Solution manual intermediate accounting by robles empleo ch 3 answers

Chapter – Receivables CHAPTER - RECEIVABLES Question no a b c d e f g h i j k l m n o p Accounts Receivable Receivables from Employees (part of non-trade receivables) – current assets Advances to Suppliers – Current assets Accounts Receivable Customers’ Accounts with Credit Balances – Current Liabilities Cost of merchandise must be included in inventories Accounts Receivable Subscriptions Receivable – current asset if collectible within 12 months; otherwise, non-current asset Other Non-Trade Receivables – Current asset or non-current asset depending on terms of payment Advances to Suppliers – Current Assets Suppliers’ Accounts with Debit Balances or Advances to Suppliers – Current assets Accounts Receivable Claims for Income Tax Refund – Current Assets Accounts Receivable, amount of loan presented separately as part of liabilities Accounts Receivable Not recognized anymore (for write off) PROBLEMS 3-1 (Ginoo Company) Gross Method (Correction to the Text: Delete the second transaction on Dec 10: Collected from First Lady in full.) Dec Accounts Receivable-First Lady 68,400 Sales 68,400 80,000 x 90% x 95% 10 Accounts Receivable-Men’s World Sales 50,000 19 Cash Sales Discounts Accounts Receivable-First Lady 67,032 1,368 Accounts Receivable-Teens’ Kingdom Sales 40,000 26 31 Jan Sales Discounts Allowance for Sales Discounts 68,400 40,000 800 800 Cash Allowance for Sales Discounts Accounts Receivable-Teens’ Kingdom 39,200 800 Cash Accounts Receivable-Men’s World 50,000 10 50,000 40,000 50,000 Chapter – Receivables Net Method Dec Accounts Receivable-First Lady Sales 68,400 x 0.98 67,032 10 Accounts Receivable-Men’s World Sales 49,000 19 Cash Accounts Receivable-First Lady 67,032 26 Accounts Receivable-Teens’ Kingdom Sales 39,200 31 Accounts Receivable-Men’s World Sales Discount Forfeited Accounts Receivable-Teens’ Kingdom Cash Accounts Receivable-Men’s World Allowance Method Dec Accounts Receivable-First Lady Allowance for Sales Discount Sales 10 Dec 19 26 31 Jan 3-2 67,032 1,368 67,032 67,032 Allowance for Sales Discount Sales Discount Forfeited 1,000 49,000 1,368 68,400 40,000 800 39,200 1,000 Cash Allowance for Sales Discount Accounts Receivable-Teens’ Kingdom 39,200 800 Cash Accounts Receivable-Men’s World 50,000 Notes Receivable Sales 1,000 39,200 68,400 Cash Accounts Receivable-Teens’ Kingdom Allowance for Sales Discount Sales 39,200 50,000 50,000 Allowance for Sales Discount Accounts Receivable-First Lady 67,032 50,000 Accounts Receivable-Men’s World Allowance for Sales Discount Sales (Colayco Company) (1) July Allowance for Doubtful Accounts 14 Accounts Receivable-Moret Co 31 1,000 49,000 1,000 40,000 50,000 10,000 10,000 12,000 12,000 11 Chapter – Receivables Aug 15 Nov Nov Nov Nov 15 Cash 20,000 Notes Receivable Sales 15,000 Cash 19,200 35,000 Credit Card Service Charge Sales 4% x 20,000 = 800 800 20,000 Accounts Receivable-P Noval Notes Receivable Interest Revenue 12,000 x 10 x 90/360 = 300 12,300 Accounts Receivable-Credit Card Sales 9,000 Cash Credit Card Service Charge Accounts Receivable-Credit Card 5% x 9,000 = 450 Accounts Receivable-Moret Co 8,550 450 Dec 13 3-3 9,000 9,000 10,000 Allowance for Bad Debts 15 12,000 300 