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SOLUTION MANUALFinancial Accounting

Valix and PeraltaVolume One - 2008 Edition

1CHAPTER 1

Problem 1-1 Problem 1-2 Problem 1-3Problem 1-4

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

Problem 1-5 Problem 1-6 Problem 1-7 Problem 1-8

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

7. B 7. B 7. D 7. D 8. D 8. C 8. D 8. D

9. C 9. A 9. B 9. A

10. D 10. B 10. D 10. B

Problem 1-9 Problem 1-10 Problem 1-11Problem 1-12

1. D 1. A 1. C 1. E 2. D 2. B 2. B 2. D 3. C 3. D 3. D 3. B 4. B 4. B 4. A 4. C 5. C 5. A 5. F 5. G 6. D 6. E 6. H 7. C 7. J 7. I 8. A 8. G 8. F 9. D 9. H 9. J

10. A 10. I 10. A

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Problem 1-13 Problem 1-14

1. Systematic and rational allocation 1. Materiality as a matching process 2. Going concern 2. Comparability or consistency 3. Income recognition principle 3. Monetary unit 4. Accounting entity 4. Income recognition principle 5. Standard of adequate disclosure 5. Time period 6. Comparability 6. Going concern and cost principle 7. Matching principle 7. Accounting entity 8. Cost principle 8. Materiality 9. Reliability 9. Completeness or standard 10. Time period of adequate disclosure 10. Conservatism or prudence

Problem 1-15

1. The cost of leasehold improvement should not be recorded as outright expense, but should be amortized as expense over the life of the improvement or life of the lease, whichever is shorter. This is in conformity with the systematic and rational allocation principle of expense recognition.

2. The fact that the customer has not been seen for a year is not a controlling factor to write off the account. If the account is doubtful of collection, an allowance should be set up. It is only when there is proof of uncollectibility that the account should be written off.

3. Advertising cost should be treated as outright expense, by reason of the uncertainty of the benefit that may be derived therefrom in the future, in conformity with “immediate recognition principle”.

4. The balance of the cash surrender value should not be charged to loss. In reality, this is conceived as a prospective receivable if and when the policy is canceled because of excessive premium in the early stage of policy. The CSV should be classified as noncurrent investment.

5. The cost of obsolete merchandise should not be included as part of inventory but charged to expense, as a conservative approach.

6. The excess payment represents goodwill which should not be amortized but subject to impairment. Conservatism dictates that goodwill should be recognized when paid for.

7. The depreciation is not dependent on the amount of profit generated during the year. Depreciation is an allocation of cost and therefore should be provided regardless of the level of earnings.

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8. An entry should be made to recognize the inventory fire loss, and such loss should be treated as component of income.

9. Revenues and expenses of the canteen should be separated from the revenues and cost of regular business operations in order to present fairly the financial position and performance of the regular operations.

10. The increase in value of land and building should not be taken up in the

accounts. The use of revalued amount is permitted only when the revaluation is made by independent and expert appraiser. The expected sales price of P5,000,000 is not necessarily the revalued amount of the land and building. Moreover, increase in value is not an income until the asset is sold.

Problem 1-16

1. Accrual assumption 6. Income recognition principle2. Going concern assumption 7. Expense recognition principle 3. Asset recognition principle 8. Cause and effect association principle4. Cost principle 9. Systematic and rational allocation principle5. Liability recognition principle 10. Immediate recognition principle

Problem 1-17

1. Monetary unit assumption 6. Substance over form2. Cost principle 7. Income recognition principle3. Materiality 8. Comparability or consistency4. Time period 9. Conservatism or prudence5. Matching principle 10. Adequate disclosure or completeness

Problem 1-18

1. The cost of the asset should be the amount of cash paid. No income should be recognized when an asset is purchased at an amount less than its market value. Revenue arises from the act of selling and not from the act of buying.

2. The entry should be reversed because the pending lawsuit is a mere contingency. The contingent loss is simply disclosed. To be recognized in accordance with conservatism, the contingent loss must be both probable and measurable.

3. The new car should be charged against the president and debited to receivable from officer, because the car is for personal use.

