3,234,000 1,078,000 Cash Accounts Receivable - Citibank Accounts Receivable - Metrobank 17 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables 2-3. (Colayco Company) (1) 10,000 10,000 Jul 14 Allowance for Doubtful Accounts 12,000 12,000 Accounts Receivable-Moret Co. 20,000 15,000 35,000 31 Notes Receivable 19,200 Sales 20,000 800 Aug. 15 Cash 12,000 Notes Receivable 12,300 300 Sales 9,000 9,000 Nov. 1 Cash 8,550 Credit Card Service Charge 9,000 Sales 450 4% x 20,000 = 800 10,000 10,000 10,000 4 Accounts Receivable-P. Noval 10,000 15,000 Notes Receivable 15,600 Interest Revenue 600 12,000 x .10 x 90/360 = 300 5 Accounts Receivable-Credit Card Sales 9 Cash Credit Card Service Charge Accounts Receivable-Credit Card 5% x 9,000 = 450 15 Accounts Receivable-Moret Co. Allowance for Doubtful Accounts 15 Cash Accounts Receivable-Moret Co. Dec. 13 Cash Notes Receivable Interest Revenue 15,000 x 12% x 120/360 = 600 2-4. (Format Company) (a) Carrying value of the note on January 1, 2019 (4.5M x 0.7938) P3,572,100 Interest rate 8% Interest revenue for 2019 P 285,768 Carrying value of the note on January 1, 2020 (3,572,100 + 285,768) P3,857,868 Interest rate 8% Interest revenue for 2020 P 308,629 (b) Carrying value, December 31, 2019 (see above) P3,857,868 Carrying value, December 31, 2020 (3,857,868 + 308,629) P4,166,497 (c) The notes receivable is classified as a non-current asset at December 31, 2019 and current asset at December 31, 2020 18 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables 2-5. (Formatted Company) (a) Carrying value of the note on January 1, 2019 (1.5 M x 2.5771) P3,865,650 Interest rate 8% Interest revenue for 2019 P 309,252 Carrying value, January 1, 2020 (3,865,650 + 309,252 – 1.5M) Interest rate P2,674,902 Interest revenue for 2020 8% (b) Carrying value, January 1, 2019 P 213,992 Add amortization of discount during 2019 Less first payment of principal P3,865,650 Carrying value, December 31, 2019 309,252 (c) Current Non-current (1,500,000) P2,674,902 Principal due P1,500,000 P1,500,000 Total Unamortized discount 213,992 111,106 P3,000,000 Carrying amount, December 31, 2019 P1,286,008 P1,388,894 325,098 P2,674,902 2-6. (CRV Company) (a) September 30, 2019 (1,000,000)+(3,000,000 x 6%) P1,180,000 September 30, 2020 (1,000,000)+(2,000,000 x 6%) P1,120,000 September 30, 2021 (1,000,000)+(1,000,000 x 6%) P1,060,000 (b) January 1 – September 30, 2019 (180,000 x 9/12) P 135,000 October 1 – December 31, 2019 (120,000 x 3/12) 30,000 Total interest revenue for 2019 P 165,000 (c) As of December 31, 2019 Current Non-current Notes receivable P1,000,000 P1,000,000 Interest receivable (120,000 x 3/12) 30,000 2- 7. (Pinky Pop Company) The note is interest-bearing, but the rate of interest of the note (5%) is unreasonably lower than the prevailing rate (10%) for similar obligation. The present value of the note is determined as follows: 2.5 M + (5% x 7.5 M) = 2,875,000 x 0.9091 P2,613,663 2.5 M + (5% x 5.0 M) = 2,750,000 x 0.8264 2,272,600 2.5 M + (5% x 2.5 M) = 2,625,000 x 0.7513 1,972,163 Total P6,858,426 or 2.5 M x 2.4869 P6,217,250 (5% x 7.5 M) x 0.9091 340,913 (5% x 5.0 M) x 0.8264 206,600 (5% x 2.5 M) x 0.7513 93,913 Total P6,858,676 (Note that the difference is due to the rounding off of present value factors) (a) Amortization Table Payment of Interest Interest Amortization Carrying Date Principal Paid Revenue of Discount Value 01/01/19 6,858,426 12/31/19 2,500,000 375,000 685,843 310,843 4,669,269 12/31/20 2,500,000 250,000 466,927 216,927 2,386,196 12/31/21 2,500,000 125,000 238,804* 113,804* ------------ *difference is due to rounding off 19 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables (b) Journal entries 7,500,000 2019 Jan. 1 Notes Receivable 641,574 858,426 Discount on Notes Receivable 6,000,000 Gain on Sale of Land Land 7,500,000 – 6,858,426 = 641,574 Discount 6,858,426 – 6,000,000 = 858,426 Gain Dec. 31 Cash 2,875,000 685,843 Discount on Notes Receivable 310,843 2,500,000 2020 Dec. 31 Interest Revenue 2,750,000 466,927 Notes Receivable 216,927 2,500,000 2021 Dec. 31 Cash 2,625,000 238,804 Discount on Notes Receivable 113,804 2,500,000 Interest Revenue Notes Receivable Cash Discount on Notes Receivable Interest Revenue Notes Receivable 2-8. (Pinky Pip Company) The note is interest-bearing, but the rate of interest of the note (14%) is unreasonably higher than the prevailing rate (10%) for similar obligation. The present value of the note is determined as follows: 2.5 M + (14% x 7.5 M) = 3,550,000 x 0.9091 P3,227,305 2.5 M + (14% x 5.0 M) = 3,200,000 x 0.8264 2,644,480 2.5 M + (14% x 2.5 M) = 2,850,000 x 0.7513 2,141,205 Total P8,012,990 or 2.5 M x 2.48685 P6,217,125 (14% x 7.5 M) x 0.9091 954,555 (14% x 5.0 M) x 0.8264 578,480 (14% x 2.5 M) x 0.7513 262,955 Total P8,013,115 (Note that the difference in the computation is due to rounding off of present values) (a) Amortization Table Payment of Interest Interest Amortization Carrying Date Principal Paid Revenue of Premium Value 01/01/16 8,012,990 12/31/16 2,500,000 1,050,000 801,299 248,701 5,264,289 12/31/17 2,500,000 700,000 526,429 173,571 2,590,718 12/31/18 2,500,000 350,000 259,282* 90,718* ------------ *Difference is due to rounding off (b) Journal entries 7,500,000 2019 512,990 Jan. 1 Notes Receivable 2,012,990 Premium on Notes Receivable 6,000,000 Gain on Sale of Land Land 8,012,990 – 7,500,000 = 512,990 Premium 8,247,955 – 6,000,000 = 2,247,955 Gain 20 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables Dec. 31 Cash 3,550,000 248,701 Premium on Notes Receivable 3,200,000 801,299 2020 Interest Revenue 2,850,000 2,500,000 Dec. 31 Notes Receivable 173,571 2021 Cash 526,429 Dec. 31 Premium on Notes Receivable 2,500,000 Interest Revenue Notes Receivable 90,718 259,282 Cash 2,500,000 Premium on Notes Receivable Interest Revenue Notes Receivable 2-9. (Toyota Products, Inc.) a. Accounts Receivable 4,800,000 Sales 4,800,000 b. Cash 3,920,000 Sales Discounts 80,000 Accounts Receivable 4,000,000 c. Sales Returns 60,000 Accounts Receivable 60,000 d. Allowance for Uncollectible Accounts 20,000 Accounts Receivable 20,000 e. Accounts Receivable 5,000 Allowance for Uncollectible Accounts 5,000 Cash 5,000 Accounts Receivable 5,000 f. Notes Receivable 25,000 Accounts Receivable 25,000 g. Cash 400,000 Notes Payable-Bank 400,000 Cash 150,000 Accounts Receivable 150,000 Notes Payable-Bank 150,000 Cash 150,000 h. Uncollectible Accounts