Problem 1

The accounts receivable of FRANCO COMPANY were stated at P1,467,000 in a balance sheet submitted
to a banker for credit. You are called upon to audit the report and, upon analysis, the asset was found to
consist of the following items:

Due from customers on open account P 1,125,000

Acknowledged claim for damages 22,500

Due from consignee at billed price – cost price being P22,500 30,000

Investment in and advances to affiliated company 150,000

Loans to officers and employees 13,500

Deposits with municipalities – bids for contracts 67,500

Unpaid capital stock subscriptions 60,000

Advances to creditors for merchandise purchased but not received 24,000

Cash advanced to salesmen for traveling expenses 4,500

Allowance for doubtful accounts ( 30,000) P1,467,000

The amount of P1,125,000 due from customers was the remaining balance after deducting

accounts with credit balances of P6,000.

During your examination, you noted that on December 31, the company assigned P300,000 of
customers’ accounts to secure a 17%, P240,000 note payable. A 1% commission based on the accounts
assigned was charged and deducted from the cash received. The client recorded this transaction by a
debit to cash and a credit to notes payable.

1. How much is the Accounts Receivable (gross) balance at December 31?

2. The total current non-trade receivable balance at December 31 is:

3. The liability for the accounts receivable – assigned is:

4. The total non-trade receivable balance at December 31 is:

PROBLEM 2

In your audit of MENDOZA COMPANY for the past calendar year, you find the following accounts:

ACCOUNTS RECEIVABLES

Jan. 1, 2002 P 800,000

Jan. – Dec. 1992 collections P 5,900,000

Jan. – Dec. Sales 6,300,000

Jan. – Dec. write-off 100,000

ALLOWANCE FOR BAD DEBTS

Jan. – Dec. Write-off of last year’s receivables P 85,000

Jan. 1, 2002 P 95,000

Dec. 31 provisions 315,000

Write-off of this year’s Receivables 15,000

In your examination, you find that the balance of Accounts Receivable represents sales of the current
audit year only; that credit balances in the subsidiary ledger for accounts receivable totaled P80,000;
and that the current year’s provision for bad debts expense was 5% of sales (as compared with 4½% last
year, 4% of the year before, and 3½% the next previous year). Sequential to aging the accounts
receivable, you and the company’streasurer agree on an additional write-off of P50,000, and P300,000
as the probable loss to be sustained on collection of the accounts receivable balance.

PROBLEM 3

The following selected transactions occurred during the year ended December 31, 2006 of

DOMINGO COMPANY:

Gross sales (cash and credit) P 900,736.80

Collections from credit customers, net of 2% cash discount 294,000.00

Cash sales 180,000.00

Uncollectible accounts written off 19,200.00

Credit memos issued to credit customers for sales ret./allow. 10,080.00

Cash refunds given to cash customers for sales ret./allow. 15,168.00

Recoveries on accounts receivable written-off in prior years

(not included in cash received stated above) 6,505.20

At year-end, the company provides for estimated bad debts losses by crediting the Allowance for Bad
Debts account for 2% of its net credit sales for the year. The allowance

for bad debts at the beginning of the year is P19,327.20.

1. How much is the DOMINGO COMPANY’s gross sales?

2. DOMINGO COMPANY’s credit sales at December 31, 2006 is:

3. How much is the DOMINGO COMPANY’s net credit sales?

4. The Bad Debts Expense of DOMINGO COMPANY at December 31, 2006 is:

5. The Accounts Receivable of DOMINGO COMPANY at December31, 2006 is:

6. The Allowance for Bad Debts of DOMINGO COMPANY at December 31, 2006 is:

Problem 4

Presented below are unaudited balances of selected accounts of MARJORIE COMPANY as of December
31, 2006:

Additional information are as follows:

a. Goods amounting to P50,000 were invoiced for the accounts of Joy Store & Co., recorded on January
2, 2007 with terms of net, 60 days, FOB shipping point. The goods were shipped to Variety Store on
December 30, 2006.

b. The bank returned on December 29, 2006, a customer’s check for P5,000 marked “DAIF”, but no entry
was made.

c. MARJORIE COMPANY estimates that allowance for uncollectible accounts should be one and one-half
percent (1½%) of the accounts receivable balance as of year-end. No provision has yet been made for
2006.

