Answer Key (1.

8)

APPENDIX
ANSWER KEY

CHAPTER 1 – CASH AND CASH EQUIVALENTS

True or False
1. True 6. True 11. True 16. True 21. True
2. False 7. True 12. False 17. True 22. False
3. False 8. True 13. True 18. False 23. True
4. True 9. False 14. False 19. False 24. True
5. False 10. False 15. True 20. False 25. False

Multiple Choice – Theories

1. B 6. C 11. A 16. C 21. A
2. C 7. D 12. C 17. B 22. C
3. D 8. B 13. B 18. A 23. C
4. A 9. B 14. B 19. C 24. D
5. D 10. C 15. A 20. A 25. A

Straight Problems
1. <JAYSON Company> Adjusting journal entries as of December 31, 2023:
Accounts receivable 480,000
Cash in bank 480,000
Cash in bank 250,000
Accounts payable 250,000
The adjusted amount of cash balance as of December 31, 2023 shall be P3,270,000
(P3,500,000 – P480,000 + P250,000).

2. <PARALUMAN Company> Adjusting journal entries as of December 31, 2023:

Cash 190,000
Accounts payable 190,000
Cash 280,000
Accounts payable 280,000
Accounts receivable 360,000
Cash 360,000
The adjusted amount of cash balance as of December 31, 2023 shall be P4,710,000
(P4,600,000 + P190,000 + P280,000 – P360,000).

3. Total cash equivalents will amount to P4,800,000 (P3,000,000 + P1,800,000).

1
Answer Key (1.8)

4. The amount of cash and cash equivalents shall be determined as follows:

Adjusted cash on hand (P2.5M – P200K) P2,300,000

Adjusted checking account 1 – UBP (P4.5M + P300K) 4,800,000
Checking account 2 – UBP (1,200,000)
Savings account – BDO (all for operating funds) 5,500,000
Commercial papers 1,800,000
Money market placements 1,000,000
Time deposit, 3 months 800,000
Cash and cash equivalents P15,000,000

5. The amount of cash and cash equivalents shall be determined as follows:

Adjusted cash on hand (P2.8M – P550K) P2,250,000

Adjusted cash in bank (P6.06M + P320K +P460K) 6,840,000
Adjusted petty cash (P200K – P70K) 130,000
Payroll fund not yet included in cash in bank balance 1,000,000
Investment in 5-year government bonds acquired two months
before the maturity date. 2,000,000
Cash and cash equivalents P12,220,000

6. KIMBERLY Company:

Date Imprest Fund System Fluctuating Balance

Petty cash fund 30,000 Petty cash fund 30,000
11/1/23
Cash in bank 30,000 Cash in bank 30,000
Transportation expense 8,000
11/5/23 Memo entry on the fund register
Petty cash fund 8,000
Office supplies expense 10,000
11/12/23 Memo entry on the fund register
Petty cash fund 10,000
Miscellaneous expense 5,000
11/28/23 Memo entry on the fund register
Petty cash fund 5,000
Transportation expense 8,000 Petty cash fund 33,000
Office supplies expense 10,000 Cash in bank 33,000
11/30/23 Miscellaneous expense 5,000
Petty cash fund 10,000
Cash in bank 33,000
Repair expense 12,000
12/8/23 Memo entry on the fund register
Petty cash fund 12,000
Representation expense 15,000
12/20/23 Memo entry on the fund register
Petty cash fund 15,000
Adjusting entry: No corresponding entry since the
12/31/23 petty cash fund amount has already
been updated.

2
Answer Key (1.8)

Repair expense 12,000

Representation expense 15,000
Petty cash fund 27,000
Reversing entry:
No corresponding entry since
1/1/24 Petty cash fund 27,000 there is no adjusting entry made
Repair expense 12,000 last 12/31/23.
Representation exp. 15,000
1/10/24 Memo entry on the fund register Transportation expense 11,000
Petty cash fund 11,000
Repair expense 12,000
Representation expense 15,000 Petty cash fund 38,000
1/25/24
Transportation expense 11,000 Cash in bank 38,000
Cash in bank 38,000

Multiple Choice – Problems

1. C 6. B
2. B 7. A
3. C 8. D
4. C 9. B
5. D 10. B

CHAPTER 2 – BANK RECONCILIATION

True or False
1. True 6. False 11. True
2. False 7. True 12. False
3. True 8. True 13. False
4. True 9. True 14. True
5. False 10. False 15. False

Multiple Choice – Theories

1. A 6. A 11. A
2. A 7. A 12. C
3. C 8. B 13. D
4. A 9. A 14. C
5. D 10. D 15. A

Straight Problems
1. <JUAN Company>

JUAN Company Depository Bank

a Cash in bank 800,000 Cash on hand 800,000
Cash on hand 800,000 Deposit liability 800,000
3
Answer Key (1.8)

b Accounts payable 900,000 Assuming the check was immediately

Cash in bank 900,000 encashed:
Deposit liability 900,000
Cash on hand 900,000
c Bank service charge 6,000 Deposit liability 6,000
Cash in bank 6,000 Service income 6,000
d Utilities expense 50,000 Deposit liability 50,000
Cash in bank 50,000 Cash on hand 50,000
e Cash in bank 1,000,000 Cash on hand 1,000,000
Notes receivable 1,000,000 Deposit liability 1,000,000
f Cash in bank 2,000,000 Loan receivable 2,000,000
Loan payable 2,000,000 Deposit liability 2,000,000
g Loan payable 200,000 Deposit liability 200,000
Cash in bank 200,000 Loan receivable 200,000
h Accounts receivable 100,000 Deposit liability 100,000
Cash in bank 100,000 Cash on hand 100,000

2. <PARIS Company>

Bank statement balance P4,500,000

Add: Deposits not appearing in the bank statement 240,000
Less: Outstanding checks (P650,000 – P270,000) (380,000)
Adjusted cash in bank balance 4,360,000

General ledger balance 2,460,000

Add: Credit memos
Proceeds from a bank loan 2,000,000
Notes receivable collected by the bank 700,000
Less: Debit memos
Bank service charge (40,000)
Payment of maturing portion of the bank loan (500,000)
Electricity bills directly deducted from the
Company’s bank account (80,000)
NSF check – redeposited in the succeeding month (180,000)
Adjusted cash in bank balance 4,360,000

Adjusting journal entries in the Company’s books:

Cash in bank 2,000,000

Loan payable 2,000,000

Cash in bank 700,000

Notes receivable 700,000

4
Answer Key (1.8)

Bank service charge 40,000

Cash in bank 40,000

Loan payable 500,000

Cash in bank 500,000

Utilities expense 80,000

Cash in bank 80,000

Accounts receivable 180,000

Cash in bank 180,000

3. <BONNIE Company>

Bank statement balance P600,000

Deposit in transit (5/31 deposit) 270,000
Outstanding checks:
5/20 check (160,000)
5/31 check (210,000)
Adjusted cash in bank balance 500,000