10,000 Cash Accounts Receivable-Moret Co 10,000 Cash 15,600 10,000 Notes Receivable Interest Income 15,000 x 12% x 120/360 = 600 15,000 600 (Format Company) a Carrying value of the note on January 1, 2009 P6,000,000 x 0.65752 P3,945,120 Prevailing interest rate 15% Interest revenue for 2009 P 591,768 b Carrying value, January 1, 2009 P3,945,120 Add amortization of discount during 2009 Carrying value, December 31, 2009 (or simply P3,945,120 x 1.15 = P4,536,888) 3-4 (Formatted Company) a Carrying value of the note on January 1, 2009 (P2 M x 2.28323) P4,566,460 12 591,768 P4,536,888 Chapter – Receivables Interest rate Interest revenue for 2009 15% P 684,969 Carrying value, December 31, 2009 4,566,460 + 684,969 – 2,000,000 Interest rate Interest revenue for 2009 P3,251,429 15% P 487,714 b Carrying value, January 1, 2009 P4,566,460 Add amortization of discount during 2009 Less first payment of principal (2,000,000) Carrying value, December 31, 2009 3-5 684,969 P3,251,429 (HRV Company) Accrued interest at June 30, 2009 (3,000,000 – 1,000,000) x 12% 240,000 3-6 P (FX Corporation) a 2009 Jan Notes Receivable Accumulated Depreciation Loss on Sale of Equipment Equipment Discount on Notes Receivable 100,000 420,000 8,820 100,000 x 0.7118 = 71,180 80,000 – 71,180 = 8,820 Loss on Sale 100,000 – 71,180 = 28,820 Discount b 2009 Dec 31 2010 Dec 31 2011 Dec 31 Dec 31 3- Discount on Notes Receivable Interest Revenue 12% x 71,180 8,542 Discount on Notes Receivable Interest Revenue 12% x (71,180 + 8,542) 9,567 Discount on Notes Receivable Interest Revenue 12% x (71,180 +8,542 + 9,567) (or 28,820 – 8,542 – 9,567) Cash Notes Receivable 500,000 28,820 8,542 9,567 10,711 10,711 100,000 100,000 (Pinky Pop Company) (Solutions were based on PV factors rounded to five decimal places) The note is interest-bearing, but the rate of interest of the note is unreasonably lower than the prevailing rate for similar obligation Thus, the present value of the note is determined as follows: 13 Chapter – Receivables 2.5 M + (5% x 7.5 M) = 2,875,000 x P2,566,972 2.5 M + (5% x 5.0 M) = 2,750,000 2,192,273 2.5 M + (5% x 2.5 M) = 2,625,000 1,868,422 Total or 2.5 M x 2.40183 (5% x 7.5 M) x (5% x 5.0 M) x (5% x 2.5 M) x Total a Amortization Table 01/01/09 12/31/09 12/31/10 12/31/11 x 0.79719 x 0.71178 P6,627,667 P6,004,575 334,822 199,298 88,972 P6,627,667 0.89286 0.79719 0.71178 Payment of Principal Date 0.89286 2,500,000 2,500,000 2,500,000 Interest Paid 375,000 250,000 125,000 Interest Revenue 795,320 545,758 281,255* Amortizatio n of Discount 420,320 295,758 156,255* Carrying Value 6,627,667 4,547,987 2,343,745 *rounded off b Journal entries 2009 Jan Notes Receivable Discount on Notes Receivable Gain on Sale of Land Land 7,500,00 7,500,000 – 6,627,667 = 872,333 Discount 6,627,667 – 6,000,000 = 627,667 Gain 872,333 627,667 6,000,00 2009 Dec 31 Cash Discount on Notes Receivable Interest Revenue Notes Receivable 2,875,00 420,330 795,320 2,500,00 2010 Dec 31 Cash Discount on Notes Receivable Interest Revenue Notes Receivable 2,750,00 295,758 2011 Dec 31 Cash Discount on Notes Receivable 14 2,625,00 156,255 545,758 2,500,00 Chapter – Receivables Interest Revenue Notes Receivable 3.9 281,255 2,500,00 Pinky Pip Company The note is interest-bearing, but