Solution manual intermediate accounting by robles empleo ch 3 answers

Receivables from Employees part of non-trade receivables – current assets c.. Subscriptions Receivable – current asset if collectible within 12 months; otherwise, non-current asset i.. O

CHAPTER 3 - RECEIVABLES Question no 7

a Accounts Receivable

b Receivables from Employees (part of non-trade receivables) – current assets

c Advances to Suppliers – Current assets

d Accounts Receivable

e Customers’ Accounts with Credit Balances – Current Liabilities

f Cost of merchandise must be included in inventories

g Accounts Receivable

h Subscriptions Receivable – current asset if collectible within 12 months;

otherwise, non-current asset

i Other Non-Trade Receivables – Current asset or non-current asset depending on

terms of payment

j Advances to Suppliers – Current Assets

k Suppliers’ Accounts with Debit Balances or Advances to Suppliers – Current assets

l Accounts Receivable

m Claims for Income Tax Refund – Current Assets

n Accounts Receivable, amount of loan presented separately as part of liabilities

o Accounts Receivable

p 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

80,000 x 90% x 95%

Net Method

Dec

68,400 x 0.98

Allowance Method

Dec

Dec

19

3-2 (Colayco Company)

(1)

July

15

Nov

4% x 20,000 = 800

12,000 x 10 x 90/360 = 300

5% x 9,000 = 450 Nov

Dec

13

15,000 x 12% x 120/360 = 600

3-3 (Format Company)

a Carrying value of the note on January 1, 2009

P6,000,000 x 0.65752 P3,945,120

15%

b Carrying value, January 1, 2009

P3,945,120

(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

Interest rate 15%

Carrying value, December 31, 2009

b Carrying value, January 1, 2009

P4,566,460

Less first payment of principal (2,000,000)

3-5 (HRV Company)

Accrued interest at June 30, 2009 (3,000,000 – 1,000,000) x 12% P 240,000

3-6 (FX Corporation)

a

2009

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

12% x 71,180 2010

12% x (71,180 + 8,542) 2011

12% x (71,180 +8,542 + 9,567) (or 28,820 – 8,542 – 9,567)

3- 7 (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:

2.5 M + (5% x 7.5 M) = 2,875,000 x 0.89286 P2,566,972

2.5 M + (5% x 5.0 M) = 2,750,000 x 0.79719 2,192,273

2.5 M + (5% x 2.5 M) = 2,625,000 x 0.71178 1,868,422

a Amortization Table

Date Payment ofPrincipal InterestPaid RevenueInterest Amortization of

Discount

Carrying Value

12/31/11 2,500,000 125,000 281,255* 156,255*

-*rounded off

b Journal entries

2009

0

0 7,500,000 – 6,627,667 = 872,333 Discount

6,627,667 – 6,000,000 = 627,667 Gain 2009

0

0 2010

0

0 2011

0

Interest Revenue 281,255

0

3.9 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 0.8929 P3,437,665 2.5 M + (18% x 5.0 M) = 3,400,000 x 0.7972 2,710,480 2.5 M + (18% x 2.5 M) = 2,950,000 x 0.7118 2,099,810

*Difference in the computations is due to rounding off

b Amortization Table

Date Payment ofPrincipal InterestPaid RevenueInterest Amortization of

Premium

Carrying Value

12/31/11 2,500,000 450,000 315,765* 134,235*

-*Difference is due to rounding off

b Journal entries

2009

0

5

0 8,247,955 – 7,500,000 = 747,955 Premium

8,247,955 – 6,000,000 = 2,247,955 Gain 2009

0

0 2010

0 2011

0

0

3-9 (Word Company)

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)

3,000

48,000

Allowance for Uncollectible Accounts, end (12,000)

3-11 (Toyota Products, Inc.)

h Cash 400,000

9,000 – 20,000 + 5,000 = 6,000 debit

59,000 + 6,000 = 65,000

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 P 996,000

3-12 (Rav, Inc.)

Sales on account during 2009

1,500,000

Cash received from customers

(1,600,000)

Cash discounts allowed: (882,000 ÷ 98%) x 2% P18,000

(495,000 ÷ 99%) x 1% 5,000 ( 23,000)

3,000

Allowance for Uncollectible Accounts, December 31, 2008 P 12,000

3,000

15,000

Allowance for Uncollectible Accounts, December 31, 2009 P 19,000

The computation may also be conveniently done through T-accounts, as follows:

Accounts Receivable

Total 1,840,000 Total 1,640,000

Allowance for Uncollectible Accounts

3-13 (Revo Company)

34,000

7,000

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) 53,600

Required adjustment/Doubtful Accounts Expense for 2009

P65,600

3-14 (Adventure Company)

Recovery of accounts previously written off 20,000 Note received in settlement of an account ( 400,000)

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

b Allowance for Uncollectible Accounts, end P 190,000

Accounts written off during the year as worthless 100,000 Recovery of accounts previously written off ( 20,000) Allowance for Uncollectible Accounts, beg ( 60,000)