General ledger balance (P1,400,000 – P895,000) P505,000

Bank service charge (5,000)
Adjusted cash in bank balance 500,000

Bank service charge 5,000

Cash in bank 5,000

4. <AURORA Company>

Bank statement balance P1,252,000

Deposits in transit:
3/30 deposit 95,000
3/31 deposit 263,000
Outstanding checks:
3/19 check (86,000)
3/28 check (75,000)
3/31 check (60,000)
Adjusted cash in bank balance 1,389,000

5
Answer Key (1.8)

General ledger balance (P2,408,000 – P1,029,000) P1,379,000

Add: Credit memo
Proceeds from bank loan 800,000
Less: Debit memo
NSF check (100,000)
Bank service charge (6,000)
Less: Incorrect amount of receipts (430,000)
Add: Correct amount of receipts 43,000
Add: Incorrect amount of check 33,000
Less: Correct amount of check (330,000)
Adjusted cash in bank balance 1,389,000

Cash in bank 800,000

Loan payable 800,000

Bank service charge 6,000

Cash in bank 6,000

Accounts receivable 100,000

Cash in bank 100,000

Accounts receivable 387,000

Cash in bank (P430K – P43K) 387,000

Accounts payable 297,000

Cash in bank (P330K – P33K) 297,000

5. <LUCAS Company>

Balance per bank statement P5,678,000

Deposits in transit 800,000
Outstanding checks 680,000
Check of LUCIO Company that was recorded by the bank as
belonging to LUCAS 230,000
Deposit of LUCAS Company that was recorded by the bank as
belonging to LUCIO Company 170,000
Check of LUCAS Company that was recorded by the bank as
belonging to LUCIO Company (90,000)
Adjusted cash in bank balance P6,108,000

Balance per general ledger (squeeze) P4,672,000

NSF check that was not redeposited (70,000)
Bank service charge (20,000)
6
Answer Key (1.8)

Utilities of the Company directly paid by the bank (220,000)

Proceeds of a bank loan 1,000,000
Maturing portion of the bank loan that was directly deducted
from the bank account (200,000)
Notes of the Company collected by the bank 500,000
Payments from the customers who directly paid their accounts
to the Company’s bank account 300,000
P8,000 check recorded by the Company as P80,000:
Removal of initial effect 80,000
Correct amount (8,000)
P40,000 check recorded by the Company as P4,000:
Removal of initial effect 4,000
Correct amount (40,000)
Deposit that was not recorded by the Company 110,000
Adjusted cash in bank balance P6,108,000

Accounts receivable 70,000

Cash in bank 70,000

Bank service charge 20,000

Cash in bank 20,000

Cash in bank 1,000,000

Loan payable 1,000,000

Loan payable 200,000

Cash in bank 200,000

Cash in bank 500,000

Notes receivable 500,000

Cash in bank 300,000

Accounts receivable 300,000

Cash in bank 72,000

Accounts payable (80K – 8K) 72,000

Accounts payable (40K – 4K) 36,000

Cash in bank 36,000

Multiple Choice – Problems

1. B; C 6. D; A
2. D; B 7. A; A
3. C 8. B
7
Answer Key (1.8)

4. C; D 9. B
5. A 10. A

CHAPTER 3 – PROOF OF CASH

True or False
1. True 6. True 11. False
2. True 7. True 12. False
3. False 8. False 13. True
4. True 9. True 14. False
5. False 10. True 15. False

Multiple Choice – Theories

1. A 6. D
2. A 7. C
3. D 8. B
4. D 9. C
5. D 10. B

Straight Problems

1. ISAIAH Company:

Adjusted Balance Method:

Unadjusted Unadjusted
Beg. Bank Bank Bank End. Bank
Particulars Balance Receipts Disburse. Balance
Unadjusted balances P4,600,000 P7,800,000 P6,900,000 P5,500,000
Deposits in transit
June 30 790,000 (790,000)
July 31 640,000 640,000
Outstanding checks
June 30 (468,000) (468,000)
July 31 516,000 (516,000)
Adjusted balances P4,922,000 P7,650,000 P6,948,000 P5,624,000

Unadjusted Unadjusted
Beg. Book Book Book End. Book
Particulars Balance Receipts Disburse. Balance
Unadjusted balances P4,085,000 P8,400,000 P6,999,000 P5,486,000
NSF check
June 30 (149,000) (149,000)
July 31 96,000 (96,000)
Bank service charge
June 30 (14,000) (14,000)
8
Answer Key (1.8)

July 31 16,000 (16,000)

Proceeds from loan
June 30 1,000,000 (1,000,000)
Collection of AR
July 31 250,000 250,000
Adjusted balances P4,922,000 P7,650,000 P6,948,000 P5,624,000

Bank to Book Method:

Unadjusted Unadjusted
Beg. Bank Bank Bank End. Bank
Particulars Balance Receipts Disburse. Balance
Unadjusted balances P4,600,000 P7,800,000 P6,900,000 P5,500,000
Deposits in transit
June 30 790,000 (790,000)
July 31 640,000 640,000
Outstanding checks
June 30 (468,000) (468,000)
July 31 516,000 (516,000)
NSF check
June 30 149,000 149,000
July 31 (96,000) 96,000
Bank service charge
June 30 14,000 14,000
July 31 (16,000) 16,000
Proceeds from loan
June 30 (1,000,000) 1,000,000
Collection of AR
July 31 (250,000) (250,000)
Unadj. book balances P4,085,000 P8,400,000 P6,999,000 P5,486,000

Book to Bank Method:

Unadjusted Unadjusted
Beg. Book Book Book End. Book
Particulars Balance Receipts Disburse. Balance
Unadjusted balances P4,085,000 P8,400,000 P6,999,000 P5,486,000
NSF check
June 30 (149,000) (149,000)
July 31 96,000 (96,000)
Bank service charge
June 30 (14,000) (14,000)
July 31 16,000 (16,000)
Proceeds from loan
June 30 1,000,000 (1,000,000)
9
Answer Key (1.8)

Collection of AR
July 31 250,000 250,000
Deposits in transit
June 30 (790,000) 790,000
July 31 (640,000) (640,000)
Outstanding checks
June 30 468,000 468,000
July 31 (516,000) 516,000

Unadj. bank balances P4,600,000 P7,800,000 P6,900,000 P5,500,000

2. MAHARLIKA Company

Bank to book method:

Unadjusted Unadjusted
Beg. Bank Bank Bank End. Bank
Particulars Balance Receipts Disburse. Balance
Unadjusted balances P3,750,000 P6,050,000 P5,450,000 P4,350,000
Deposits in transit
November 30 950,000 (950,000)
December 31 750,000 750,000
Outstanding checks
November 30 (1,185,000) (1,185,000)
December 31 975,000 (975,000)
Bank error
November 30 90,000 (90,000)
December 31 (110,000) 110,000
Bank error
December 31 200,000 (200,000)
Notes coll. by bank
November 30 (345,000) 345,000
December 31 (232,000) (232,000)
Service charge
November 30 4,000 4,000
December 31 (5,000) 5,000
NSF check
November 30 217,000 217,000
December 31 (93,000) 93,000
Book error
December 31 (81,000) 81,000
Unadj. book balances P3,481,000 P5,873,000 P5,372,000 P3,982,000

10
Answer Key (1.8)

Adjusted balance method:

Unadjusted Unadjusted
Beg. Bank Bank Bank End. Bank
Particulars Balance Receipts Disburse. Balance
Unadjusted balances P3,750,000 P6,050,000 P5,450,000 P4,350,000
Deposits in transit
November 30 950,000 (950,000)
December 31 750,000 750,000
Outstanding checks
November 30 (1,185,000) (1,185,000)
December 31 975,000 (975,000)
Bank error
November 30 90,000 (90,000)
December 31 (110,000) 110,000
Bank error
December 31 200,000 (200,000)
Adjusted balances P3,605,000 P5,760,000 P5,330,000 P4,035,000

Unadjusted Unadjusted
Beg. Book Book Book End. Book
Particulars Balance Receipts Disburse. Balance
Unadjusted balances P3,481,000 P5,873,000 P5,372,000 P3,982,000
Notes coll. by bank
November 30 345,000 (345,000)
December 31 232,000 232,000
Service charge
November 30 (4,000) (4,000)
December 31 5,000 (5,000)
NSF check
November 30 (217,000) (217,000)
December 31 93,000 (93,000)
Book error
December 31 81,000 (81,000)
Adjusted balances P3,605,000 P5,760,000 P5,330,000 P4,035,000

3. VIVALDI Company

Unadjusted Unadjusted
Beg. Bank Bank Bank End. Bank
Particulars Balance Receipts Disburse. Balance
Unadjusted balances P2,055,000 P8,300,000 P7,250,000 P3,105,000
Deposits in transit
May 31 580,000 (580,000)
June 30 460,000 460,000
11
Answer Key (1.8)

Outstanding checks
May 31 (730,000) (730,000)
June 30 670,000 (670,000)
Bank error
May 31 420,000 (420,000)
June 30 (75,000) 75,000
Adjusted balances P2,325,000 P7,760,000 P7,115,000 P2,970,000

Unadjusted Unadjusted
Beg. Book Book Book End. Book
Particulars Balance Receipts Disburse. Balance
Unadjusted balances P1,660,000 P7,980,000 P6,970,000 P2,670,000
Notes coll. by bank
June 30 400,000 400,000
Proceeds of bank loan
May 31 800,000 (800,000)
June 30
Service charge
May 31 (25,000) (25,000)
June 30 30,000 (30,000)
NSF check
June 30 250,000 (250,000)
Book error
May 31 (110,000) (110,000)
June 30 180,000 180,000
Adjusted balances P2,325,000 P7,760,000 P7,115,000 P2,970,000

4. DAINTY Company

Unadjusted Unadjusted
Beg. Bank Bank Bank End. Bank
Particulars Balance Receipts Disburse. Balance
Unadjusted balances P4,400,000 5,600,000 P5,850,000 P4,150,000
Deposits in transit
January 31 189,000 (189,000)
February 234,000 234,000
Outstanding checks
November 30 (890,000) (890,000)
December 31 756,000 (756,000)
Bank error – checks
November 30 345,000 (345,000)
December 31 (401,000) 401,000
Redeposited NSF
December 31 (199,000) (199,000)
Bank error – deposits
12
Answer Key (1.8)

November 30 (445,000) (445,000)

December 31 (241,000) (241,000)
Adjusted balances P3,599,000 P4,860,000 P4,671,000 P3,788,000

Unadjusted Unadjusted
Beg. Book Book Book End. Book
Particulars Balance Receipts Disburse. Balance
Unadjusted balances P1,503,000 P6,715,000 4,503,000 P3,715,000
Notes coll. by bank
November 30 200,000 (200,000)
December 31 300,000 300,000
Proceeds of bank loan
November 30 2,000,000 (2,000,000)
Service charge
November 30 (27,000) (27,000)
December 31 30,000 (30,000)
NSF check
November 30 (90,000) (90,000)
December 31 130,000 (130,000)
Repayment of loan
December 31 100,000 (100,000)
Utilities paid
November 30 (50,000) (50,000)
December 31 75,000 (75,000)
Book error
May 31 63,000 (63,000)
June 30 108,000 108,000
Adjusted balances P3,599,000 P4,860,000 P4,671,000 P3,788,000

5. MAP Company

Beginning deposit in transit, August 31, 2023 P169,000

Add: Deposits made to the bank (book debits less contaminants:
P1,360,000 – P105,000) 1,255,000
Total deposits to be received by the bank P1,424,000
Less: Deposits acknowledged by the bank (bank credits less
contaminants, P990,000 – P248,000) (742,000)
Ending deposit in transit, September 30, 2023 P682,000

Beginning outstanding checks, August 31, 2023 P200,700

Add: Checks written (book credits less contaminants,
P1,143,000 – P3,500 – P37,000) 1,102,500
Total checks to be paid by the bank P1,303,200

13
Answer Key (1.8)

Less: Checks paid by the bank (bank debits less contaminants,

P840,000 – P4,600) (835,400)
Ending outstanding checks, September 30, 2023 P467,800

Multiple Choice – Problems

1. C
2. A; B
3. B; A
4. B; C
5. C; A; B; C

CHAPTER 4 – ACCOUNTS RECEIVABLE

True or False
1. True 6. True 11. False
2. True 7. False 12. True
3. False 8. True 13. True
4. False 9. False 14. False
5. True 10. False 15. True

Multiple Choice – Theories

1. B 6. B
2. A 7. C
3. D 8. A
4. A 9. C
5. C 10. A

Straight Problems
1. BARCELONA Company

Non-trade
Trade Current Noncur.
Unassigned trade accounts receivables P3,340,000
Subscription receivable due in 40 days 569,000
Assigned trade accounts receivables 1,312,000
Trade accounts receivables-installment 697,800
Trade receivables from executive employees 128,000
Advances to employees 119,000
Trade receivables with postdated checks 290,200
Trade receivables with stale checks 265,700
Interest receivable on bond investment 330,000
Loans and advances to affiliates 2,100,000
Debit balances on suppliers’ accounts 220,000
Advance payments to suppliers 155,000
Total P6,408,700 P1,018,000 2,100,000

14
Answer Key (1.8)

2. VALENCIA Company

Accounts Receivable
Beginning balance 450,000 4,230,000 Cash received from credit sales
Credit sales 4,060,000 55,000 Sales return or allowances
from unpaid credit sales
18,000 Write-off
207,000 Ending balance (squeeze)
Totals (should be equal) 4,510,000 4,510,000