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4. The entry is incorrect because no revenue shall be recognized until a sale has taken place.

5. Purchased goodwill should be recorded as an asset. Under the new standard, goodwill is not amortized anymore but on each balance sheet date it should be assessed for impairment.

Problem 1-19

1. Accrual2. Going concern3. Accounting entity4. Monetary unit6. Time period

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CHAPTER 2

Problem 2-1

Easy CompanyStatement of Financial Position

December 31, 2008

A S S E T S

Current assets: Note Cash and cash equivalents 800,000 Accounts receivable 450,000 Inventories 900,000 Prepaid expenses (1) 200,000 Total current assets 2,350,000 Noncurrent assets:

Property, plant and equipment (2) 4,400,000 Long-term investments 950,000 Intangible asset (3) 800,000 Total noncurrent assets 6,150,000Total assets 8,500,000

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities: Trade and other payables (4) 450,000 Note payable, short-term debt 200,000 Total current liabilities 650,000Noncurrent liabilities: Mortgage payable, due in 5 years 1,500,000 Note payable, long-term debt 500,000 Total noncurrent liabilities 2,000,000Shareholders’ equity: Share capital, P100 par 4,000,000 Share premium 500,000 Retained earnings 1,350,000 Total shareholders’ equity 5,850,000Total liabilities and stockholders’ equity 8,500,000

Note 1 - Prepaid expenses

Office supplies 50,000Prepaid rent 150,000Total prepaid expenses 200,000

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Note 2 - Property, plant and equipment

Property, plant and equipment 5,600,000Accumulated depreciation (1,200,000)Net book value 4,400,000

Note 3 - Intangible asset

Patent 800,000

Note 4 - Trade and other payables

Accounts payable 350,000

Accrued expenses 100,000Total 450,000

Problem 2-2

Simple CompanyStatement of Financial Position

December 31, 2008

A S S E T S

Current assets: Note Cash 420,000 Trading securities 250,000 Trade and other receivables (1) 620,000 Inventories (2) 1,250,000 Prepaid expenses (3) 20,000

Total current assets 2,560,000

Noncurrent assets: Property, plant and equipment (4) 4,640,000 Long-term investments (5) 2,000,000 Intangible assets (6) 300,000

Total noncurrent assets 6,940,000Total assets 9,500,000

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Current liabilities: Note Trade and other payables (7) 620,000 Serial bonds payable - current portion 500,000 Total current liabilities 1,120,000

Noncurrent liabilities: Serial bonds payable - remaining portion 2,000,000

Shareholders’ equity: Share capital 5,000,000 Share premium 500,000 Retained earnings 880,000 Total shareholders’ equity 6,380,000

Total liabilities and shareholders’ equity 9,500,000

Note 1 - Trade and other receivables

Accounts receivable 500,000Allowance for doubtful accounts ( 50,000)Notes receivable 150,000Claim receivable 20,000Total 620,000

Note 2 - Inventories

Finished goods 400,000Goods in process 600,000Raw materials 200,000Factory supplies 50,000Total 1,250,000

Note 3 - Prepaid expenses

Prepaid insurance 20,000


Accum. Book Cost depr. value

Land 1,500,000 - 1,500,000 Building 4,000,000 1,600,000 2,400,000Machinery 2,000,000 1,300,000 700,000Tools 40,000 - 40,000Total 7,540,000 2,900,000 4,640,000

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Note 5 - Long-term investments

Investment in bonds 1,500,000Plant expansion fund 500,000Total 2,000,000

Note 6 - Intangible assets

Franchise 200,000Goodwill 100,000Total 300,000


Accounts payable 300,000Notes payable 100,000Income tax payable 60,000Advances from customers 100,000Accrued expenses 30,000Accrued interest on note payable 10,000Employees income tax payable 20,000Total 620,000

Problem 2-3Exemplar Company

Statement of Financial PositionDecember 31, 2008

A S S E T S

Current assets: Note Cash and cash equivalents 500,000 Trading securities 280,000 Trade and other receivables (1) 640,000 Inventories 1,300,000 Prepaid expenses 70,000