1. What is the adjusted balance of Accounts Receivable on December 31, 2006?

2. What is the adjusted balance of Allowance for doubtful accounts on December 31, 2006?

3. What is the adjusted amount of 2006 Bad Debts Expense?

Problem 5

During December, 2006, the Accounts Receivable controlling account on the books of FERNANDEZ
COMPANY showed one debit posting and two credit postings. The debit represents receivables from
December sales, P780,000. One credit was for P470,400, made a result of cash collections on November
and December receivables; the second credit was an adjustment for estimated uncollectibles, P90,000.
The December 31 balance wasP270,000. When receivables were collected, the bookkeeper credited
Accounts Receivables for the cash collected. All customers who paid their accounts during December
took advantage of the 2% cash discount. As of December 1, debit balance in customers’ subsidiary
accounts totaled P177,000. An adjustment for estimated doubtful accounts of P18,000 had been posted
to the Accounts Receivable controlling account at the end of 2002, and no write-offs were recorded
during 2006. In addition, a number of customers had overpaid their accounts, and as a result, some of
the customers’ subsidiary accounts had credit balances on December 1. No overpayments were made
during December nor were any credit balances in customers’ accounts reduced during December.

1. The Accounts Receivable beginning balance (unadjusted) of FERNANDEZ COMPANY at December 31,
2006 is:

2. The Accounts Receivable beginning balance (adjusted) of FERNANDEZ COMPANY at December 31,
2006 is:

3. The Credit Balance of Accounts Receivable at the beginning of the year of FERNANDEZ

COMPANY is:

4. The Accounts Receivable balance of FERNANDEZ COMPANY at December 31, 2006 is:

Problem 10

You have been assigned to audit the financial statement MALAQUI INCORPORATED. The company is a
distributor of a variety of electronic appliances and parts. The company uses the calendar year for
reporting purposes. Information regarding balances of MALAQUI INCORPORATED’S Accounts Receivable
and the related Allowance for Doubtful Accounts as of December 31, 2006 and the related audit finding,
is given below. The schedule of accounts receivable furnished you by the accountant reflects some
errors. The total figure in the schedule does not tally with the balance per subsidiary ledger of P919,000.

Based on your review of sales invoices, purchase orders and other related documents, you noted the
following information:

1. Sales on account of various electronics totaling P36,480 were returned by the customer
on December 28, 2006, but no entry was made in the books. The goods were included in the year-end
physical count.

2. Based on the findings per confirmation reply from a customer, he indicated that he has already paid
his account of P23,980 in October, 2006. Your verification disclosed that said collection was credited to
net sales account.

3. Collection of P12,950 on November 5, 2006 from Diana Corporation was credited to the account of
DNA Corporation.

The allowance for doubtful accounts is set at 3% of the outstanding accounts receivable at the end of
the period. As of December 31, 2006, the Allowance for Doubtful Accounts has a balance of P32,400
before adjustment.

Questions

1. What is the adjusted balance of Accounts Receivable as of December 31, 2006?

2. What is the adjusted balance of Allowance for Doubtful Accounts as of December 31, 2006?

PROBLEM 13

On September 1, DY COMPANY assigns specific receivables totaling P750,000 to Davao Bank as collateral
on a P625,000, 12% note. DY COMPANY will continue to collect the assigned accounts receivable. Davao
Bank also assesses a 2% service charge on the total accounts receivable assigned. DY COMPANY is to
make monthly payments to Davao Bank with cash collected on assigned accounts receivable. Collections
of assigned accounts during September totaled P260,000 less cash discounts of P3,500.

1. What were the proceeds from the assignment of DY COMPANYs’ accounts receivable on September
1?

2. What amount is owed to Davao Bank by DY COMPANY for September collections plus accrued interest
on the note to September 30?

Problem 14

On April 1, 2006, VAILOCES CORPORATION assigned accounts receivable totaling P400,000 as collateral
on a P300,000, 16% note from Racel Bank. The assignment was done on a nonnotification basis. In
addition to the interest on the note, the bank also receives a 2% service fee, deducted in advance on the
P300,000 value of the note.

Additional information is as follows:

1. Collections of assigned accounts in April totaled P191,100, net of a 2% sales discount.

2. On May 1, VAILOCES CORPORATION paid the bank the amount owed for April collections plus accrued
interest on note to May 1.
3. The remaining accounts were collected by VAILOCES CORPORATION during May except for P2,000
accounts written-off as worthless.