Expense 65,000 Allowance for Uncollectible Accounts 65,000 9,000 – 20,000 + 5,000 = 6,000 debit 59,000 + 6,000 = 65,000 i. Interest Receivable 250 Interest Revenue 25,000 x 12% x 30/360 250 Accounts receivable P995,000 (450,000+4,800,000–4,000,000–60,000 - 20,000–25,000–150,000) 59,000 Less Allowance for uncollectible accounts P936,000 Amortized cost of accounts receivable 21 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables 2-10. (Word Company) Amounts reported in 2019 financial statements: P52,000 Uncollectible Accounts Expense 50,000 Allowance for Uncollectible Accounts Required balance in allowance account: P50,000 (2% x 500,000) + (10% x 200,000) + (20% x 100,000) 2,000 Reported balance in allowance before adjustments (debit) P52,000 Required adjustment charged to uncollectible accounts expense 2-11. (Edit Company) P 6,000 3,000 Allowance for Uncollectible Accounts, beg Recovery of accounts previously written off 48,000 Uncollectible accounts expense for 2019 (12,000) Allowance for Uncollectible Accounts, end P45,000 Accounts written off during 2019 2-12. (Rav, Inc.) Accounts Receivable, December 31, 2018 P18,000 P 337,000 Transactions during 2019 5,000 1,500,000 Sales on account (1,600,000) Cash received from customers Cash discounts allowed: (882,000 ÷ 98%) x 2% (23,000) 3,000 (495,000 ÷ 99%) x 1% Recovery of accounts written off (11,000) Accounts written off as worthless (6,000) Credit memoranda for sales returns Accounts Receivable, December 31, 2019 P 200,000 Allowance for Uncollectible Accounts, December 31, 2018 P 12,000 Recovery of accounts written off 3,000 Accounts written off as worthless Impairment loss on receivables (11,000) Allowance for Uncollectible Accounts, December 31, 2019 15,000 P 19,000 The computation may also be conveniently done through T-accounts, as follows: Balance, beg Accounts Receivable 1,600,000 Sales on account 337,000 Collections 23,000 Recovery 1,500,000 Cash discounts 11,000 6,000 Total 3,000 Write off Balance, end Sales returns 1,640,000 1,840,000 Total 200,000 Write off Allowance for Uncollectible Accounts 12,000 Total 11,000 Balance, beg 3,000 Recovery Impairment 15,000 11,000 Total 30,000 Balance, end 19,000 22 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables 2-13. (Revo Company) P 34,000 (47,000) (a) Allowance for Uncollectible Accounts, January 1, 2019 Accounts written off 7,000 Recovery of accounts previously written off (6,000) Additional accounts written off Allowance for Uncollectible Accounts, December 31, 2019 (P12,000) before adjustments (debit balance) Required balance in Allowance account based on aging 53,600 (5% x 240,000) + (25% x 20,000) + (50% x 30,000) + (90% x 24,000) P65,600 Required adjustment/Uncollectible Accounts Expense for 2019 P654,000 (b) Accounts Receivable, December 31, 2019 53,600 Less Allowance for Uncollectible Accounts Net amortized cost P600,400 2-14. (Adventure Company) P 1,200,000 (a) Accounts Receivable, January 1 10,000,000 Transactions during 2019 (8,720,000) Sales Cash collected from customers 20,000 Recovery of accounts previously written off ( 400,000) Note received in settlement of an account ( 100,000) Accounts written off as worthless P 2,000,000 Accounts Receivable, December 31 P 2,000,000 Accounts Receivable, December 31 600,000 Past due accounts Current accounts/Not yet past due P 1,400,000 Adjusted balance of Allowance for Uncollectible Accounts P 120,000 20% x 600,000 past due accounts 70,000 5% x 1,400,000 current accounts Total P 190,000 (b) Adjusted Allowance for Uncollectible Accounts, Dec. 31, 2019 P190,000 Accounts written off during the year as worthless 100,000 Recovery of accounts previously written off (20,000) Allowance for Uncollectible Accounts, January 1, 2019 (60,000) Uncollectible Accounts Expense for year 2019 P210,000 (c) Accounts Receivable Less Allowance for Uncollectible Accounts P2,000,000 Amortized cost of accounts receivable, December 31, 2019 190,000 P1,810,000 2-15. (Maynilad Bank) Alternative 1 11,000,000 Carrying value (10 M + 1M) Present value of future cash inflows: P7,437,600 Principal due on 12/31/21 (9M x 0.8264) Interest for 2 years 1,249,560 8,687,160 9M x 8% = 720,000; 720,000 x 1.7355 P2,312,840 Impairment loss Entry: Restructured Notes Receivable 8,687,160 Impairment Loss – Receivables 2,312,840 Notes Receivable 10,000,000 1,000,000 Interest Receivable 23 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables Alternative 2 2,545,480 11,000,000 Carrying value (10 M + 1M) 2,181,696 Present value of future cash inflows: 1,863,224 9,516,104 2M + (8% x 10M) = 2,800,000 x 0.9091 1,584,560 1,483,896 2M + (8% x 8M) = 2,640,000 x 0.8264 1,341,144 2M + (8% x 6M) = 2,480,000 x 0.7513 2M + (8% x 4M) = 2,320,000 x 0.6830 2M + (8% x 2M) = 2,160,000 x 0.6209 Impairment loss Entry: Restructured Notes Receivable 9,516,104 Impairment Loss – Receivables 1,483,896 Notes Receivable 10,000,000 1,000,000 Interest Receivable Alternative 3 10,000,000 Carrying value Present value of future cash inflows: 9,478,850 Principal due on 12/31/21 (10M x 0.8264) 8,264,000 521,150 Interest due on 12/31/20 and 12/31/21 10M x 7% = 700,000; 700,000 x 1.7355 1,214,850 Impairment loss Entry: Restructured Notes Receivable 9,478,850 Impairment Loss – Receivables 521,150 Notes Receivable 10,000,000 Cash 1,200,000 Interest Receivable 1,200,000 11,000,000 Alternative 4 11,000,000 Carrying value -0- Present value of future cash inflows: Principal due on 12/31/18 (11M x 0.82644628) 9,090,909 Interest due on 12/31/17 and 12/31/18 11M x 10% = 1,100,000; 1,100,000 x 1.73553719 1,909,091 No impairment loss No entry is required for the restructuring. 