3. ZARAGOZA Company

Accounts Receivable
Beginning balance 825,000 2,202,500 Cash received from credit sales
(727,500 + 1,475,000)
Credit sales 2,640,000 22,500 Sales discount
(727,500/97%)*3%
Recoveries 5,000 25,000 Sales return or allowances
from unpaid credit sales
5,000 Recoveries
8,000 Write-off
1,207,000 Ending balance (squeeze)
Totals (should be equal) 3,470,000 3,470,000

4. GRANADA Company

Accounts Receivable
Beginning balance 650,000 4,430,000 Cash received from credit sales
(2,450,000 + 1,485,000 +
495,000)
Credit sales 5,000,000 65,000 Sales discount
[(2,450,000/98%) x 2%] +
[(1,485,000/99%) x 1%]
Recoveries 19,000 80,000 Sales return from unpaid credit
sales
60,000 Sales allowances from unpaid
credit sales
300,000 Receipt of promissory note for
overdue accounts receivable
19,000 Recoveries
50,000 Write-off of accounts
receivable
665,000 Ending balance (squeeze)
Totals (should be equal) 5,669,000 5,669,000
15
Answer Key (1.8)

5. TOLEDO Company (Note: Change Scenario 1 June 5, 2023 to June 15, 2023)

Gross Method Net Method

Initial Accounts receivable 784,000
recording of Accounts receivable 800,000 Sales 784,000
credit sale on Sales 800,000
*P784,000 = P800,000 x (100% – 2%)
June 10, 2023
Scenario 1:
Cash 784,000
Cash 784,000
June 15, 2023 Sales discount 6,000
Accounts receivable 784,000
Accounts receivable 800,000
Scenario 2:
Cash 800,000
Cash 800,000
June 23, 2023 Accounts receivable 784,000
Accounts receivable 800,000
Sales discount lost 6,000

Multiple Choice – Problems

1. D 6. C
2. C
3. C
4. C
5. B

CHAPTER 4A – ACCOUNTING FOR BAD DEBTS

True or False
1. True 6. False 11. True
2. True 7. False 12. True
3. False 8. True 13. True
4. True 9. False 14. False
5. False 10. False 15. False

Multiple Choice – Theories

1. A 6. B
2. B 7. C
3. B 8. A
4. B 9. C
5. A 10. C

Straight Problems
1. ROSE Company

16
Answer Key (1.8)

Bad debts expense 60,000

Accounts receivable 60,000

Cash 20,000
Bad debts expense 20,000

2. DAHLIA Company

July 31, Allowance for bad debts 240,000

2023 Accounts receivable 240,000

October 1, Accounts receivable 80,000

2023 Allowance for bad debts 80,000

October 1, Cash 80,000

2023 Accounts receivable 80,000

December Bad debts expense 360,000

31, 2023 Allowance for bad debts 360,000

3. GERBERA Company

Scenario 1:

Allowance for
Bad Debts
Write-off 420,000 540,000 Beginning balance
Ending balance 460,000 200,000 Estimated bad debts
(squeeze) expense (P10M x 2%)
140,000 Recoveries
Totals (should be equal) 880,000 880,000

Scenario 2:

Allowance for
Bad Debts
Write-off 420,000 540,000 Beginning balance
Ending balance 300,000 40,000 Estimated bad debts
(P6M x 5%) expense (720K-140K-540K)
140,000 Recoveries
Totals (should be equal) 720,000 720,000

17
Answer Key (1.8)

Scenario 3:

The ending allowance for bad debts as of December 31, 2023 shall be determined as
follows:

Allowance for
Age Bracket Amounts % Uncollectible Bad Debts
less than 1 month P4,000,000 2% P80,000
1 month to 3 months 1,400,000 4% 56,000
more than 3 months 600,000 30% 180,000
P6,000,000 P316,000

Allowance for
Bad Debts
Write-off 420,000 540,000 Beginning balance
Ending balance 316,000 56,000 Estimated bad debts
(per aging) expense (736K-140K-540K)
140,000 Recoveries
Totals (should be equal) 736,000 736,000

4. TULIPS Company

Scenario 1:

Allowance for
Bad Debts
Unadjusted balance 20,000 175,000 Estimated bad debts
expense (P5M x 3.5%)
Ending balance 155,000
(175K – 20K)
Totals (should be equal) 175,000 175,000

Scenario 2:

Allowance for
Bad Debts
Unadjusted balance 20,000 145,000 Estimated bad debts
expense
Ending balance 125,000
(2.5M x 5%)
Totals (should be equal) 145,000 145,000

18
Answer Key (1.8)

Scenario 3:

Allowance for
Age Bracket Amounts % Uncollectible Bad Debts
less than 1 month P1,750,000 2% P35,000
1 month to 1 year 500,000 10% 50,000
more than 1 year 250,000 20% 50,000
P2,500,000 P135,000

5. LILY Company

Allowance for
Bad Debts
Write-off 87,500 200,000 Beginning balance, 1/1/20
Ending balance, 12/31/20 175,000 2,500 Recoveries
(P3.5M x 5%) [a]
60,000 Bad debts expense (squeeze)
[b]
Totals (should be equal) 262,500 262,500

Allowance for
Bad Debts
Write-off 100,000 175,000 Beginning balance, 1/1/21
Ending balance, 12/31/21 187,500 0 Recoveries [d]
(P3.75M x 5%) [c]
112,500 Bad debts expense
Totals (should be equal) 287,500 287,500

Allowance for
Bad Debts
Write-off (275K – 150K) 125,000 187,500 Beginning balance, 1/1/22
[f]
Ending balance, 12/31/22 150,000 18,750 Recoveries
(P3M x 5%) [e]
68,750 Bad debts expense
Totals (should be equal) 275,000 275,000

Allowance for
Bad Debts
Write-off (195K – 125K) 70,000 150,000 Beginning balance, 1/1/23
[h]
Ending balance, 12/31/23 125,000 0 Recoveries

19
Answer Key (1.8)

(P2.5M x 5%) [g]

45,000 Bad debts expense
Totals (should be equal) 195,000 195,000

6. ORCHID Company

Year 2022:

Credit [A] [B] [A] – [B]

Year Sales Write-offs Recoveries Net Write-offs
2019 9,500,000 450,000 200,000 250,000
2020 8,500,000 602,500 – 602,500
2021 12,000,000 400,000 100,000 300,000
2022 11,500,000 300,000 – 300,000
41,500,000 1,452,500
Divide by: Credit sales 41,500,000
Bad debts as % of credit sales, 2022 3.50%

Allowance for
Bad Debts
Write-off 300,000 800,000 Beginning balance, 1/1/22
Ending balance, 12/31/22 902,500 402,500 Bad debts expense
(1,202,500 – 300,000) (11.5M x 3.5%)

