Problem 14

Baltazar Company had the following account balances on January 1, 2017:

Note receivable from sale of an idle building 7,500,000

Note receivable from an officer 2,000,000

The P7,500,000 note receivable is dated May 1, 2016, bears interest at 9% and represents the balance of
the consideration received from the sale of an idle building to Balucan Company. Principal payments of
P2,500,000 plus interest are due annually beginning May 1, 2017. Balucan Company made the first
principal and interest payable on May 1, 2017.

The P2,000,000 note receivable is dated December 31, 2014, bears interest at 8% and is due on
December 31, 2019. The note is due from the president of Baltazar Company. Interest is payable
annually on December 31 and all interest payments were made through December 31, 2017.

On July 1, 2017, Baltazar Company sold a parcel of land to Bangoy Company for P4,000,000 under an
installment sale contract. Bangoy Company made a P1,200,000 cash down payment on July 1, 2017, and
signed a 4-year 10% note for the P2,800,000 balance. The equal annual payments of principal and
interest on the note totaled P880,000, payable on July 1 of each year from 2018 through 2021. The fair
value of the land at the date of sale was P4,000,000. The cost of the land was P3,000,000.

Questions: Compute the following at year-end

1. Notes Receivable – current 3,100,000

2. Interest Receivable 440,000

3. Interest Income 825,000

4. Gain or loss on sale 1,000,000

5. Notes Receivable – noncurrent 6,700,000

NR - current NR - noncurr Int. Receiv. Int. Inc. Gain on sale

2,500,000 2,500,000 225,000
300,000 300,000
2,000,000 160,000

600,000 2,200,000 140,000 140,000 1,000,000

12/31/17 bal 3,100,000 6,700,000 440,000 825,000 1,000,000

Selling price 4,000,000 880,000 P - 600,000

(FMV or PV of future cash flows) I - 280,000

Less: Cost 3,000,000

Gain on sale 1,000,000

Problem 16
During your audit of the LEILANI COMPANY for the calendar year 2013, you find the
following accounts:
NOTES RECEIVABLE
Sept. 1 Samson, 12%, due in 3 mos. 36,000 36,000
Nov. 1 Hazel, 15%, due in 6 mos. 90,000 126,000
Nov. 1 Salazar, no interest, due in one
year 75,000 201,000
Nov. 30 Rosa, Co. 12%, due in 13 mos. 15,000 216,000
Dec. 1 Rona, 15%, due in 15 mos. 36,000 252,000
Dec. 2 Anito, President, 18%, due in 3
mos. 18,000 270,000

NOTES RECEIVABLE DISCOUNTED

Sept. 1 Samson note, discounted at 36,000 36,000
15%
Nov. 1 Salazar note, discounted at 75,000 111,000
15%

INTEREST EXPENSE
Sept. 1 Samson note 310.50 310.50
Nov. 1 Salazar note 11,250.00 11,560.50

All notes are trade notes receivable unless otherwise specified. The Samson note was paid
December31, 2013. Interest income is credited only upon receipt of cash.

Questions

1. The accrued interest income at December 31, 2013 is:

a. P 2,748 b. P 3,018 c. P 3,120 d. P 4,200

2. The interest expense at December 31, 2013 is:

a. P 1,875.00 b. P 2,185.50c. P 4,060.50 d. P 11,560.50

3. The Notes Receivable at December 31, 2013 is:

a. P 141,000 b. P 159,000 c. P 216,000 d. P 252,000

4. The Notes Receivable – discounted at December 31, 2013 is:

a. P 63,750 b. P 73,125 c. P 75,000 d. P 111,000

5. How much is the proceeds in the discounting of notes receivable for the year?
a. P 99,439.50 b. P 100,060.50 c. P 111,000.00 d. P 111,310.50

Solution
1. C
Hazel 90,000 x 15% x 2/12 = P 2,250
Rosa 15,000 x 12% x 1/12 = 150
Rona 36,000 x 15% x 1/12 = 450
Anito 18,000 x 18% x 1/12 = 270
Total accrued interest P 3,120
2. B
Samson = P 310.50
Salazar 11,250 x 2/12 = 1,875.00
 Total interest expense = P2,185.50
3. A
Hazel 90,000
Rosa 15,000
Rona 36,000
Total 141,000
4. C
Salazar 75,000
5. A
Samson P 36,000 – P 310.50 = P 35,689.50
Salazar P 75,000 – P11,250 = 63,750.00
Total proceeds = P 99,439.50

Problem 19
Barangan Company has the following transactions in 2017 involving notes receivable:

May 1 Received a P1,000,000, 90-day 12% interest bearing note from Barbosa
Company in settlement of account.

1 Received a P1,500,000, six-month, 12% interest bearing note from Barlovinto

Company in settlement of account.

Jul. 30 Barbosa Company defaulted on the P1,000,000 note.

Aug. 1 Discounted the Barlovinto Company note at a bank at 15%.

Sept.1 Received a one-year noninterest bearing note from Bastunan in settlement

of a P600,000 account receivable. The face value of the note was P660,000.

28 Collected the defaulted Barbosa Company note plus accrued interest at 12% per
annum on the total amount due.

Oct.1 Received a P2,500,000, 90-day note from Batante. The note is for the
payment goods purchased and bears interest at 12%.

Nov.1 Barlovinto defaulted on the P1,500,000 note, Barangan Company paid the bank
the total amount due plus P60,000 for protest fee and other bank charges.

Dec.30 Collected Batante note in full.

31 Collected from Barlonvinto Company in full including interest on the total amount due
at 12% since default date.

Questions:
Based on the above and the result of your audit, answer the following:

1. The proceeds from discounted Barlovinto note on August 1, 2017 is

a. P 1,530,375 b. P 1,542,300 c. P 1,487,062 d. P 1,000,000
2. The amount collected on September 28, 2017 on the defaulted Barbosa Company note is
a. P1,030,000 b. P 1,050,000 c. P 1,050,600 d. P 1,081,500

3. The amount collected on December 31, 2017 on defaulted Barlovinto note is

a. P 1,683,000 b. P 1,681,800 c. P 1,650,000 d. P 1,680,000

4. The interest income to be recognized in 2017 related to these transactions is

a. P 128,600 b. P 248,975 c. P 158,975 d. P 223,600

5. Which of the following audit procedures provides the best evidence about the collectibility of notes
receivable?
a. Examination of cash receipts records to determine the best evidence about the principal
payments.
b. Reconciliation of the detail of notes receivable and the provision for uncollectible amount to the
general ledger control.
c. Confirmation of note receivable balances with the debtors.
d. Examination of notes for appropriate debtors’ signatures.

PROBLEM 19
Notes Receiv. Acc. Int. Int. Inc. Liab. On NR disc. Int. Expense Accn. Receiv.
Barbosa 1,000,000
(1,000,000) 30,000 1,030,000
20,600 (1,030,000)

Barlovinto 1,500,000
45,000 (1,500,000) 14,625
(1,500,000) 1,500,000 1,650,000
33,000 (1,650,000)

Bastunan 660,000 20,000

Batante 2,500,000
(2,500,000) 75,000
12/31/17 bal. 660,000 - 223,600 - 14,625 -

P = 1,590,000 - 59,626 = 1,530,375

Cash 1,530,375
Int. Exp 14,625
Liab. On NR disc. 1,500,000
Interest income 45,000

OE: NR 660,000
Accnts. Receiv. 600,000
Unearned int. inc. 60,000