4. On June 1, VAILOCES CORPORATION paid the bank the remaining balance of the noteplus accrued
interest.

Question.

1. The journal entry of VAILOCES CORPORATION in the assignment of accounts receivable

on April 1, 2006 is:

2. The journal entry of VAILOCES CORPORATION in the assignment of accounts receivable on April 1,
2006 assuming the assignment is on notification basis:

3. The entry of VAILOCES CORPORATION on April collection of the assigned account is:

4. If the assignment is on notification basis, who should collect the assigned accounts receivable?

5. Using the assumption in number 4 above, what will be the entry of VAILOCES CORPORATION on the
April collection of the assigned accounts receivable?

6. The journal entry of VAILOCES CORPORATION on the on May 1, 2006 is:

7. Using the same information in number 6 (May 1 transaction) except that the assignment is done on a
notification basis, the entry should be:

8. The total interest expense of VAILOCES CORPORATION on the assigned accounts receivable is:

Problem 15

UY FINANCE CORPORATION purchases the accounts receivable of other companies on a without

recourse, notification basis. At the time the receivables are factored, 15% of the amount factored is
charged to the client as commission and recognized as revenue in UY’S books. Also, 10% of the
receivables factored is withheld by Uy as protection against sales returns or other adjustments. This
amount credited by Uy to the client Retainer account. At the end of each month, payments are made by
Uy to its clients so that the balance in the Client Retainer account is equal to 10% of unpaid factored
receivables. Based on Uy’s bad debt loss experience, an allowance for bad debts of 5% of all factored
receivables is to be established, Uy makes adjusting entries at the end of each month. On January 3,
2003, Jannette Company factored its accounts receivable totaling P1,000,000. By January 31, P800,000
on these receivables had been collected by Uy.

1. The commission earned of Uy Finance Corporation from Jannette Company’s accounts eceivable
factored:

2. The proceeds received by Jannette Company on the accounts factored is

3. How much is the Client Retainer account of Uy Finance Corporation at January 31, 2003 is:

4. How much is the bad debts expense of Uy Finance Corporation at January 31, 2003 is:

Problem 17

On January 1, 2006, TUQUIB COMPANY sells its equipment with a carrying value ofP160,000. The
company receives a non-interest-bearing note due in 3 years with a face amount of P200,000. There is
no established market value for the equipment. The

prevailing interest rate for a note of this type is 12%. The following are the present value

factors of 1 at 12%:

Present value of 1 for 3 periods 0.71178

Present value of an ordinary annuity of 1 for 3 periods 2.40183

1. The gain or loss on the sale of equipment is:

a. P 40,000 b. P 122 c. P 0 d. (P 17,644)

2. The discount on notes receivable is:

a. P 57,644 b. P 40,000 c. P 39,878 d. P 0

3. The entry to record the sale of equipment is:

a. Notes receivable 200,000 c. Notes receivable 200,000

Equipment 200,000 Loss on sale 17,644

Equipment 160,000

Discount on NR 57,644

b. Notes receivable 200,000 d. Notes receivable 200,000

Equipment 160,000 Equipment 160,000

Gain on sale 40,000 Gain on sale 122

Discount on NR 39,878

4. The discount amortization at the end of the second year using the effective-interest

amortization is:

a. P 17,083 b. P 19,133 c. P 21,428 d. P 36,216

5. The entry to record the discount amortization is:

a. Discount on NR c. Interest income

Interest income Discount on NR

b. Discount on NR d. Interest expense

Interest expense Discount on NR

Problem 18

On January 2, 2006, a tract of land that originally cost P800,000 was sold by MAYLENE CORPORATION.
The company received a P1,200,000 note as payment. It bears interest rate of 4% and is payable in 3
annual installments of P400,000 plus interest on the outstanding balance. The prevailing rate of interest
for a note of this type is 10%. The present value table shows the following present value factors of 1 at
10%:

Present value factor of 1 for 3 periods 0.75132

Present value factor of 1 for 2 periods 0.82645

Present value factor of 1 for 1 period 0.90909

Present value of an ordinary annuity of 1 for 3 periods 2.48685

1. The gain on sale of land on January 2, 2006 is:

2. The interest income on the note receivable for the year ended December 31, 2006 using effective
interest method is:

3. How much cash will MYLENE CORPORATION received from notes receivable?

Problem 19

The balance sheet of PERSEVERANCE CORPORATION on December 31, 2005, includes the

following cash and receivable balances:

Cash – Davao Bank P 45,000

Currency and coins 16,000

Petty cash fund 1,000

Cash in bond sinking fund 15,000

Notes receivable (including discounted with

recourse, P15,500) 36,500

Accounts receivable P 85,600

Less: Allow. for bad debts (4,150) 81,450

Interest receivable 525

Current liability reported in the December 31, 2005, balance sheet included:

Obligation on discounted notes receivable 15,500

Transactions during 2006 included the following:

1. Sales on account were P767,000.

2. Cash collected on accounts totaled P576,500, including accounts of P93,000 with cash

discounts of 2%.
3. Notes received in settlement of accounts totaled P82,500.

4. Notes receivable discounted as of December 31, 2005, were paid at maturity with the

exception of one P3,000 note on which the company had to pay the bank P3,090, that

included interest and protest fees. It is expected that recovery will be made on this note

early in 2004.

5. Customer notes of P60,000 were discounted with recourse during the year, proceeds

from their transfer being P58,500. Of this total, P48,000 matured during the year

without notice of protest.

6. Customer accounts of P8,720 were written-off in prior year as worthless.

7. Recoveries of doubtful accounts written-off in prior years were P2,020. (not included in

the collection in number 2)

8. Notes receivable collected during the year totaled P27,000 and interest collected was

P2,450.
D9. On December 31, accrued interest on notes receivable was P630.

10. Uncollectible accounts are estimated to be 5% of the December 31, 2006, accounts

receivable balance.

11.Cash of P35,000 was borrowed from Davao Bank, accounts receivable of P50,000 being

pledged on the loan. Collections of P19,500 had been made on these receivables

included in the total given in transaction (2) and this amount was applied on December

31, 2006, to payment of accrued interest on the loan of P600, and the balance to partial

payment of the loan.

12. Petty cash fund was reimbursed based on the following analysis of expenditure

vouchers:

Travel expenses P 112

Entertainment expenses 78
Postage 93

Office supplies 173

Cash over 6

13. P3,000 cash was added to the bond sinking fund.

14.Currency on hand at December 31, 2006 was P12,000.

15. Total cash payment for all expenses during the year were P468,000. Charge to General

Expense

Based on the information above and some other analysis, answer the following questions:

Questions

1. PERSEVERANCE CORPORATION’s Cash balance at December 31, 2006 is:

a. P 269,430 b. P 265,430 c. P 252,430 d. P 219,930

2. PERSEVERANCE CORPORATION’s Accounts Receivable balance at December 31, 2006 is:

a. P178,8787.00 b. P 178,824.50 c. P176,804.50 d. P174,254.50

3. PERSEVERANCE CORPORATION’s Other Cash Item (Currency and coins & Petty Cash

Fund) at December 31, 2006 is:

a. P 16,000 b. P 13,000 c. P 12,550 d. P 12,000

4. PERSEVERANCE CORPORATION’s Notes Receivable at December 31, 2006 is:

a. P 46,500 b. P 31,000 c. P 30,910 d. P 28,500

5. PERSEVERANCE CORPORATION’s Obligation of Discounted of Note Receivable at

December 31, 2006 is:

a. P 15,500 b. P 12,000 c. P 11,910 d. P 3,500

6. PERSEVERANCE CORPORATION’s Interest Receivable at December 31, 2006 is:

a. P 2,555 b. P 1,155 c. P 630 d. P 525

7. PERSEVERANCE CORPORATION’s Bad debts at December 31, 2006 is:

a. P 16,005.20 b. P 13,875.50 c. P 11,855.50 d. P 11,825.50

8. PERSEVERANCE CORPORATION’s Allowance for bad debts at December 31, 2006 is:

a. P 9,406.50 b. P 9,305.50 c. P 9,252.00 d. P 4,150.00

9. PERSEVERANCE CORPORATION’s Sales balance at December 31, 2006 is:

a. P 767,000 b. P 765,140 c. P 765,102 d. P 757,330

10. PERSEVERANCE CORPORATION’s Interest income balance at December 31, 2006 is:

a. P 3,086 b. P 3,080 c. P 2,561 d. P 2,555