Totals (should be equal) 1,202,500 1,202,500

Year 2023:

Credit [A] [B] [A] – [B]

Year Sales Write-offs Recoveries Net Write-offs
2020 8,500,000 602,500 – 602,500
2021 12,000,000 400,000 100,000 300,000
2022 11,500,000 300,000 – 300,000
2023 12,500,000 657,500 80,000 577,500
44,500,000 1,780,000
Divide by: Credit sales 44,500,000
Bad debts as % of credit sales, 2023 4.00%

Allowance for
Bad Debts
Write-off 657,500 902,500 Beginning balance, 1/1/23
Ending balance, 12/31/23 825,000 500,000 Bad debts expense
(1,482,500 – 657,500) (12.5M x 4%)

20
Answer Key (1.8)

80,000 Recoveries
Totals (should be equal) 1,482,500 1,482,500

Multiple Choice – Problems

1. C; C 6. A; D
2. B; B 7. C; D; A; A
3. C; C; C 8. B; B
4. D; D 9. D
5. A; A 10. C; A; C; A

CHAPTER 5 – NOTES RECEIVABLE

True or False
1. True 6. False 11. True
2. True 7. False 12. True
3. False 8. False 13. False
4. False 9. True 14. False
5. True 10. True 15. True

Multiple Choice – Theories

1. A 6. B
2. B 7. D
3. D 8. A
4. A 9. B
5. D 10. C

Straight Problems
1. SHEEP Company

Notes receivable 6,000,000

January 1,
Land 4,500,000
2023
Gain on sale 1,500,000

December Cash (P6M x 6%) 360,000

31, 2023 Interest income 360,000

December Cash (P6M x 6%) 360,000

31, 2024 Interest income 360,000

2. LAMB Company

21
Answer Key (1.8)

July 1, Notes receivable 3,000,000

2023 Accounts receivable 3,000,000

December Interest receivable (P3M x 8% x 6/12) 120,000

31, 2023 Interest income 120,000

Cash (P3M x 8%) 240,000

June 30,
Interest receivable 120,000
2024
Interest income (P3M x 8% x 6/12) 120,000

December Interest receivable (P3M x 8% x 6/12) 120,000

31, 2024 Interest income 120,000

3. MUTTON Company

Notes receivable 5,000,000

Cash 1,000,000
April 1,
Accumulated depreciation 4,500,000
2023
Building 10,000,000
Gain on sale 500,000

Sept 30, Cash 300,000

2023 Interest income (P5M x 12% x 6/12) 300,000

December Interest receivable 150,000

31, 2023 Interest income (P5M x 12% x 3/12) 150,000

Cash (P5M x 12% x 6/12) 300,000

March 31,
Interest receivable (P5M x 12% x 3/12) 150,000
2024
Interest income (P5M x 12% x 3/12) 150,000

Sept 30, Cash 300,000

2024 Interest income (P5M x 12% x 6/12) 300,000

December Interest receivable 150,000

31, 2024 Interest income (P5M x 12% x 3/12) 150,000

4. BEEF Company
Notes receivable 2,500,000
January 1, Accumulated depreciation 4,200,000
2023 Loss on sale 300,000
Equipment 7,000,000

22
Answer Key (1.8)

December Cash 500,000

31, 2023 Note receivable 500,000

December Cash 250,000

31, 2023 Interest income (P2.5M x 10%) 250,000

December Cash 500,000

31, 2024 Note receivable 500,000

December Cash 200,000

31, 2024 Interest income (P2M x 10%) 200,000

Current Non-current
December 31, 2023:
Note receivable (P2M) 500,000 1,500,000
December 31, 2024:
Note receivable (P1.5M) 500,000 1,000,000

5. BRISKET Company

April 1, Note receivable 6,000,000

2023 Cash 6,000,000

December Interest receivable (P6M x 9% x 9/12) 405,000

31, 2023 Interest income 405,000

March 31, Cash 1,000,000

2024 Note receivable (P6M/6 years) 1,000,000

Cash (P6M x 9%) 540,000

March 31,
Interest receivable 405,000
2024
Interest income (P6M x 9% x 3/12) 135,000

December Interest receivable (P5M x 9% x 9/12) 337,500

31, 2024 Interest income 337,500

Current Non-current
December 31, 2023:
Note receivable (P6M) 1,000,000 5,000,000
Interest receivable 405,000
December 31, 2024:
Note receivable (P5M) 1,000,000 4,000,000
Interest receivable 337,500
23
Answer Key (1.8)

6. CHUCK Company

January 1, Note receivable 5,000,000

2023 Cash 5,000,000

December Interest receivable (P5M x 10%) 500,000

31, 2023 Interest income 500,000

December Interest receivable (P5.5M x 10%) 550,000

31, 2024 Interest income 550,000

Cash 7,320,500
December
Notes receivable 5,000,000
31, 2026
Interest receivable 2,320,500
Note: Total amount received is P7,320,500 (P5M x 110% x 110% x 110% x 110%).
Total interest receivable at the end of the note’s term is P2,320,500 (P7,320,500 –
P5,000,000).

Multiple Choice – Problems

1. B; A; A; B 6. C; D
2. A; A; A; C
3. A; C; C; B; A
4. B; C; B; A
5. B; C; C; B; A; A

CHAPTER 5A – NOTES RECEIVABLE SUBJECT TO PRESENT VALUE CALCULATIONS

True or False
1. True 6. False 11. False
2. True 7. True 12. False
3. False 8. False 13. True
4. True 9. True 14. True
5. False 10. False 15. False

Multiple Choice – Theories

1. B 6. C
2. C 7. A
3. D 8. D
4. D 9. A
5. B 10. B

Straight Problems
1. MISTLETOE Company

24
Answer Key (1.8)

PV Cash Flow
PV Factor of Factor on Maturity Fair Value
Single payment for 5 periods at 8% 0.680583 P6,000,000 P4,083,498

Carrying Unearned
Interest Amount/ Finance
Date Income Amort. Present Value Income
Jan. 1, 2023 4,083,498 1,916,502
Dec. 31, 2023 326,680 326,680 4,410,178 1,589,822
Dec. 31, 2024 352,814 352,814 4,762,992 1,237,008

Cash 1,000,000
Note receivable 6,000,000
January 1,
Land 5,000,000
2023
Gain on sale 83,498
Unearned finance income 1,916,502

December Unearned finance income 326,880

31, 2023 Interest income 326,880

December Unearned finance income 352,814

31, 2024 Interest income 352,814

2. MANGER Company

PV Cash Flow
PV Factor of Factor on Maturity Fair Value
Single payment for 4 periods at 9% 0.708425 P4,500,000 P3,187,913

Carrying Unearned
Interest Amount/ Finance
Date Income Amort. Present Value Income
April 1, 2023 3,187,913 1,312,087
Mar. 31, 2024 286,912 286,912 3,474,825 1,025,175
Mar. 31, 2025 312,734 312,734 3,787,559 712,441