the rate of interest of the note is unreasonably higher than the prevailing rate for similar obligation Thus, the present value of the note is determined as follows: 2.5 M + (18% x 7.5 M) = 3,850,000 x 2.5 M + (18% x 5.0 M) = 3,400,000 x 2.5 M + (18% x 2.5 M) = 2,950,000 x Total or 2.5 M x 2.4018 (18% x 7.5 M) x (18% x 5.0 M) x (18% x 2.5 M) x Total 0.8929 0.7972 0.7118 P3,437,665 2,710,480 2,099,810 P8,247,955 P6,004,500 1,205,415 717,480 320,310 P8,247,705* 0.8929 0.7972 0.7118 *Difference in the computations is due to rounding off b Amortization Table Payment of Principal Date 01/01/09 12/31/09 12/31/10 12/31/11 2,500,000 2,500,000 2,500,000 Interest Paid 1,350,000 900,000 450,000 Interest Revenue 989,755 646,525 315,765* Amortizatio n of Premium 360,245 253,475 134,235* Carrying Value 8,247,955 5,387,710 2,634,235 *Difference is due to rounding off b Journal entries 2009 Jan Notes Receivable Premium on Notes Receivable Gain on Sale of Land 7,500,00 747,955 Land 8,247,955 – 7,500,000 = 747,955 Premium 8,247,955 – 6,000,000 = 2,247,955 Gain 2009 Dec 31 Cash Premium on Notes Receivable Interest Revenue Notes Receivable 2010 Dec 31 Cash 3,850,00 3,400,00 15 2,247,95 6,000,00 360,245 989,755 2,500,00 Chapter – Receivables Premium on Notes Receivable Interest Revenue Notes Receivable 253,475 646,525 2,500,00 2011 Dec 31 Cash 2,950,00 Premium on Notes Receivable Interest Revenue Notes Receivable 3-9 134,235 315,765 2,500,00 (Word Company) Bad Debts Expense Allowance for Bad Debts P52,000 50,000 Required balance in allowance account: (2% x 500,000) + (10% x 200,000) + (20% x 100,000) P50,000 Reported balance in allowance before adjustments (debit) 2,000 Required adjustment charged to bad debts expense P52,000 3-10 (Edit Company) Allowance for Uncollectible Accounts, beg Recovery of accounts previously written off 3,000 48,000 3-11 P 6,000 Uncollectible accounts expense for 2009 Allowance for Uncollectible Accounts, end Accounts written off during 2009 (12,000) P45,000 (Toyota Products, Inc.) a b Accounts Receivable Sales 4,800,000 Cash Sales Discounts Accounts Receivable 3,920,000 80,000 4,800,000 c Allowance for Uncollectible Accounts Accounts Receivable d Accounts Receivable Allowance for Uncollectible Accounts 5,000 Cash Accounts Receivable 5,000 Notes Receivable Accounts Receivable 25,000 e 16 20,000 4,000,000 20,000 5,000 5,000 25,000 Chapter – Receivables h i Cash Notes Payable-Bank 400,000 Cash Accounts Receivable 150,000 Notes Payable-Bank Cash 150,000 400,000 150,000 150,000 Uncollectible Accounts Expense Allowance for Uncollectible Accounts 65,000 65,000 9,000 – 20,000 + 5,000 = 6,000 debit 59,000 + 6,000 = 65,000 j Interest Receivable Interest Revenue 250 250 25,000 x 12% x 30/360 Accounts Receivable (450,000+4,800,000–4,000,000–20,000–25,000–150,000) P1,055,000 Less Allowance for Uncollectible Accounts 59,000 Net realizable value/Net amortized cost 996,000 3-12 P (Rav, Inc.) Accounts Receivable, December 31, 2008 Sales on account during 2009 1,500,000 Cash received from customers (1,600,000) Cash discounts allowed: (882,000 ÷ 98%) x 2% (495,000 ÷ 99%) x 1% Recovery of accounts written off 3,000 Accounts written off as worthless Credit memoranda for sales returns Accounts Receivable, December 