2-16. (Kate Company) (a) Cash 750,000 Notes Payable – National Bank 750,000 (b) Current assets: P3,000,000 Trade and other receivables (including P900,000 of accounts pledged as collateral for a loan with National Bank) P 750,000 7,500 Current liabilities: Notes Payable – National Bank Interest Payable 2-17. (Lexus Company) Sept. 1 Accounts Receivable Assigned 800,000 Accounts Receivable 634,000 800,000 Cash 16,000 650,000 Finance Charges Notes Payable – Pacific Bank 24 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables Amount of the loan P650,000 Less service charge (2% x 800,000) 16,000 Net proceeds from the assignment P634,000 of accounts receivable 300,000 Sept 1-30 Cash 300,000 Sept. 30 Accounts Receivable Assigned 300,000 306,500 6,500 Notes Payable – Pacific Bank Interest Expense Cash 650,000 x 12% x 1/12 = 6,500 Oct. 1-31 Allowance for Uncollectible Accounts 10,000 10,000 Accounts Receivable Assigned 400,000 400,000 353,500 Oct. Cash Accounts Receivable Assigned 350,000 3,500 31 Notes Payable – Pacific Bank Interest Expense Cash 350,000 x 12% x 1/12 = 3,500 31 Accounts Receivable 90,000 Accounts Receivable Assigned 90,000 2-18. (Accord Company) July 1 Accounts Receivable Assigned 5,000,000 Accounts Receivable 3,800,000 5,000,000 1 Cash 200,000 4,000,000 Finance Charges Notes Payable – Bank 5% x 4,000,000 = 200,000 21 Sales Returns and Allowances 200,000 200,000 Accounts Receivable Assigned 2,500,000 2,450,000 31 Cash 50,000 Aug. 1 Sales Discounts 2,500,000 Accounts Receivable Assigned 40,000 2% x 2,500,000 = 50,000 2,540,000 Notes Payable – Bank Interest Expense Cash 4M x .12 x 1/12 = 40,000 Aug. 15 Allowance for Uncollectible Accounts 50,000 Accounts Receivable Assigned 2,000,000 50,000 31 Cash 2,000,000 Sept. 1 Accounts Receivable Assigned 1,500,000 1,515,000 15,000 Notes Payable – Bank Interest Expense Cash 1.5M x .12 x 1/12 = 15,000 25 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables Sept. 1 Accounts Receivable 250,000 Accounts Receivable Assigned 250,000 2–19. (Fortune Company) Oct. 1 Accounts Receivable Assigned 2,000,000 Accounts Receivable 1,410,000 2,000,000 1 Cash 90,000 1,500,000 Finance Charges 1,000,000 Notes Payable 15,000 985,000 31 Interest Expense Notes Payable Accounts Receivable Assigned 1.5M x .12 x 1/12 = 15,000 Nov. 30 Notes Payable 515,000 Interest Expense 5,150 Cash 279,850 Accounts Receivable Assigned 515,000 x 0.12 x 1/12 = 5,150 800,000 30 Accounts Receivable 200,000 Accounts Receivable Assigned 200,000 2-20. (Highlander Company) (a) Cash 684,000 Sept. 1 Receivable from Factor 36,000 Loss from Factoring 80,000 Accounts Receivable 800,000 800,000 x 10% =80,000 Loss; 720,000 x 5% = 36,000 withheld Nov. 1 Cash 582,000 Finance Charges 18,000 (b) Dec. 31 Notes Payable-Bank 600,000 3% x 600,000 = 18,000 11,600 Uncollectible Accounts Expense Allowance for Uncollectible Accounts 11,600 (250,000 + 1,000,000) x 2% = 25,000 – 13,400 2-21. (Hiku Company) P1,080,000 (64,800) (a) Selling price of Accounts Receivable (90% x P1,200,000) Factor’s holdback (6% x 1,080,000) P1,015,200 Cash received from factoring P 150,000 (b) Accounts receivable assigned balance (500,000 – 350,000) Balance of notes payable to the bank (54,000) 400,000 – (350,000 – 4,000) P 96,000 Equity on assigned accounts 26 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables (c) Face value of note discounted P 50,000 Interest for the full term April 30 – August 28 (50,000 x 9% x 120/360) 1,500 Maturity value P 51,500 Discount (51,500 x 10% x 88/360) Proceeds (1,259) P 50,241 2-22. (Edsamail Company) (a) Maturity value = 500,000 + (500,000 x .08) = 540,000 = 517,500 Proceeds = 540,000 – (540,000 x 0.10 x 5/12) (b) Interest Receivable 23,333 Interest Revenue 500,000 x 8% x 7/12 23,333 Cash 517,500 Loss on Sale of Notes Receivable 5,833 Notes Receivable 500,000 Interest Receivable 23,333 (c) Cash 517,500 Liability on Discounted Notes 517,500 2-23. a. Proceeds 90,000 – (90,000 x 0.10 x 20/365) = P89,507 b. 89,507 c. Cash 89,507 Liability on Discounted Notes = P75,614 75,614 Maturity value 75,000 + (75,000 x 0.09 x 90/365)= P76,664 Proceeds 76,664 – (76,664 x 0.10 x 50/365) = P61,598 61,598 Cash 75,614 Liability on Discounted Notes Maturity value 60,000 + (60,000 x 0.12 x 120/365)= P62,367 Proceeds 62,367 – (62,367 x 0.10 x 45/365) Cash 61,598 Liability on Discounted Notes 2-24. (Crosswind Corporation) 2019 Notes Receivable 360,000 Feb. 1 Accounts Receivable 359,910 Apr. 1 Cash 360,000 Liability on Discounted Notes 359,910 360,000 + (360,000 x .10 x 9/12) = 387,000 387,000 – (387,000 x .12 x 7/12) = 359,910 Nov. 2 Liability on Discounted Notes 359,910 Interest Expense 27,090 Notes Receivable 360,000 Interest Revenue 27,000 387,000 x .12 x 7/12 = 27,090 360,000 X .10 X 9/12 = 27,000 27 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables Nov. 2 Accounts Receivable 407,000 Cash 387,000 + 20,000 407,000 2-25. (Explorer Company) P2,000,000 85% (a) Accounts receivable factored P 1,700,000 Purchase price 85,000 Purchase price of accounts receivable factored Less amount withheld (5% x 1,700,000) P 1,615,000 Net cash received from the factored accounts 1,615,000 (b) 85,000 Cash 300,000 Receivable from Factor 2,000,000 Loss on Factoring 30,000 Accounts Receivable 30,000 Sales Returns Receivable from Factor 55,000 Cash 55,000 Receivable from Factor 2-26. (Nature Company) (a) 1/1/16 Interest Revenue 2,800 2,800 3,000,000 3,000,000 Interest Receivable 2,250,000 2,088,000 (1) Accounts Receivable 18,000 180,000 Sales 250,000 250,000 (2) Cash 216,000 200,000 Sales Discounts Accounts Receivable (2,218,000 – 180,000)* 41,400 16,000 Accounts Receivable Assigned * 41,400 41,400 *See Item (9) 4,600 40,000 (3) Notes Receivable 6,000 Accounts Receivable 300,000 300,000 (4) Cash Notes Receivable Interest Revenue (5) Cash Liability on Discounted Notes Liability on Discounted Notes Interest expense Notes Receivable Interest revenue (6) Accounts Receivable Assigned Accounts Receivable 28 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables Cash 222,000 240,000 Finance Charges 18,000 15,000 15,900 900 Notes Payable 12,000 12,000 (7) Accounts Receivable 180,000 183,000 Notes Receivable 30,000 Interest Revenue 3,000 30,000 3,200 (8) Allowance for Uncollectible Accounts Accounts Receivable 3,200 (9) Notes Payable Interest Expense Cash (10) Uncollectible Accounts Expense Allowance for Uncollectible Accounts 30,000 – (12,000 – 12,000) (11) Interest Receivable Interest Revenue (b) Trade and Other Receivables include the following: Notes Receivable P 95,000 Accounts Receivable – Unassigned 977,900 Accounts Receivable - Assigned 120,000 Interest Receivable 3,200 Allowance for Uncollectible Accounts (30,000) Total P1,166,100 29 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables MULTIPLE CHOICE QUESTIONS Theory MC1 A MC6 A MC11 C MC16 D MC2 B MC7 C MC12 A MC17 A MC3 A MC8 A MC13 C MC18 C MC4 A MC9 D MC14 D MC5 C MC10 C MC15 A Problems MC19 B Sales on account (450,000 x 1.4) P630,000 Cash received from credit customers 585,000 Accounts receivable balance, end P 45,000 MC20 D Invoice price (105,000 x .90) Cash discount (2% x 94,500) P94,500 Net price (1,890) MC21 C Invoice price (200,000 x .90 x .95) P92,610 Cash discount (3% x 171,000) Net price P171,000 (5,130) MC22 B Accounts receivable, beginning Credit sales for the year P165,870 Collections from customers, including recoveries of P25,000 Recoveries of accounts previously written off P1,300,000 Accounts written off 5,400,000 Accounts receivable, ending (4,750,000) MC23 B Accounts receivable balance, beginning 25,000 Sales for the year P460,000 (125,000) Cost of goods available for sale (100,000) P1,850,000 Merchandise inventory, end P360,000 Cost of goods sold P80,000 Sales (360,000 ÷ 80%) Collections on accounts receivable 450,000 Accounts receivable, ending (430,000) P100,000 MC24 D Allowance for uncollectible accounts balance before adjustment (debit) Required allowance balance based on aging analysis P45,000 Uncollectible accounts expense for the year 75,000 MC25 D Allowance for bad debts balance after adjustment (3% x 1,000,000) P120,000 MC26 C Allowance for bad debts balance before adjustment (debit) P30,000 MC27 D Required allowance balance (see MC 25) Uncollectible accounts expense P8,000 30,000 Allowance balance, end (270,000 – 250,000) P38,000 Accounts written off Uncollectible accounts recovery during the year P20,000 Allowance balance, beginning 23,000 Bad debts expense for the year (5,000) MC28 B Allowance for uncollectible accounts, beginning (28,000) Write off of uncollectible accounts P10,000 Recoveries of uncollectible accounts written off in prior years Provision for uncollectible accounts during the year P17,500 Allowance for uncollectible accounts, ending (30,500) 8,050 20,000 P15,050 30 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables MC29 B Accounts receivable, beginning P480,000 Sales on account 2,400,000 Cash received from customers (2,560,000) Accounts written off Cash discounts granted (17,600) (1,411,200 ÷ .98 = 1,440,000 x 2%) + (792,000 ÷ .99 = 800,000 x 1%) Recovery of accounts written off (36,800) Accounts receivable, end 4,800 P270,400 MC30 A Allowance for bad debts, January 1 P19,200 Recovery of accounts written off 4,800 Accounts written off Allowance for bad debts, December 31, before adjustment (credit) (17,600 Required balance of allowance for bad debts (5% of 270,400) P6,400 Bad debts expense for the year 13,520 P 7,120 MC31 A 0-30 days (5% x 600,000) P30,000 31-60 days (10% x 40,000) 4,000 Over 60 days Allowance for uncollectible accounts, March 31 14,000 P48,000 MC32 B Allowance for uncollectible accounts, ending (500,000 – 480,000) Uncollectible accounts written off P20,000 Recoveries of accounts previously written off 7,500 Allowance for uncollectible accounts, beginning (375,000 – 362,500) Uncollectible accounts expense for the year (3,700) (12,500) P11,300 MC33 D Maturity value (50,000 x 10%) + 50,000 P55,000 Discount (55,000 x 12% x 6/12) 3,300 Proceeds from discounting P51,700 MC34 C Present value of note (400,000 x 0.75) = 300,000 P30,000 Interest income (300,000 x 10%) MC35 C Carrying amount, January 1 P300,000 Amortization of discount 30,000 Carrying amount, December 31 P330,000 MC36 C Interest revenue (1,940,000 x 13.4% x 1/12) P21,663 MC37 B Interest receivable (2,000,000 x 12% x 1/12) P20,000 MC38 C Amount of reduction in principal in 2021 P659,895 Accrued interest at December 31, 2020 (242,605 x 6/12) 121,303 Total current receivable at December 31, 2020 (See complete amortization table below) P781,198 MC39 C January 1 – June 30 (308,000 x 6/12) P275,303 July 1 – December 31 (242,605 x 6/12) Date Annual payment Interest income Reduction in principal Balance July 1, 2019 2,800,000 July 1, 2020 902,500 11% x 2,800,000=308,000 902,500-308,000=594,500 2,205,500 July 1, 2021 902,500 11% x 2,205,500=242,605 902,500-242,605=659,895 1,545,605 July 1, 2022 902,500 11% x 1,545,605=170,017 902,500-170,017=732,483 July 1, 2023 902,500 902,500-813,122=89,378 813,122 813,122 -0- MC40 B Maturity value 500,000 + (500,000 x 8%) P540,000 Discount (540,000 x 10% x 8/12) (36,000) Proceeds from discounting P504,000 31 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 2 – Receivables MC41 B Proceeds from factoring P695,000 Proceeds from assignment 1,250,000 – (2% x 1,250,000) 1,225,000 Proceeds from factoring and assignment of accounts receivable P1,920,000 MC42 D Required balance in allowance account (500,000 + 2.2M) x 3% P81,000 Allowance balance before adjustment (32,000) Bad debt expense for the year P49,000 MC43 C Carrying value of the note (500,000 + 50,000) 413,250 P550,000 Present value of restructured notes receivable 69,420 500,000 x 0.8265 482,670 500,000 x 8% = 40,000; 40,000 x 1.7355 P 67,330 Impairment loss P5,500,000 MC44 A Carrying value of the note 3,320,000 Present value of restructured notes receivable 556,800 3,876,800 4,000,000 x .83 P1,623,200 4.0M x 8% = 320,000; 320,000 x 1.74 Impairment loss P3,876,800 MC45 D See MC45 32 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 CHAPTER 3 INVESTMENTS IN DEBT SECURITIES AND OTHER NON-CURRENT FINANCIAL ASSETS Discussion Question No. 15 15.1 15.2 15.3 15.4 15.5 PROBLEMS 3-1. (Abu Company) (a) Interest Interest Revenue Premium Carrying Value Received Amortization 8,274,646 Date 1,158,450 8,233,096 01/01/Y1 1,200,000 1,152,633 41,550 8,185,729 12/31/Y1 1,200,000 1,146,002 47,367 8,131,731 12/31/Y2 1,200,000 1,138,442 53,998 8,070,173 12/31/Y3 1,200,000 1,129,827* 61,558 8,000,000 12/31/Y4 1,200,000 70,173* 12/31/Y5 *rounded off. (b) Debt Investments at Amortized Cost 8,274,646 Y1 Cash Jan. 1 8,274,646 Dec. 31 Cash 1,200,000 Debt Investments at Amortized Cost Interest Revenue 41,550 1,158,450 Y2 Cash 1,200,000 Dec. 31 Debt Investments at Amortized Cost Interest Revenue 47,367 1,152,633 3-2. (South Company) (a) (1) Securities are classified as at amortized cost To facilitate computation, a partial amortization table is presented below. Interest Interest Amortization Date Received Revenue of Discount Amortized Cost June 1, Year 1 3,691,500 Dec. 1, Year 1 160,000 184,575 24,575 3,716,075 June 1, Year 2 160,000 185,804 25,804 3,741,879 Dec. 1, Year 2 160,000 187,094 27,094 3,768,973 June 1, Year 3 160,000 188,449 28,449 3,797,422 Dec. 1, Year 3 160,000 189,871 29,871 3,827,293 June 1, Year 4 160,000 191,365 31,365 3,858,658 Dec. 1, Year 4 160,000 192,933 32,933 3,891,591 Year 1 Debt Investments at Amortized Cost 3,691,500 June 1 Cash 3,691,500 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities and Other Non-current