Cash 1,000,000
Note receivable 6,000,000
January 1,
Land 5,000,000
2023
Gain on sale 83,498
Unearned finance income 1,916,502

December Unearned finance income 215,184

31, 2023 Interest income (286,912 x 9/12) 215,184
25
Answer Key (1.8)

March 31, Unearned finance income 71,728

2024 Interest income (286,912 x 3/12) 71,728

December Unearned finance income 234,551

31, 2024 Interest income (312,734 x 9/12) 234,551

3. NATIVITY Company

PV Periodic
PV Factor of Factor Payments Fair Value
Ordinary annuity for 6 periods at 7% 4.766540 P800,000 P3,813,232
Carrying Unearned
Prin. Interest Amount/ Face Finance
Date Pmts Income Amort. Present Value Amt. Income
Jan. 1, 2023 3,813,232 4.8M 986,768
Dec. 31, 2023 800K 266,926 (533,074) 3,280,158 4.0M 719,842
Dec. 31, 2024 800K 229,611 (570,389) 2,709,769 3.2M 490,231
Dec. 31, 2024 800K 189,684 (610,316) 2,099,453 2.4M 300,547

Note receivable 4,800,000

Loss on sale 386,768
January 1,
Accumulated depreciation (8M – 4.2M) 3,800,000
2023
Building 8,000,000
Unearned finance income 986,768

December Unearned finance income 266,926

31, 2023 Interest income 266,926

December Cash 800,000

31, 2023 Note receivable 800,000

December Unearned finance income 229,611

31, 2024 Interest income 229,611

December Cash 800,000

31, 2024 Note receivable 800,000

Dates Carrying Amount Current Non-current

December 31, 2023: 3,280,158 570,389 2,709,769
December 31, 2024: 2,709,769 610,316 2,099,453

26
Answer Key (1.8)

4. CANE Company

PV Periodic
PV Factor of Factor Payments Fair Value
Ordinary annuity for 5 periods at 10% 3.790787 P1,500,000 P5,686,180
Carrying Unearned
Prin. Interest Amount/ Face Finance
Date Pmts Income Amort. Present Value Amt. Income
Oct. 1, 2023 5,686,180 7.5M 1,813,820
Sept. 30, 2024 1.5M 568,618 (931,382) 4,754,798 6.0M 1,245,202
Sept. 30, 2025 1.5M 475,480 (1,024,520) 3,730,278 4.5M 769,722

Note receivable 7,500,000

Cash 500,000
October 1,
Building 5,000,000
2023
Gain on sale 1,186,180
Unearned finance income 1,813,820

December Unearned finance income 142,155

31, 2023 Interest income (568,618 x 3/12) 142,155

September Unearned finance income 426,463

30, 2024 Interest income (568,618 x 9/12) 426,463

September Cash 1,500,000

30, 2024 Note receivable 1,500,000

December Unearned finance income 118,870

31, 2024 Interest income (475,480 x 3/12) 118,870
5. CANDY Company

PV Cash Flow
PV Factor of Factor on Maturity Fair Value
Single payment for 4 periods at 8% 0.735030 P3,500,000 P2,572,605

Carrying Unearned
Interest Amount/ Finance
Date Income Amort. Present Value Income
Jan. 1, 2023 2,572,605 927,395
Dec. 31, 2023 205,808 205,808 2,778,413 721,587
Dec. 31, 2024 222,273 222,273 3,000,686 499,314

27
 Answer Key (1.8)

Note receivable 3,500,000

January 1, Day 1 loss 927,395
2023 Cash 3,500,000
Unearned finance income 927,395

December Unearned finance income 205,808

31, 2023 Interest income 205,808

December Unearned finance income 222,273

31, 2024 Interest income 222,273

6. SLEIGH Company

PV Periodic
PV Factor of Factor Payments Fair Value
Ordinary annuity for 4 periods at 8% 3.312127 *P875,000 P2,898,111
*875K = 3.5M/4 years
Carrying Unearned
Prin. Interest Amount/ Face Finance
Date Pmts Income Amort. Present Value Amt. Income
Jan. 1, 2023 2,898,111 3,500K 601,889
Dec. 31, 2023 875K 231,849 (643,151) 2,254,960 2,625K 370,040
Dec. 31, 2024 875K 180,397 (694,603) 1,560,357 1,750K 189,643

Note receivable 3,500,000

January 1, Day 1 loss 601,889
2023 Cash 3,500,000
Unearned finance income 601,889

December Unearned finance income 231,849

31, 2023 Interest income 231,849

December Cash 875,000

31, 2023 Note receivable 875,000

December Unearned finance income 180,397

31, 2024 Interest income 180,397

December Cash 875,000

31, 2024 Note receivable 875,000

7. SNOWMAN Company

28
Answer Key (1.8)

PV
PV Factor of Factor Cash Flows Fair Value
Single payment for 4 periods at 9% 0.708425 6,000,000 4,250,550
Ordinary annuity for 4 periods at 9% 3.239720 240,000 777,533
*240K = 6M x 4% 5,028,083

Carrying Unearned
Interest Interest Amount/ Finance
Date Received Income Amort. Present Value Income
Jan. 1, 2023 5,028,083 971,917
Dec. 31, 2023 240K 452,527 212,527 5,240,610 759,390
Dec. 31, 2024 240K 471,655 231,655 5,472,265 527,735

Note receivable 6,000,000

Cash 2,000,000
January 1,
Loss on sale 971,917
2023
Land 8,000,000
Unearned finance income 971,917

December Unearned finance income 212,527

31, 2023 Cash 240,000
Interest income 452,527

Unearned finance income 231,655

December
Cash 240,000
31, 2024
Note receivable 471,655

Multiple Choice – Problems

1. B; C; C; B; B
2. D; A; C; D; D
3. B; B; D; C; C
4. B; B; A; C; D
5. C; B; D; A; D

CHAPTER 6 – RECEIVABLE FINANCING PART 1

True or False
1. False 6. True
2. False 7. False
3. True 8. False
4. True 9. False
5. True 10. True

Multiple Choice – Theories

1. D
29
Answer Key (1.8)

2. A
3. C
4. A
5. A

Straight Problems
1. BRITAIN Company

Journal entry to record the pledge is as follows:

Cash 4,000,000
Loan payable 4,000,000

Disclosure to be made:

“The Company pledged its accounts receivable balance of P5,000,000 against a loan
payable of P4,000,000 which bears 7% and matures after two years”.