31, 2009 3,000 15,000 P 337,000 P18,000 5,000 ( 23,000) ( 11,000) ( 6,000) P 200,000 Allowance for Uncollectible Accounts, December 31, 2008 Recovery of accounts written off P 12,000 Accounts written off as worthless Impairment loss on receivables ( Allowance for Uncollectible Accounts, December 31, 2009 11,000) P 19,000 The computation may also be conveniently done through T-accounts, as follows: Accounts Receivable Balance, beg Sales on account Recovery 337,000 1,500,000 3,000 17 Collections Cash discounts Write off Sales returns 1,600,000 23,000 11,000 6,000 Chapter – Receivables Total Balance, end 1,840,000 200,000 Total 1,640,000 Allowance for Uncollectible Accounts 3-13 34,000 Write off 11,000 Total 11,000 Balance, beg Recovery Impairment Total Balance, end (Revo Company) Allowance for Uncollectible Accounts, January 1, 2009 Accounts written off Recovery of accounts previously written off 7,000 53,600 12,000 3,000 15,000 30,000 19,000 P ( 47,000) Additional accounts written off ( 6,000) Allowance for Uncollectible Accounts, December 31, 2009 before adjustments (debit balance) (P 12,000) Required balance in Allowance account based on aging: (5% x 240,000) + (25% x 20,000) + (50% x 30,000) + (90% x 24,000) Required adjustment/Doubtful Accounts Expense for 2009 P65,600 3-14 Accounts Receivable, December 31, 2009 P654,000 Less Allowance for Uncollectible Accounts Net amortized cost 53,600 P600,400 (Adventure Company) a Accounts Receivable, January Sales during 2009 Cash collected from customers Recovery of accounts previously written off Note received in settlement of an account Accounts written off as worthless Accounts Receivable, December 31 Accounts Receivable, December 31 Past due accounts Current accounts/Not yet past due P 1,200,000 10,000,000 (8,720,000) 20,000 ( 400,000) ( 100,000) P 2,000,000 P 2,000,000 600,000 P 1,600,000 Required balance in Allowance for Uncollectible Accounts: 20% x 600,000 past due accounts P 120,000 5% x 1,400,000 current accounts 70,000 Total P 190,000 b Allowance for Uncollectible Accounts, end Accounts written off during the year as worthless Recovery of accounts previously written off Allowance for Uncollectible Accounts, beg Uncollectible Accounts Expense for year 2009 P 190,000 100,000 ( 20,000) ( 60,000) P 210,000 c Accounts Receivable P 2,000,000 18 Chapter – Receivables Less Allowance for Uncollectible Accounts Net amortized cost 3-15 190,000 P1,810,000 (ABC Realty) Alternative Carrying value (10 M + 1.2 M) 11,200,000 Present value of future cash inflows: Principal due on 12/31/11 9M x 0.7972 P7,174,800 Interest for years 9M x 8% = 720,000; 720,000 x 1.6901 1,216,872 8,391,672 Impairment loss P2,808,328 Entry: Restructured Notes Receivable 8,391,672 Impairment Loss – Receivables 2,808,328 Notes Receivable 10,000,000 Interest Receivable 1,200,000 Alternative Carrying value (10 M + 1.2 M) Present value of future cash inflows: 2M + (8% x 10M) = 2,800,000 x 0.89292,500,120 2M + (8% x 8M) = 2,640,000 x 0.79722,104,608 2M + (8% x 6M) = 2,480,000 x 0.71181,765,264 2M + (8% x 4M) = 2,320,000 x 0.63551,474,360 2M + (8% x 2M) = 2,160,000 x 0.56741,225,584 Impairment loss Entry: Restructured Notes Receivable Impairment Loss – Receivables Notes Receivable Interest