Financial Assets Dec. 1 Cash 160,000 184,575 31 Debt Investments at Amortized Cost 24,575 30,968 Year 2 Interest Revenue (see above table) 26,667 Jan. 1 4,301 June 1 Interest Receivable Dec. 1 Debt Investments at Amortized Cost 30,968 26,667 4,301 31 Interest Revenue 160,000 160,000 x 1/6 = 26,667 25,804 185,804 25,804 x 1/6 = 4,301 160,000 187,094 Interest Revenue 27,094 Interest Receivable 31,409 Debt Investments at Amortized Cost 26,667 4,742 Cash Debt Investments at Amortized Cost Interest Revenue (see above table) Cash Debt Investments at Amortized Cost Interest Revenue (see above table) Interest Receivable Debt Investments at Amortized Cost Interest Revenue 160,000 x 1/6 = 26,667 28,449 x 1/6= 4,742 (2) Securities are classified as at fair value through profit and loss. Year 1 Debt Investments at FVPL 3,691,500 June 1 Cash 3,691,500 Dec. 1 Cash 160,000 Interest Revenue (4M x 8% x ½) 160,000 31 Interest Receivable 26,667 Interest Revenue (4M x 8% x 1/12) 26,667 31 Debt Investments at FVPL 188,500 Unrealized Gain on Debt Investments atFVPL 188,500 4M x .97 = 3,880,000 3,880,000 – 3,691,500 = 188,500 Year 2 Interest Receivable 26,667 Jan. 1 Interest Revenue 26,667 June 1 Cash 160,000 Interest Revenue 160,000 Dec. 1 Cash 160,000 Interest Revenue 160,000 31 Interest Receivable 26,667 Interest Revenue 26,667 34 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities and Other Non-current Financial Assets Dec.31 Debt Investments at FVPL 80,000 Unrealized Gain on Debt Investments at FVPL 80,000 4M x 0.99 = 3,960,000 3,960,000 – 3,880,000 = 80,000 (3) Securities are classified as at Fair Value Through Other Comprehensive Income Year 1 Debt Investments at FV through OCI 3,691,500 June 1 Cash 3,691,500 Dec. 1 Cash 160,000 Debt Investments at Fair Value through OCI 24,575 Interest Revenue (see table) 184,575 Dec.31 Interest Receivable 26,667 30,968 Dec. 31 Debt Investments at Fair Value through OCI 4,301 159,624 Interest Revenue 159,624 Fair Value Adjustment – Debt Investments at FV through OCI Unrealized Gain on Debt Investments at FVPL Amortized cost 3,716,075 + 4,301 = 3,720,376 3,880,000 – 3,720,376 = 159,624 Year 2 Interest Revenue 30,968 Jan. 1 Interest Receivable Debt Investments at FV through OCI 26,667 4,301 June 1 Cash 160,000 Debt Investments at Amortized Cost 25,804 Interest Revenue (see table) 185,804 Dec. 1 Cash 160,000 Debt Investments at Amortized Cost 27,094 Interest Revenue (see table) 187,094 31 Interest Receivable 26,667 Debt Investments at Amortized Cost 4,742 Interest Revenue 160,000 x 1/6 = 26,667 31,409 28,449 x 1/6= 4,742 26,661 31 Fair Value Adjustment – Debt Investments at FV through OCI 26,661 Unrealized Gain on Debt Investments at FVPL Amortized cost 3,768,973 + 4,741 = 3,773,715 3,960,000 –3,773,715 =186,285 186,285 – 159,624 = 26,661 35 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities and Other Non-current Financial Assets (b) Journal entry/entries to record sale of investment on November 1, Year 4. (1) Securities are classified as at amortized cost. Nov. 1 Debt Investments at Amortized Cost 27,444 Interest Receivable 133,333 Interest Revenue 192,933 x 5/6 160,777 32,933 x 5/6 = 27,444 1 Cash 3,925,000 Loss on Sale of Debt Investments at Amortized Cost 94,435 Interest Receivable 133,333 Debt Investments at Amortized Cost 3,886,102 CV of Debt Investments sold: 3,858,658 As of June 1, Year 4 Amortization June 1 to 27,444 Nov. 1, Year 4 3,886,102 As of Nov. 1, Year 4 3,791,667 Sales price 94,435 Loss on sale (2) Securities are classified as at fair value through profit or loss Nov. 1 Cash 3,925,000 128,333 Loss on Sale of Debt Investments at FVPL Interest Revenue 133,333 3,920,000 Debt Investments at FVPL Acc. Int. = 4M x 8% x 5/12 = 133,333 Sales price (3,925,000–133,333) 3,791,667 Carrying value (4 M x 0.98) 3,920,000 Loss on sale 128,333 (3) Securities are classified as at Fair Value through Other Comprehensive Income Nov. 1 Debt Investments at FV through OCI (32,933 x 5/6) 27,444 Interest Receivable 133,333 Interest Revenue (192,933 x 5/6) 160,777 1 Unrealized Gains/Losses on Debt Investments at FV through OCI 280,720 Fair Value Adjustment – Debt Investments at FV through OCI 280,720 3,858,658 + (32,933 x 5/6) = 3,886,102 3,886,102 – 3,791,667 = 94,435 decline 94,435 + 186,285 = 280,720 1 Cash 3,925,000 Fair Value Adjustment-Debt Investments at FV through OCI 94,435 Interest Receivable 133,333 Debt Investments at FV through OCI 3,886,102 Retained Earnings 94,435 Unrealized Gain/Losses on Debt Investments at FV through OCI 94,435 36 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities and Other Non-current Financial Assets 3-3. (Grow Company) (1) Classified as at Amortized Cost Amortization Table Date Nom Int Effect Int Prem Amort Amortized cost, end 1/1/Year 1 1,063,394 12/31/Year 1 120,000 106,339 13,661 1,049,733 12/31/Year 2 120,000 104,973 15,027 1,034,706 12/31/Year 3 120,000 103,471 16,529 1,018,177 (a) Carrying value, 12/31/Year 2 (see table) P1,034,706 (b) Sales price P 606,000 Carrying value, 1/1/Year 3 (1,034,706 x 6/10 P620,824 Amortization 1/1/Year 3 – 4/1/Year 3 16,529 x 3/12 x 600/1000 (2,479) 618,345 Loss on sale P 12,345 (c) Interest income for Year 3: P 25,868 Jan 1 to Mar 31 103,471 x 3/12 31,041 Apr 1 to Dec 31 103,471 x 400/1000 x 9/12 P 56,909 Total interest income for Year 3 (d) Carrying value, 12/31/Y3 (1,018,177 x 400/1000) P 407,271 (2) Classified as Debt Investments at FV through Profit or Loss (a) Interest income (1,000,000 x 12%) P 120,000 (b) Sales price (600,000 x 1.01) P 606,000 Carrying value, 12/31/Year 2 (600,000 x 1.06) 636,000 Loss on sale P 30,000 (c) Carrying value, 12/31/Year 2 (FV) (1,000,000 x 1.06) P1,060,000 Carrying value, 12/31/Year 3 (400,000 x 1.04) P 416,000 (3) Classified as at Fair Value Through Other Comprehensive Income (a) Carrying value, 12/31/Year 2 (1M x 1.06) P1,060,000 (1,034,760 + 25,240 FV Adj) (b) Sales price P 606,000 Amortized cost 618,345 Loss on sale P 12,345 (c) Interest income for Year 3: P 25,868 Jan 1 to Mar 31 103,471 x 3/12 31,041 Apr 1 to Dec 31 103,471 x 400/1000 x 9/12 P 56,909 Total interest income for Year 3 (d) Fair value, December 31, Year 3 (400,000 x 1.04) P 416,000 Amortized cost, December 31, Year 3 1,018,177 x 4/10 407,270 Cumulative amount of unrealized gains/loss P 8,730 3-4. (Powerpuff Company) April 1 Debt Investments – FVPL – Peach Co. Bonds 1,010,000 Cash 1,010,000 37 