2. ABRAHAM Company (ignore the April 2023 requirement for journal entries)

Date Non-Notification Basis Notification Basis

Cash (3M x 80%) 2,400,000 Cash (3M x 80%) 2,400,000
Loan payable 2,400,000 Loan payable 2,400,000
3/1/
23
AR – assigned 3,000,000 AR – assigned 3,000,000
AR 3,000,000 AR 3,000,000
Cash 1,305,000
Sales discount 45,000
Loan payable 1,305,000
AR – assigned 1,350,000
Sales discount 45,000
3/31/ AR – assigned 1,350,000
Loan payable 1,305,000
23
Cash 1,305,000
Interest expense 24,000
Cash (P2.4M x 1%) 24,000
Interest expense 24,000
Cash (P2.4M x 1%) 24,000

3. IRELAND Company
Date Non-Notification Basis Notification Basis
Cash (4M x 90%) – 12K 3,588,000 Cash (4M x 90%) – 12K 3,588,000
Service charge 12,000 Service charge 12,000
7/1/ Loan payable 3,600,000 Loan payable 3,600,000
23
AR – assigned 4,000,000 AR – assigned 4,000,000
AR 4,000,000 AR 4,000,000

30
Answer Key (1.8)

Cash 1,750,000
Sales discount 50,000
Loan payable 1,750,000
AR – assigned 1,800,000
Sales discount 50,000
7/31/ AR – assigned 1,800,000
Loan payable 1,750,000
23
Cash 1,750,000
Interest expense 36,000
Cash (P3.6M x 1%) 36,000
Interest expense 36,000
Cash (P3.6M x 1%) 36,000
Cash 2,140,000
Loan payable 1,850,000
Sales discount 60,000
Rec. from bank 271,500
AR – assigned 2,200,000
Interest expense 18,500
8/31/ Sales discount 60,000
Loan payable 1,850,000
23 AR – assigned 2,200,000
Cash (3.6M – 1.75M) 1,850,000
Cash 271,500
Interest expense 18,500
Rec. from bank 271,500
Cash (P1.85M x 1%) 18,500

4. ANDREW Company

Only the assigned receivables and the related collections are relevant in this case. No
amounts received from unassigned receivables are required to be applied against
the loan’s balance. Loan payable balances and interest expense amounts for each
month are the following:

Month Beg. Applied End. Loan Interest Ex. (Beg.

Loan Collections Loan x 9% x 1/12)
Jan 2,000,000 900,000 1,100,000 P15,000
Feb 1,100,000 750,000 350,000 8,250
Mar 350,000 350,000 0 2,625
Apr 0 300,000 0
May 0 150,000 0

Date Non-Notification Basis Notification Basis

Cash 1,980,000 Cash 1,980,000
Service charge 20,000 Service charge 20,000
1/1/ Loan payable 2,000,000 Loan payable 2,000,000
23
AR – assigned 2,500,000 AR – assigned 2,500,000
AR 2,500,000 AR 2,500,000
Cash 900,000 Loan payable 900,000
1/31/
AR – assigned 900,000 AR – assigned 900,000
23

31
Answer Key (1.8)

Loan payable 900,000 Interest expense 15,000

Cash 900,000 Cash 15,000

Interest expense 15,000

Cash 15,000
Cash 750,000
AR – assigned 750,000
Loan payable 750,000
AR – assigned 750,000
2/28/ Loan payable 750,000
23 Cash 750,000
Interest expense 8,250
Cash 8,250
Interest expense 8,250
Cash 8,250
Cash 350,000 Loan payable 350,000
AR – assigned 350,000 AR – assigned 350,000

Loan payable 350,000 Interest expense 2,625

Cash 350,000 Cash 2,625

Interest expense 2,625 Return of assigned accounts to

3/31/ Cash 2,625 general AR balance due to full
23 payment of loan (2.5M – 900K –
Return of assigned accounts to 750K – 350K):
general AR balance due to full
payment of loan (2.5M – 900K – AR 500,000
750K – 350K): AR – assigned 500,000

AR 500,000 Note: No excess collection made by

AR – assigned 500,000 the bank.
4/30/ Cash 300,000 Cash 300,000
23 AR 300,000 AR 300,000
Cash 150,000 Cash 150,000
AR 150,000 AR 150,000
5/31/
23
Allow. for bad debts 50,000 Allow. for bad debts 50,000
AR 50,000 AR 50,000

Multiple Choice – Problems

1. C; B
2. A; C; A
3. B; C; D
4. A

CHAPTER 6A – RECEIVABLE FINANCING PART 2

32
Answer Key (1.8)

True or False
1. True 6. True
2. False 7. False
3. True 8. False
4. False 9. True
5. True 10. False

Multiple Choice – Theories

1. C 6. B
2. A 7. A
3. C 8. C
4. A 9. D
5. D 10. C

Straight Problems
1. MERMAID Company

Cash 2,025,000
Receivable from factor (P2.5M x 15%) 375,000
Factoring fee (P2.5M x 4%) 100,000
Accounts receivable 2,500,000

2. PRIMATE Company

Cash 1,332,000
Receivable from factor (P1.8M x 20%) 360,000
Factoring fee (P1.8M x 6%) 108,000
Allowance for bad debts (P1.8M x 3%) 54,000
Accounts receivable 1,800,000
Gain on factoring 54,000

Sales discount 25,000

Bad debts expense 55,000
Receivable from factor 80,000

Cash (P360K – P80K) 280,000

Receivable from factor 280,000

3. CLAW Company

Cash 2,070,000
Receivable from factor (P3M x 25%) 750,000
Commission fee (P3M x 5%) 150,000
Interest expense (P3M x 12% x 30/360) 30,000
Loss on recourse liability 150,000
33
Answer Key (1.8)

Accounts receivable 3,000,000

Recourse liability 150,000

Sales discount 100,000

Bad debts expense 60,000
Receivable from factor 160,000

Cash (P750K – P160K) 590,000

Receivable from factor 590,000

Recourse liability 150,000

Gain on reversal of recourse liability 150,000

4. “an entity”

Principal amount – Note 1 P3,000,000

Add: Interest until maturity (P3M x 6% x 5/12) 75,000
Maturity value 3,075,000
Less: Discount amount (P3,075,000 x 7% x 3/12) (53,813)
Net proceeds from discounting P3,021,187

Cash 3,021,187
Without Loss on discounting 8,813
recourse Note receivable 3,000,000
Interest income (P3M x 6% x 2/12) 30,000

Cash 3,021,187
Conditional Loss on discounting 8,813
sale Note receivable – discounted 3,000,000
Interest income (P3M x 6% x 2/12) 30,000

Cash 3,021,187
Secured Interest expense 8,813
borrowing Loan payable 3,000,000
Interest income (P3M x 6% x 2/12) 30,000

Principal amount – Note 2 P4,000,000

Add: Interest until maturity (P4M x 5% x 7/12) 116,667
Maturity value 4,116,667
Less: Discount amount (P4,166,667 x 7% x 3/12) (72,042)
Net proceeds from discounting 4,044,625

34
Answer Key (1.8)

Cash 4,044,625
Without Loss on discounting 22,042
recourse Note receivable 4,000,000
Interest income (P4M x 5% x 4/12) 66,667