Receivable 11,200,000 9,069,936 2,130,064 9,069,936 2,130,064 10,000,000 1,200,000 Alternative Carrying value Present value of future cash inflows: Principal due on 12/31/09 10M x 0.7972 7,972,000 Interest due on 12/31/10 and 12/31/11 10M x 9% = 900,000; 720,000 x 1.6901 1,521,090 Impairment loss Entry: Restructured Notes Receivable Impairment Loss – Receivables Notes Receivable Alternative Carrying value Present value of future cash inflows: Principal due on 12/31/11 11.2M x 0.797193876 Interest due on 12/31/10 and 12/31/11 11.2M x 12% = 1,344,000; 1,344,000 x 1.6900510 Impairment loss 19 10,000,000 9,493,090 506,910 9,493,090 506,910 10,000,000 11,200,000 8,928,572 2,271,428 11,200,000 - Chapter – Receivables 3-16 (Edsamail Company) (a) Maturity value = 500,000 + (500,000 x 08) = 540,000 Proceeds = 540,000 – (540,000 x 10 x 5/12) = 517,500 (b) Interest Receivable Interest Revenue 500,000 x 8% x 7/12 Cash Loss on Sale of Notes Receivable Notes Receivable Interest Receivable 3-17 3-18 a 23,333 23,333 517,500 5,833 500,000 23,333 Proceeds 90,000 – (90,000 x 0.15 x 20/365) = P89,260 b Maturity value 75,000 + (75,000 x 0.15 x 90/365) Proceeds 77,774 – (77,774 x 0.15 x 50/365) = P77,774 = P76,176 c Maturity value 60,000 + (60,000 x 0.16 x 120/365) Proceeds 63,156 – (63,156 x 0.15 x 45/365) = P63,156 = P61,988 (Crosswind Corporation) 2009 Feb Notes Receivable Accounts Receivable April Interest Receivable Interest Revenue 60,000 x 16% x 2/12 Nov 30 3-19 60,000 1,600 Cash Interest Expense Liability on Discounted Notes Interest Receivable 60,000 + (60,000 x 16 x 9/12) = 67,200 67,200 – (67,200 x 15 x 7/12) = 61,320 CV of Discounted Notes 61,600 Proceeds 61,320 Interest Expense 280 61,320 280 Liability on Discounted Notes 60,000 Accounts Receivable Notes Receivable Cash 67,200 + 1,500 = 68,700 68,700 60,000 1,600 60,000 1,600 60,000 68,700 (Lexus Company) Amount of the loan P625,000 20 Chapter – Receivables Less service charge (2% x 750,000) Net proceeds from the assignment of accounts receivable P610,000 Sept Sept 130 15,000 Accounts Receivable Assigned Accounts Receivable 800,000 Cash Finance Charges Notes Payable – Pacific Bank 610,000 15,000 Cash 300,000 800,000 Accounts Receivable Assigned Sept 30 Oct 131 300,000 Notes Payable – Pacific Bank Interest Expense (625,000 x 12% x 1/12) Cash 300,000 6,250 306,250 Allowance for Uncollectible Accounts 10,000 Accounts Receivable Assigned Cash Oct 31 10,000 400,000 Accounts Receivable Assigned Notes Payable – Pacific Bank 3-20 400,000 325,000 Interest Expense (325,000 x 12% x 1/12) Cash 31 625,000 3,250 Accounts Receivable Accounts Receivable Assigned 328,250 90,000 90,000 (Explorer Company) Accounts receivable factored P2,000,000 Purchase price 85% Purchase price of accounts receivable factored 1,700,000 Less amount withheld as protection against returns and allowances 5% x 1,700,000 85,000_ Net cash received from the factored accounts P1615,000 Cash Receivable from Factor Loss on Factoring Accounts Receivable P 1,615,000 85,000 300,000 2,000,000 21 Chapter – Receivables 3-21 (Highlander Company) a Sept Cash Receivable from Factor Loss from Factoring Accounts Receivable 800,000 x 10% =80,000 Loss; 720,000 x 5% = 36,000 withheld Nov b Dec 31 3.22 Cash Finance Charges