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities and Other Non-current Financial Assets July 1 Debt Investments – FVPL – Buttercup Bonds 150,000 156,000 Oct. 1 Interest Receivable (150,000 x 12% x 4/12) 6,000 50,000 Cash 50,000 34,000 Cash 34,000 Interest Income (1,000,000 x 10% x 6/12) 20,000 17,000 UGL Dec. 31 Interest Receivable 3,000 Interest Income (20,000) 1M x 10% x 3/12 = 25,000 Fair value 3,000 150,000 x 12% x 6/12 = 9,000 990,000 25,000 + 9,000 = 34,000 153,000 (17,000) 31 Unrealized Loss on Investments at FVPL 1,143,000 Debt Investments – FVPL - Buttercup Bonds Debt Investments – FVPL - Peach Bonds Cost Peach 10% Bonds 1,010,000 Buttercup 12% Bonds 150,000 1,160,000 3-5. (Narito Company) Amortization Table Nominal Effective Premium Amortized Cost, Interest End Date Interest Amortization Jan. 1, Year 1 7,000 108,660 Dec. 31, Year 1 7,000 5,433 1,567 107,093 Dec. 31, Year 2 7,000 5,355 1,645 105,448 Dec. 31, Year 3 7,000 5,272 1,728 103,720 Dec. 31, Year 4 7,000 5,186 1,814 101,906 Dec. 31, Year 5 5,094 1,906 100,000 Year 1 Debt Investments at Amortized Cost – Wolf Bonds 108,660 Jan. 1 Cash 108,660 Dec. 31 Cash 7,000 Debt Investments at Amortized Cost – Wolf Bonds Interest Income 1,567 5,433 Year 2 Cash 7,000 Dec. 31 Debt Investments at Amortized Cost – Wolf Bonds Interest Income 1,645 5,355 Year 3 Cash 7,000 Dec. 31 Debt Investments at Amortized Cost – Wolf Bonds Interest Income 1,728 5,272 31 Impairment Loss on Debt Investments 4,653 Debt Investments at Amortized Cost – Wolf Bonds 4,653 Carrying value, Dec. 31, Year 3 P103,720 Present value of future cash inflows 100,000 x 0.9070 90,700 4,500 x 1.8594 8,367 99,067 Impairment Loss P 4,653 38 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities and Other Non-current Financial Assets Year 4 Cash 4,500 Dec. 31 Debt Investments at Amortized Cost – Wolf Bonds 453 Interest Income 4,953 Year 5 Cash 4,500 Dec. 31 Debt Investments at Amortized Cost – Wolf Bonds 480 Interest Income 4,980 Revised Amortization Table Nominal Effective Discount Amortized Cost, End Date Interest Interest Amortization Dec. 31, Year 3 99,067 Dec. 31, Year 4 4,500 4,953 453 99,520 Dec. 31, Year 5 4,500 4,980* 480* 100,000 3-6. (Raffy Company) To facilitate computation, a partial amortization table is presented below. Interest Interest Amortization HTM Date Received Revenue of Discount Carrying Value June 1, 2018 5,353,150 Dec. 31, 2018 350,000 312,267 37,733 5,315,417 Dec. 31, 2019 600,000 531,542 68,458 5,246,959 Dec. 31, 2020 600,000 524,696 75,304 5,171,655 Dec. 31, 2021 600,000 517,166 82,834 5,088,821 2018 Debt Investments at Amortized Cost (Blessie) 5,353,150 June 1 Interest Revenue (5M x 12% x 5/12) 250,000 Cash 5,603,150 Dec. 31 Cash 600,000 Interest Revenue Debt Investments at Amortized Cost (Blessie) 562,267 37,733 2019 Cash 600,000 Dec. 31 Interest Revenue Debt Investments at Amortized Cost (Blessie) 531,542 68,458 2020 Cash 600,000 Dec. 31 Interest Revenue Debt Investments at Amortized Cost (Blessie) 524,696 75,304 2021 Interest Receivable (3M x 12% x 8/12) 240,000 Sept. 1 Debt Investments at Amortized Cost (Blessie) Interest Revenue (517,166 x 3/5 x 8/12) 33,134 206,866 1 Cash (3,090,000 + 240,000) 3,330,000 Gain on Sale of Debt Investments 20,141 Interest Receivable 240,000 Debt Investments at Amortized Cost (Blessie) 3,069,859 39 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities and Other Non-current Financial Assets CV of debt investment sold: 3,102,993 As of 12/31/19 (5,171,655 x 3/5) 33,134 Amort from 1/1/20-9/1/20 CV as of 9/1/20 3,069,859 3,090,000 Sales price Gain on sale 20,141 Dec. 31 Cash 240,000 Interest Revenue Debt Investments at Amortized Cost (Blessie) 206,866 2M x 12% = 240,000 33,134 517,166 x 2/5 = 206,866 82,834 x 2/5 = 33,134 3-7. (Grow Company) 3-8. Amortization Table Date Nom Int Effect Int Prem Amort Amortized cost, end 1/1/Year 1 1,063,394 12/31/Year 1 120,000 106,339 13,661 1,049,733 12/31/Year 2 120,000 104,973 15,027 1,034,706 12/31/Year 3 120,000 103,471 16,529 1,018,177 (a) Market value, 12/31/ Year 2 (1.06 x 1M) P1,060,000 Amortized cost, 12/31/Year 2 1,034,706 Unrealized Gain or Loss (In Equity) P 25,394 (b) Interest income for Year 2 P 104,973 (c) Market value, 12/31/Year 3 (1.04 x 400,000) P 416,000 Amortized cost (1,018,177 x 4/10) 407,271 Unrealized Gain on 12/31/Year 3 P 8,729 (Naruto Company) Date Nominal Amortization Table Amortized Cost, Jan. 1, 2018 Interest Premium End Dec. 31, 2018 Dec. 31, 2019 7,000 Effective Interest Amortization 108,660 Dec. 31, 2020 7,000 107,093 Dec. 31, 2021 7,000 5,433 1,567 105,448 Dec. 31, 2022 7,000 5,355 1,645 103,720 7,000 5,272 1,728 101,906 5,186 1,814 100,000 5,094 1,906 (a) Interest income for 2018 P 5,433 P105,448 (b) Carrying amount at December 31, 2019 (amortized cost) 5,272 (c) 1,728 2020 7,000 Dec. 31 Cash Interest Revenue Debt Investments at Amortized Cost 40 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities and Other Non-current Financial Assets 2021 2,917 May 31 Interest Receivable 2,161 756 Debt Investments at Amortized Cost Interest Revenue 7,000 x 5/12 = 2,917 5,186 x 5/12 = 2,161 1,814 x 5/12 = 756 31 Cash (106,000 + 2,917) 108,917 Gain on Sale of Debt Investments 4,441 Interest Receivable 2,917 Debt Investments at Amortized cost 100,000 x 1.06 = 106,000 101,559 103,720 – 2,161 = 101,559 106,000 – 101,559 = 4,441 3-9. (Donna Corporation) (a) Amortization Table Nominal Premium Amortized Cost, End Date Interest Effective Interest Amortization 104,330 Jan. 2, Year 1 103,547 102,724 Dec. 31, Year 1 6,000 5,217 783 101,861 100,954 Dec. 31, Year 2 6,000 5,177 823 100,000 Dec. 31, Year 3 6,000 5,136 863 Dec. 31, Year 4 6,000 5,093 907 Dec. 31, Year 5 6,000 5,044 954* *Adjusted, P4 difference is due to rounding off (b) Present value of modified cash flow based on completed negotiation Present value of new principal (90% x 100,000 = 90,000) 90,000 x 0.9070 81,630 Present value of reduced interest (6% x 90,000 = 5,400) 5,400 x 1.8594 10,041 Total 91,671 (c.1) Carrying value of bond investment, December 31, Year 3 101,861 Present value based on modified terms 91,671 Impairment loss 10,190 (c.2) Impairment Loss 10,190 Debt Investments at Fair Value Through OCI 10,190 PLEASE CHECK ANSWERS. As of December 31, Year 2, Unrealized Loss (debit balance) and Fair Value Adjustment (credit balance) accounts have balance of P5,724 (102,724 – 97,000). SINCE THERE IS NO QUOTED PRICE AT DEC. 