Total current assets 2,790,000Noncurrent assets: Property, plant and equipment (2) 5,300,000 Long-term investments (3) 1,310,000 Intangible assets (4) 3,350,000 Other noncurrent assets (5) 150,000

Total noncurrent assets 10,110,000Total assets 12,900,000

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NoteCurrent liabilities: Trade and other payables (6) 1,000,000Noncurrent liabilities:

Bonds payable 5,000,000 Premium on bonds payable 1,000,000 Total noncurrent liabilities 6,000,000

Shareholders’ equity: Share capital (7) 7,000,000 Reserves (8) 700,000 Retained earnings (deficit) (1,800,000) Total shareholders’ equity 5,900,000Total liabilities and shareholders’ equity 12,900,000

Note 1 - Trade and other receivables

Accounts receivable 400,000Allowance for doubtful accounts ( 20,000)Notes receivable 250,000Accrued interest on notes receivable 10,000Total 640,000


Accum. Book Cost depr.

valueLand 1,500,000 - 1,500,000 Building 5,000,000 2,000,000 3,000,000Equipment 1,000,000 200,000 800,000Total 7,500,000 2,200,000 5,300,000

Note 3 - Long-term investments

Land held for speculation 500,000Sinking fund 400,000Preference share redemption fund 350,000Cash surrender value 60,000Total 1,310,000


Computer software 3,250,000Lease rights 100,000Total 3,350,000

10Note 5 - Other noncurrent assets

Advances to officers, not collectible currently 100,000Long-term refundable deposit 50,000Total 150,000


Accounts payable 400,000Notes payable 300,000Unearned rent income 40,000SSS payable 10,000Accrued salaries 100,000Dividends payable 120,000Withholding tax payable 30,000Total 1,000,000

Note 7 – Share capital

Preference share capital 2,000,000Ordinary share capital 5,000,000Total 7,000,000

Note 8 - Reserves

Share premium – preference 500,000Share premium – ordinary 200,000Total 700,000

Problem 2-4

Relax CompanyStatement of Financial Position

December 31, 2008

A S S E T S

Current assets: Note Cash 400,000 Trade accounts receivable (1) 750,000 Inventories 1,000,000 Prepaid expenses 100,000 Total current assets 2,250,000Noncurrent assets: Property, plant and equipment (2) 5,600,000 Investment in associate 1,300,000 Intangible assets (3) 350,000 Total noncurrent assets 7,250,000Total assets 9,500,000

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NoteCurrent liabilities: Trade and other payables (4) 1,350,000 Mortgage note payable-current portion 400,000 Total current liabilities

1,750,000

Noncurrent liabilities: Mortgage note payable, remaining position 1,600,000 Bank loan payable, due June 30, 2010 500,000 Total noncurrent liabilities 2,100,000

Shareholders’ equity: Share capital 3,000,000 Reserves (5) 1,400,000 Retained earnings 1,250,000 Total shareholders’ equity 5,650,000Total liabilities and shareholders’ equity 9,500,000

Note 1 - Trade accounts receivable

Accounts receivable 800,000Allowance for doubtful accounts ( 50,000)Net realizable value 750,000


Accum. BookCost depr. value

Land 500,000 - 500,000 Building 5,000,000 2,000,000 3,000,000Machinery 3,000,000 1,200,000

1,800,000Equipment 400,000 100,000 300,000Total 8,900,000 3,300,000

5,600,000


Trademark 150,000Secret processes and formulas 200,000Total 350,000


Notes payable 750,000Accounts payable 350,000Income tax payable 50,000Accrued expenses 60,000Estimated liability for damages 140,000

Total 1,350,000

12Note 5 - Reserves

Additional paid in capital 300,000Retained earnings appropriated for plant expansion 1,000,000Retained earnings appropriated for contingencies 100,000Total 1,400,000

Problem 2-5

Summa CompanyStatement of Financial Position

December 31, 2008

A S S E T S

Current assets: Note Cash (1) 700,000 Bond sinking fund 2,000,000 Trade and other receivables (2) 830,000 Inventory 1,200,000 Prepaid expenses 100,000 Total current assets 4,830,000