Uncollectible Accounts Expense for year 2009 P 210,000

Less Allowance for Uncollectible Accounts 190,000

3-15 (ABC Realty)

Alternative 1

Present value of future cash inflows:

Principal due on 12/31/11

9M x 0.7972 P7,174,800 Interest for 2 years

9M x 8% = 720,000; 720,000 x 1.6901 1,216,872 8,391,672

Entry: Restructured Notes Receivable 8,391,672

Impairment Loss – Receivables 2,808,328

Alternative 2

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 9,069,936

Entry: Restructured Notes Receivable 9,069,936

Impairment Loss – Receivables 2,130,064

Alternative 3

Present value of future cash inflows:

Principal due on 12/31/09

Interest due on 12/31/10 and 12/31/11

10M x 9% = 900,000; 720,000 x 1.6901 1,521,090 9,493,090

Entry: Restructured Notes Receivable 9,493,090

Impairment Loss – Receivables 506,910

Alternative 4

Present value of future cash inflows:

Principal due on 12/31/11

Interest due on 12/31/10 and 12/31/11

11.2M x 12% = 1,344,000;

1,344,000 x 1.6900510 2,271,428 11,200,000

-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

500,000 x 8% x 7/12

Loss on Sale of Notes Receivable 5,833

3-17 a. 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) = P77,774

Proceeds 77,774 – (77,774 x 0.15 x 50/365) = P76,176

c Maturity value 60,000 + (60,000 x 0.16 x 120/365) = P63,156

Proceeds 63,156 – (63,156 x 0.15 x 45/365) = P61,988

3-18 (Crosswind Corporation)

2009

60,000 x 16% x 2/12

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

Nov

67,200 + 1,500 = 68,700

3-19 (Lexus Company)

Less service charge (2% x 750,000) 15,000

Net proceeds from the assignment of accounts receivable

P610,000

Sept

1-30

Interest Expense (625,000 x 12% x 1/12) 6,250

Oct

1-31

Oct

Interest Expense (325,000 x 12% x 1/12) 3,250

3-20 (Explorer Company)

Accounts receivable factored

P2,000,000

85%

1,700,000

Less amount withheld as protection against returns and allowances

85,000_

P1615,000

Receivable from Factor 85,000

Loss on Factoring 300,000

Accounts Receivable 2,000,000

3-21 (Highlander Company)

a

800,000 x 10% =80,000 Loss;

720,000 x 5% = 36,000 withheld

3% x 600,000 = 18,000 b

(190,000 + 1,000,000) x 2% = 23,800 – 13,400

3.22 (Accord Company)

5% x 3,200,000 = 160,000

2% x 2,500,000 = 50,000

3,200,000 x 0.18 x 1/12 = 48,000

15 Allowance for Uncollectible Accounts 50,000

700,000 x 0.18 x 1/12 = 10,500

4,000,000– 150,000 – 2,500,000 - 50,000 – 1,000,000 = 300,000

3 – 23 (Fortune Company)

Nov

MULTIPLE CHOICE QUESTIONS Theory

Problems

MC16 b 450,000 x 1.4 = 630,000

630,000 – 585,000 = 45,000 MC17 d 105,000 x 90 = 94,500 (Invoice price/Gross)

94,500 x 98 = 92,610 (net price) MC18 c 200,000 x 90 x 95 = 171,000 (Invoice price/Gross)

171,000 x 97 = 165,870 (Net) MC19 b 1,300,000 + 5,400,000 + 25,000 – 4,750,000 – 125,000 = 1,850,000

MC20 a 360,000 ÷ 80% = 450,000

450,000 + 80,000 – 430,000 = 100,000 MC21 d 75,000 + 45,000 = 120,000

MC22 d 3% x 1,000,000 = 30,000

MC23 c 30,000 + 8,000 = 38,000

MC24 d 270,000 – 250,000 = 20,000

20,000 + 23,000 – 28,000 – 5,000 = 10,000 MC25 b 17,500 – 30,500 + 8,050 + 200,000 = 15,050

MC26 b 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

MC27 a 19,200 + 4,800 – 17,600 = 6,400

5% x 270,400 = 13,520 13,520 – 6,400 = 7,120 MC28 a (5% x 600,000) + (10% x 40,000) + 14,000 = 48,000

MC29 b 20,000 + 7,500 – 12,500 – 3,700 = 11,300

MC30 d 50,000 + (50,000 x 10%) = 55,000

55,000 – (55,000 x 12 x 6/12) = 51,700 MC31 c 400,000 x 75 = 300,000

300,000 x 10% = 30,000 MC32 c 300,000 + 30,000 = 330,000

MC33 c 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 MC34 b 1,250,000 - (2% x 1,250,000)} = 1,225,000

1,225,000 + 695,000 = 1,920,000 MC35 c 550,000 – [(500,000 x 0.8265) + (40,000 x 1.7355)] = 67,380