31, YEAR 3, I DID NOT HAVE ANY ADJUSTMENT RELATED THERETO. (d) Interest Income, Year 4 (see table below) P4,584 Interest Income, Year 5 (see table below) P4,542 Revised amortization table – New modified terms Nominal Premium Amortized Cost, End Date Interest Effective Interest Amortization 91,671 Dec. 31, Year 3 90,855 90,000 Dec. 31, Year 4 5,400 4,584 816 Dec. 31, Year 5 5,400 4,542 855* *Adjusted; P2 difference is due to rounding off 41 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities and Other Non-current Financial Assets 3-10. Classification of Investments in Debt Securities 1. B and C 6. B and C 11. C 2. A 7. A 12. B and C 3. B and C 8. A 13. A 4. A 9. B and C 14. A 5. B and C 10. B and C 15. B 3-11. (Raymond Company) 1. Building Construction Fund Cash Cash 2. Building Expansion Fund Securities Building Expansion Fund Cash 3. Building Expansion Fund Securities Interest Receivable – Building Expansion Fund Building Expansion Fund Cash 4. Building Expansion Fund Cash Dividend Income 5. Building Expansion Fund Expenses Building Expansion Fund Cash 6. Building Expansion Fund Cash Interest Receivable – Building Expansion Fund Interest Income 7. Building Expansion Fund Securities Building Expansion Fund Cash 8. Building Expansion Fund Cash Building Expansion Fund Securities Gain on Sale of Building Expansion Fund Securities Interest Income 9. Building Expansion Fund Cash Dividend Income 10. Building Expansion Fund Cash Building Expansion Fund Securities Gain on Sale of Building Expansion Fund Securities 11. Buildings Building Expansion Fund Cash 12. Cash Building Expansion Fund Cash 3-12. (Cordero Corporation) (a) Required semiannual deposit = P15,000,000/FV of ordinary annuity of 1 discounted at 4% for 20 periods = P15,000,000 /29.7781 = P503,726 (b) 6/30/19 503,726 Bond Sinking Fund Cash 503,726 Cash 42 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities 523,875 and Other Non-current Financial Assets 503,726 20,149 12/31/19 Bond Sinking Fund Cash Cash Interest Income (503,726 x 4%) 3-13. (Dorina Company) (a) Entries for 2017 through 2022 120,000 7/01/17 Prepaid Life Insurance 120,000 Cash 12/31/17 Life Insurance Expense (120,000 X 6/12) 60,000 Prepaid Life Insurance 60,000 06/30/18 Prepaid Life Insurance 120,000 Cash 120,000 12/31/18 Life Insurance Expense 120,000 Prepaid Life Insurance 120,000 06/30/19 Prepaid Life Insurance 120,000 Cash 120,000 12/31/19 Life Insurance Expense 120,000 Prepaid Life Insurance 120,000 06/30/20 Prepaid Life Insurance 120,000 Cash 120,000 12/31/20 Life Insurance Expense 120,000 Prepaid Life Insurance 120,000 Cash Surrender Value* 36,000 Life Insurance Expense 36,000 06/30/21 Prepaid Life Insurance 120,000 Cash 120,000 12/31/21 Life Insurance Expense 120,000 Prepaid Life Insurance 120,000 Cash Surrender Value 13,000 Life Insurance Expense 13,000 03/31/22 Life Insurance Expense 30,000 Prepaid Life Insurance 30,000 Receivable from Insurance Company 4,000,000 Prepaid Life Insurance 30,000 Cash Surrender Value 49,000 Gain on Insurance Settlement 3,921,000 *The cash surrender value of life insurance may be recognized on the anniversary date (June 30, 2020 and every June 30 thereafter). No proportionate adjustment, however, is necessary at year-end because there is no actual increase in cash surrender between anniversary dates. (b) If the president or his heirs were the beneficiaries of the policy, the premiums paid shall be charged to employees benefit expense and no cash surrender value will be set up by the company. 43 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities = P3,220,000 and Other Non-current Financial Assets = P 386,400 3-13. (Solidbank) 3,220,000 (a) P10,000,000 x 0.3220 6,780,000 (b) Interest Income in 2019 = 12% x P3,220,000 10,000,000 (c) 1/1/19 Advances to Officers 386,400 Prepaid Compensation Expense Cash 386,400 12/31/19 Advances to Officers 678,000 Interest Revenue 678,000 Compensation Expense Prepaid Compensation Expense 432,768 6,780,000/10 432,768 12/31/20 Advances to Officers Interest Revenue 678,000 (3,220,000 + 386,400) x 12% 678,000 Compensation Expense Prepaid Compensation Expense = P4,039,168 (d) Amortized Cost, December 31, 2020 3,220,000 + 386,400 + 432,768 MULTIPLE CHOICE QUESTIONS Theory MC6 MC7 MC1 MC8 MC2 MC9 MC3 MC10 MC4 MC5 Purchase price is 1,000,000 x 1.04, or 1,040,000 Accrued interest is 1,000,000 x 12% x 4/12, or 40,000 Problems MC11 A MC12 C Interest income (8,750,000 x 5%) P437,500 MC13 C Investment cost, July 1, Year 2 P3,692,000 Nominal interest (4,000,000 x 4%) 160,000 24,600 P3,716,600 Effective interest (3,692,000 x 5%) 184,600 P184,600 Amortization of discount P912,400 Investment carrying value, December 31, Year 2 11,240 MC14 C Interest income/Effective interest (3,692,000 x 5%) P923,640 MC15 B Investment cost Amortization of discount (912,400 x 10%) – (1M x 8%) Investment carrying value, December 31, Year 2 44 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 3 – Investments in Debt Securities and Other Non-current Financial Assets MC16 D Total proceeds from sale of bonds P7,850,000 320,000 Accrued interest included (8.0M x .08 x 6/12) P7,530,000 Selling price 7,483,758 Carrying value of bond investment sold P 46,242 Acquisition cost 7,383,000 P472,500 Amortization, December 1, Year 1 49,150 P20,000 7,432,150 Effective interest (7,383,000 x 5%) 369,150 P460,000 51,608 472,500 Nominal interest (8.0M x 4%) 320,000 P 12,500 Carrying value, December 1, Year 1 P110,000 Amortization, June 1, Year 2 35,000 Effective interest (7,432,150 x 5%) 371,608 P75,000 Nominal interest 320,000 P1,594,400 95,664 Gain on sale P1,590,064 MC17 D Carrying amount is equal to FV MC18 B P100,000 MC19 D Interest income is equal to nominal interest (500,000 x 4%) 20,000 Sales price P120,000 Carrying amount of investment sold Loss on sale P40,000 (21,000) MC20 A Annual insurance premium Increase in cash surrender value during the year (115,000-80,00) (6,000) Life insurance expense for the year P13,000 MC21 C Present value of note, June 30, 2019 (2,000,000 x 0.7972) P2,250,000 Amortization of discount for 6 months (1,594,400 x 6%) 450,000 Carrying amount, December 31, 2019 75,000 150,000 MC22 A Cash surrender value, January 1, 2019 180,000 (25,000) MC23 D Annual premium paid, net of dividends earned 160,000 MC24 B P2,900,000 MC25 C (200,000-20,000) Life insurance expense reported P 978,500 Increase in cash surrender value Cash surrender