Noncurrent assets: Property, plant and equipment (3) 5,500,000 Investment property 700,000 Intangible asset (4) 370,000 Total noncurrent assets 6,570,000Total assets 11,400,000

LIABILITIES AND EQUITY

NoteCurrent liabilities: Trade and other payables (5) 2,050,000 Bonds payable due June 30, 2009 2,000,000 Total current liabilities 4,050,000

Noncurrent liability: Deferred tax liability 650,000 Equity: Share capital (6) 3,500,000 Reserves (7) 500,000 Retained earnings 2,700,000 Total equity 6,700,000Total liabilities and equity 11,400,000

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Note 1 - Cash

Cash on hand 50,000Cash in bank 650,000

700,000Note 2 - Trade and other receivables

Accounts receivable 650,000Allowance for doubtful accounts ( 50,000)Notes receivable 200,000Accrued interest receivable 30,000Total 830,000


Accum. Book Cost depr.

valueLand 1,000,000 - 1,000,000Building 5,500,000 2,500,000 3,000,000Furniture and equipment 2,400,000 900,000 1,500,000Total 8,900,000 3,400,000 5,500,000 Note 4 - Intangible asset

Patent 370,000


Accounts payable 1,000,000Notes payable 850,000Accrued taxes 50,000Other accrued liabilities 150,000Total 2,050,000

Note 6 – Share capital

Authorized share capital, 50,000 shares, P100 par 5,000,000Unissued share capital (2,000,000)Issued share capital 3,000,000Subscribed share capital, 10,000 shares 1,000,000Subscription receivable ( 500,000) 500,000Paid in capital 3,500,000

Note 7 - Reserves

Share premium 300,000Retained earnings appropriated for contingencies 200,000Total 500,000

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Problem 2-6 (Functional method)

Karla CompanyIncome Statement

Year ended December 31, 2008

NoteNet sales revenue (1) 7,700,000Cost of sales (2) (5,000,000)Gross income 2,700,000Other income (3) 400,000Total income 3,100,000Expenses: Selling expenses (4) 950,000 Administrative expenses (5) 800,000 Other expenses (6) 100,000 1,850,000Income before tax 1,250,000Income tax ( 250,000)Net income 1,000,000

Note 1 – Net sales revenue

Gross sales 7,850,000Sales returns and allowances ( 140,000)Sales discounts ( 10,000)Net sales revenue 7,700,000

Note 2 – Cost of sales

Inventory, January 1 1,000,000Purchases 5,250,000Freight in 500,000Purchase returns and allowances ( 150,000)Purchase discounts ( 100,000)

Net purchases 5,500,000Goods available for sale 6,500,000Inventory, December 31 (1,500,000)Cost of sales 5,000,000

Note 3 – Other income

Rental income 250,000Dividend revenue 150,000Total other income 400,000

15Note 4 – Selling expenses

Freight out 175,000Salesmen’s commission 650,000Depreciation – store equipment 125,000Total selling expenses 950,000

Note 5 – Administrative expenses

Officers’ salaries 500,000Depreciation – office equipment 300,000Total administrative expenses 800,000

Note 6 – Other expenses

Loss on sale of equipment 50,000Loss on sale of investment 50,000Total other expenses 100,000

Natural method

Karla CompanyIncome Statement


NoteNet sales revenue (1) 7,700,000Other income (2) 400,000Total 8,100,000Expenses: Increase in inventory (3) ( 500,000) Net purchases (4) 5,500,000

Freight out 175,000 Salesmen’s commission 650,000 Depreciation (5) 425,000 Officers’ salaries 500,000 Other expenses (6) 100,000 6,850,000Income before tax 1,250,000Income tax ( 250,000)Net income 1,000,000

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Gross sales 7,850,000Sales returns and allowances ( 140,000)Sales discounts ( 10,000)Net sales revenue 7,700,000


Rental income 250,000Dividend revenue 150,000Total other income 400,000

Note 3 – Increase in inventory

Inventory, December 31 1,500,000Inventory, January 1 1,000,000Increase in inventory 500,000