Cash 4,044,625
Conditional Loss on discounting 22,042
sale Note receivable – discounted 4,000,000
Interest income (P4M x 5% x 4/12) 66,667

Cash 4,044,625
Secured Interest expense 22,042
borrowing Loan payable 4,000,000
Interest income (P4M x 5% x 4/12) 66,667

Principal amount – Note 3 4,500,000

Add: Interest until maturity (P4.5M x 7% x 12/12) 315,000
Maturity value 4,815,000
Less: Discount amount (P4,815,000 x 9% x 3/12) (108,338)
Net proceeds from discounting 4,706,662

Cash 4,706,662
Without Loss on discounting 29,588
recourse Note receivable 4,500,000
Interest income (P4.5M x 7% x 9/12) 236,250

Cash 4,706,662
Conditional Loss on discounting 29,588
sale Note receivable – discounted 4,500,000
Interest income (P4.5M x 7% x 9/12) 236,250

Cash 4,706,662
Secured Interest expense 29,588
borrowing Loan payable 4,500,000
Interest income (P4.5M x 7% x 9/12) 236,250

Principal amount – Note 4 P2,000,000

Add: Interest until maturity (P2M x 9% x 9/12) 135,000
Maturity value 2,135,000
Less: Discount amount (P2,135,000 x 10% x 6/12) (106,750)
Net proceeds from discounting 2,028,250

35
Answer Key (1.8)

Cash 2,028,250
Without Loss on discounting 16,750
recourse Note receivable 2,000,000
Interest income (P2M x 9% x 3/12) 45,000

Cash 2,028,250
Conditional Loss on discounting 16,750
sale Note receivable – discounted 2,000,000
Interest income (P2M x 9% x 3/12) 45,000

Cash 2,028,250
Secured Interest expense 16,750
borrowing Loan payable 2,000,000
Interest income (P2M x 9% x 3/12) 45,000

Principal amount – Note 5 5,000,000

Add: Interest until maturity (P5M x 8% x 7/12) 233,333
Maturity value 5,233,333
Less: Discount amount (P5,233,333 x 10% x 4/12) (174,444)
Net proceeds from discounting 5,058,889

Cash 5,058,889
Without Loss on discounting 41,111
recourse Note receivable 5,000,000
Interest income (P5M x 8% x 3/12) 100,000

Cash 5,058,889
Conditional Loss on discounting 41,111
sale Note receivable – discounted 5,000,000
Interest income (P5M x 8% x 3/12) 100,000

Cash 5,058,889
Secured Interest expense 41,111
borrowing Loan payable 5,000,000
Interest income (P5M x 8% x 3/12) 100,000

5. LEGION Company

Principal amount 2,500,000

Add: Interest until maturity (P2.5M x 7% x 180/360) 87,500
Maturity value 2,587,500
Less: Discount amount (P2,587,500 x 9% x 120/360) (77,625)
Net proceeds from discounting 2,509,875

36
Answer Key (1.8)

Cash 2,509,875
Without Loss on discounting 19,292
recourse Note receivable 2,500,000
Interest inc. (P2.5M x 7% x 60/360) 29,167

Cash 2,509,875
Conditional Loss on discounting 19,292
sale Note receivable – discounted 2,500,000
Interest inc. (P2.5M x 7% x 60/360) 29,167

Cash 2,509,875
Secured Interest expense 19,292
borrowing Loan payable 2,500,000
Interest inc. (P2.5M x 7% x 60/360) 29,167

6. TESLA Company (Assuming that the noninterest-bearing note is not measured at its
fair value on initial recognition).

Principal amount 3,500,000

Add: Interest until maturity (none) 0
Maturity value 3,500,000
Less: Discount amount (P3.5M x 10% x 6/12) (175,000)
Net proceeds from discounting 3,325,000

Cash 3,325,000
Without
Loss on discounting 175,000
recourse
Note receivable 3,500,000

Cash 3,325,000
Conditional
Loss on discounting 175,000
sale
Note receivable – discounted 3,500,000

Cash 3,325,000
Secured
Interest expense 175,000
borrowing
Loan payable 3,500,000

7. RHINO Company
Principal amount P6,000,000
Add: Interest until maturity (P6M x 6% x 10/12) 300,000
Maturity value 6,300,000
Less: Discount amount (P6.3M x 8% x 7/12) (294,000)
Net proceeds from discounting 6,006,000
37
Answer Key (1.8)

Conditional Sale:
Cash 6,006,000
Loss on discounting 84,000
04/01/23
Note receivable – discounted 6,000,000
Interest inc. (P6M x 6% x 3/12) 90,000

Receivable from maker 6,600,000

Cash (P6.3M + 300K) 6,600,000
11/01/23
Note receivable – discounted 6,000,000
Note receivable 6,000,000

Interest receivable 66,000

12/31/23
Interest inc. (P6.6M x 6% x 2/12) 66,000

Cash 99,000
01/31/24 Interest receivable 66,000
Interest inc. (P6.6M x 6% x 1/12) 33,000

Secured Borrowing:
Cash 6,006,000
Loss on discounting 84,000
04/01/23
Loan payable 6,000,000
Interest inc. (P6M x 6% x 3/12) 90,000

Receivable from maker 6,600,000

Cash (P6.3M + 300K) 6,600,000
11/01/23
Loan payable 6,000,000
Note receivable 6,000,000

Interest receivable 66,000

12/31/23
Interest inc. (P6.6M x 6% x 2/12) 66,000

Cash 99,000
01/31/24 Interest receivable 66,000
Interest inc. (P6.6M x 6% x 1/12) 33,000

8. HARRISON Company

38
Answer Key (1.8)

January 1, Note receivable 600,000

2023 Sales 600,000

February Note receivable 1,000,000

28, 2023 Sales 1,000,000

Cash 606,240
April 1, Loss on discounting 4,260
2023 Note receivable – discounted 600,000
Interest inc. (600K x 7% x 3/12) 10,500

May 1, Note receivable 900,000

2023 Sales 900,000

Cash 980,000
June 30,
Interest expense (P1M x 6% x 4/12) 20,000
2023
Loan payable 1,000,000

July 31, Note receivable 2,000,000

2023 Cash 2,000,000

October 1, Receivable from maker 650,000

2023 Cash (631,500 + 18,500) 650,000

October 1, Note receivable – discounted 600,000

2023 Note receivable 600,000

October 28, Loan payable 1,000,000

2023 Note receivable 1,000,000

Cash 2,066,667
November
Note receivable 2,000,000
30, 2023
Interest income (P2M x 10% x 4/12) 66,667

Cash 661,375
December
Receivable from maker 650,000
31, 2023
Interest income (650K x 7% x 3/12) 11,375

December Interest receivable (from GAMMA) 54,000

31, 2023 Interest income (900K x 9% x 8/12) 54,000

39