value, December 31, 2019 Annual premium Increase in cash surrender value (108,000 – 87,000) Dividend received Life insurance expense for 2019 Bond sinking fund, January 1 Additional investments during the year Dividend revenue Interest revenue Administration costs Bond sinking fund, December 31 Annual deposit (5,000,000/5.11) = 978,474 Rounded 45 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 CHAPTER 4 INVESTMENTS IN EQUITY SECURITIES PROBLEMS 4-1. (Victoria Corporation) Year 1 Equity Investments –FVPL 150,000 153,750 (a) Other Expenses 3,750 30,000 (b) 4,000 Cash 30,000 90,000 Year 2 (a) Equity Investments – FVPL 6,000 Unrealized Gains on Equity (b) Investments – Profit or Loss 153,750 180,000-150,000 26,250 10,000 Cash 94,000 95,000 1,000 Gain on Sale of Equity Investments – FVPL Equity Investments – FVPL 500 x 190 = 95,000 95,000 – 1,000 = 94,000 94,000 – (1/2 180,000) = 4,000 Equity Investments – FVPL 6,000 Unrealized Gains on Equity Investments – Profit or Loss 500 x 192 = 96,000 96,000 – 90,000 = 6,000 4-2. (Victory Company) Year 1 Equity Investments at FV through OCI 153,750 (a) Cash (1,000 x 150) + 3,750 (b) Equity Investments at FV through OCI 26,250 Unrealized Gains and Losses on Equity Investments - OCI 180,000 – 153,750 Year 2 Equity Investments at FV through OCI 10,000 (a) Unrealized Gains and Losses on Equity Investments - OCI 190,000 – 180,000 Cash 94,000 Loss on Sale of Equity Investments 1,000 Equity Investments at FV through OCI (b) Equity Investments at FV through OCI 1,000 Unrealized Gains and Losses on Equity Investments - OCI 96,000 – 95,000 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 4 – Investments in Equity Securities 4-3. (A Company) a. Cash 18,000 Dividend Revenue 2,400 shares x 7.50 18,000 b. Memo entry. Received additional 600 shares of B Corp. ordinary shares as bonus issue on 2,400 shares previously held. c. Equity Investments - A Preference 150,000 Dividend Revenue 150,000 600 x 250 = 150,000 d. Memo entry. Received additional shares of B Corp. ordinary shares on a 4-for-1 stock split of the 2,400 shares previously held. Total shares now held: 9,600. e. Equity Investments - C Ordinary 20,000 Dividend Revenue 20,000 2,400/6 = 400 shares x 50 4-4. (Inn Corporation) (a) December 31, Year 2 ledger balance (30,000 shares x 65) P1,950,000 Year 3 Memo: Received 6,000 shares of NPA Co. ordinary as 20% bonus issue on the 30,000 shares previously held. Cash (15,000 x 70) 1,050,000 Equity Investments – FVPL 812,500 Gain on Sale of Equity Investments 237,500 1,950,000 x 15,000/36,000 = 812,500 374,500 1,050,000 – 812,500 = 237,500 Equity Investments – FVPL 374,500 Unrealized Gain on Equity Investments at FVPL 21,000 x 72 1,512,000 1,950,000 – 812,500 1,137,500 Unrealized gain 374,500 (b) Gain on sale P237,500 Unrealized gain on equity investments at FVPL 374,500 Total amount reported in profit or loss P612,000 (c) Equity Investments at Fair Value P1,512,000 4-5. (Inn Corporation) (a) December 31, Year 2 ledger balance (30,000 x P65) P1,950,000 Cost 1,800,000 Unrealized Gain or Loss on Equity Investments - OCI P 150,000 Year 3 Memo: Received 6,000 shares of NPA Co. ordinary as 20% bonus issue on the 30,000 shares previously held. 47 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 4 – Investments in Equity Securities Equity Investments at Fair Value through OCI 237,500 Unrealized Gain or Loss on Equity 237,500 Investments – OCI 15,000 sh x 70 1,050,000 1,950,00 x 15/36 812,500 Unrealized gain 237,500 Cash (15,000 x 70) 1,050,000 Equity Investments at FV through OCI 1,050,000 Unrealized Gain or Loss on Equity 300,000 Investments – OCI 300,000 Retained Earnings 237,500 + (150,000 x 15/36) Equity Investments at FV through OCI 374,500 Unrealized Gain on Equity Investments 374,500 at FV through OCI 21,000 x 72 = 1,512,000 1,950,000 x 21/36 1,137,500 Change in FV 374,500 ALTERNATIVE ENTRIES FOR YEAR 3 Memo: Received 6,000 shares of NPA Co. ordinary as 20% bonus issue on the 30,000 shares previously held. Equity Investments at Fair Value through OCI 570,000 Unrealized Gain or Loss on Equity Investments – OCI 570,000 36,000 sh x 70 2,520,000 Previous FV 1,950,000 Unrealized gain (100%) 570,000 Cash (15,000 x 70) 1,050,000 Equity Investments at FV through OCI 1,050,000 Unrealized Gain or Loss on Equity 300,000 Investments – OCI 300,000 Retained Earnings (570,000 + 150,000) x 15/36 Equity Investments at FV through OCI 42,000 Unrealized Gain on Equity Investments at FV through OCI 42,000 21,000 x (72 – 70) (b) None (c) Equity Investments at Fair Value through OCI P1,512,000 (d) Unrealized Gain or Loss in Equity , 12/31/ Year 3 P 462,000 (150,000 + 570,000 – 300,000 + 42,000) or (150,000 + 237,500 – 300,000 + 374,500) Fair value, December 31, Year 3 P1,512,000 Cost (1,800,000 x 21,000/36,000) 1,050,000 Unrealized Gain (Loss) in Equity P 462,000 48 Downloaded by Genesis Mae Bitancor ([email protected])

lOMoARcPSD|13860191 Chapter 4 – Investments in Equity Securities 4-6. (Gypsy Corporation) (a) P0. No gain or loss is reported in profit or loss. (b) Cumulative balance of Unrealized Gains and Losses P 35,000 (in equity) - see below Monterey Preference # of Cost FV, 12/31/ Unrealized Garcia Ordinary shares P133,000 Year 3 Gain (Loss) Barney Corporation 3,500 P 2,000 1,000 180,000 P135,000 10,000 3,000 177,000 190,000 23,000 P490,000 200,000 P35,000 P525,000 4-7. (Melody Corporation) (a) Unrealized Gains or Losses on Equity Investments through OCI Fair value (1,250 x 85) P106,250 Cost 110,000 Unrealized Loss, end of Year 1 P 3,750 Total FV, Dec. 31, Year 2 (2,000 x 90) P180,000 Total cost (110,000 + 60,000) 170,000 Cumulative balance, end of Year 2 P 10,000 (b) Amount taken to OCI P106,250 Fair value (1,250 x 85) 110,000 Cost Unrealized Loss for Year 1 P 3,750 Fair value (2,000 x 90) P180,000 Carrying value/Cost (106,250+60,000) 166,250 Unrealized gain for Year 2 P 13,750 (c) Memo: Received 2,000 stock rights from Music, Inc. for the purchase of one share for every five rights submitted at P80 per share. Equity Investments at FV through OCI 30,000 Cash Investment Income 24,000 300 x 100 = 30,000 6,000 300 x 80 = 24,000 Cash 2,250 Investment Income 2,250 500 x 4.50 Equity Investments at FV through OCI 15,400 Unrealized Gains and Losses on 15,400 Equity Investments – OCI 2,300 x 98 = 225,400 225,400 – (180,000 + 30,000)=15,400 49 Downloaded by Genesis Mae Bitancor ([email protected])