Notes Payable-Bank 3% x 600,000 = 18,000 Uncollectible Accounts Expense Allowance for Uncollectible Accounts (190,000 + 1,000,000) x 2% = 23,800 – 13,400 684,000 36,000 80,000 800,000 582,000 18,000 600,000 10,400 10,400 (Accord Company) July Accounts Receivable Assigned Accounts Receivable 4,000,000 Cash Finance Charges Notes Payable – Bank 5% x 3,200,000 = 160,000 3,040,000 160,000 21 Sales Returns and Allowances Accounts Receivable Assigned 150,000 31 Cash Sales Discounts Accounts Receivable Assigned 2% x 2,500,000 = 50,000 2,450,000 50,000 Notes Payable – Bank Interest Expense Cash 3,200,000 x 0.18 x 1/12 = 48,000 2,500,000 48,000 Aug 15 Allowance for Uncollectible Accounts Accounts Receivable Assigned 3,200,000 2,548,000 50,000 Cash Accounts Receivable Assigned Sept Notes Payable – Bank Interest Expense Cash 700,000 x 0.18 x 1/12 = 10,500 700,000 10,500 Accounts Receivable Accounts Receivable Assigned 300,000 22 150,000 2,500,000 Aug 31 4,000,000 1,000,000 50,000 1,000,000 710,500 300,000 Chapter – Receivables 4,000,000– 150,000 – 2,500,000 - 50,000 – 1,000,000 = 300,000 – 23 (Fortune Company) Oct 1 31 Nov 30 Accounts Receivable Assigned Accounts Receivable 2,000,000 Cash Finance Charges Notes Payable 1,440,000 90,000 2,000,000 1,500,000 Interest Expense Notes Payable Accounts Receivable Assigned 985,000 15,000 Notes Payable 515,000 Interest Expense Cash Accounts Receivable Assigned 5,150 279,850 1,000,000 800,000 MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5 A A A A C MC6 MC7 MC8 MC9 MC10 a c c d a MC11 MC12 MC13 MC14 MC15 c a d a c Problems MC16 b MC17 d MC18 c MC19 MC20 b a MC21 MC22 MC23 MC24 d d c d MC25 MC26 b b 450,000 x 1.4 = 630,000 630,000 – 585,000 = 45,000 105,000 x 90 = 94,500 (Invoice price/Gross) 94,500 x 98 = 92,610 (net price) 200,000 x 90 x 95 = 171,000 (Invoice price/Gross) 171,000 x 97 = 165,870 (Net) 1,300,000 + 5,400,000 + 25,000 – 4,750,000 – 125,000 = 1,850,000 360,000 ÷ 80% = 450,000 450,000 + 80,000 – 430,000 = 100,000 75,000 + 45,000 = 120,000 3% x 1,000,000 = 30,000 30,000 + 8,000 = 38,000 270,000 – 250,000 = 20,000 20,000 + 23,000 – 28,000 – 5,000 = 10,000 17,500 – 30,500 + 8,050 + 200,000 = 15,050 480,000 + 2,400,000 – 2,560,000 – 17,600 – 36,800* + 4,800 = 270,400 *1,411,200 ÷ 98 = 1,440,000 x 2% = 28,800 792,000 ÷ 99 = 800,000 x 1% = 8,000 28,800 + 8,000 = 36,800 23 Chapter – Receivables MC27 a MC28 MC29 MC30 a b d MC31 c MC32 MC33 c c MC34 b MC35 c 19,200 + 4,800 – 17,600 = 6,400 5% x 270,400 = 13,520 13,520 – 6,400 = 7,120 (5% x 600,000) + (10% x 40,000) + 14,000 = 48,000 20,000 + 7,500 – 12,500 – 3,700 = 11,300 50,000 + (50,000 x 10%) = 55,000 55,000 – (55,000 x 12 x 6/12) = 51,700 400,000 x 75 = 300,000 300,000 x 10% = 30,000 300,000 + 30,000 = 330,000 500,000 x 8% x 4/12 = 13,333; 500,000 + 13,333 = 513,333 500,000 + (500,000 x 08) = 540,000; 540,000 – (540,000 x 10 x 8/12) = 504,000 513,333 – 504,000 = 9,333 Interest Expense 1,250,000 - (2% x 1,250,000)} = 1,225,000 1,225,000 + 695,000 = 1,920,000 550,000 – [(500,000 x 0.8265) + (40,000 x 1.7355)] = 67,380 24 ... Notes Receivable 500,000 28,820 8,542 9,567 10,711 10,711 100,000 100,000 (Pinky Pop Company) (Solutions were based on PV factors rounded to five decimal places) The note is interest-bearing,