Note 4 – Net purchases

Purchases 5,250,000Freight in 500,000Purchase returns and allowances ( 150,000)Purchase discounts ( 100,000)Net purchases 5,500,000

Note 5 – Depreciation

Depreciation – store equipment 125,000Depreciation – office equipment 300,000Total 425,000

Note 6 – Other expenses

Loss on sale of equipment 50,000Loss on sale of investment 50,000Total 100,000

17Problem 2-7

Masay CompanyStatement of Cost of Goods Manufactured

Year Ended December 31, 2008

Raw materials – January 1 200,000Purchases 3,000,000Raw materials available for use 3,200,000Less: Raw materials – December 31 280,000Raw materials used 2,920,000Direct labor 950,000Factory overhead: Indirect labor 250,000 Superintendence 210,000 Light, heat and power 320,000

Rent – factory building 120,000 Repair and maintenance – machinery 50,000 Factory supplies used 110,000 Depreciation – machinery 60,000 1,120,000Total manufacturing cost 4,990,000Goods in process – January 1 240,000Total Cost of goods in process 5,230,000Less: Goods in process – December 31 170,000Cost of goods manufactured 5,060,000

Cost of sales method

Masay CompanyIncome Statement


NoteNet sales revenue (1) 7,450,000Cost of goods sold (2) (5,120,000)Gross income 2,330,000Other income (3) 210,000Total income 2,540,000Expenses: Selling expenses (4) 830,000 Administrative expenses (5) 590,000 Other expense (6) 300,000 1,720,000Income before tax 820,000Income tax expense ( 320,000)Net income 500,000

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Sales 7,500,000Sales returns and allowances ( 50,000)Net sales revenue 7,450,000

Note 2 – Cost of goods sold

Finished goods – January 1 360,000Cost of goods manufactured 5,060,000Goods available for sale 5,420,000Finished goods – December 31 ( 300,000)Cost of goods sold 5,120,000


Gain from expropriation 100,000Interest income 10,000Gain on sale of equipment 100,000

210,000Note 4 – Selling expenses

Sales salaries 400,000Advertising 160,000Depreciation – store equipment 70,000Delivery expenses 200,000Total 830,000

Note 5 – Administrative expenses Office salaries 150,000Depreciation – office equipment 40,000Accounting and legal fees 150,000Office expenses 250,000Total 590,000

Note 6 – Other expense

Earthquake loss 300,000

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Nature of expense method

Masay CompanyIncome Statement


NoteNet sales revenue (1) 7,450,000Other income (2) 210,000Total income 7,660,000Expenses: Decrease in finished goods and goods in process (3) 130,000 Raw materials used (4) 2,920,000 Direct labor 950,000 Factory overhead (5) 1,120,000 Salaries (6) 550,000 Advertising 160,000 Depreciation (7) 110,000 Delivery expenses 200,000 Accounting and legal fees 150,000 Office expenses 250,000 Other expense (8) 300,000 6,840,000Income before tax 820,000Income tax expense ( _320,000)Net income 500,000


Sales 7,500,000Sales returns and allowances ( 50,000)Net sales revenue 7,450,000


Gain from expropriation 100,000Interest income 10,000 Gain on sale of equipment 100,000

210,000Note 3 – Decrease in finished goods and goods in process

January 1 December 31 DecreaseFinished goods 360,000 300,000 60,000Goods in process 240,000 170,000 70,000Total 600,000 470,000 130,000

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Note 4 – Raw materials used Raw materials – January 1 200,000Purchases 3,000,000Raw materials available for use 3,200,000Raw materials – December 31 280,000Raw materials used 2,920,000

Note 5 – Factory overhead

Indirect labor 250,000Superintendence 210,000Light, heat and power 320,000Rent – factory building 120,000Repair and maintenance – machinery 50,000Factory supplies used 110,000Depreciation – machinery 60,000Total 1,120,000

Note 6 – Salaries

Sales salaries 400,000Office salaries 150,000Total 550,000

Note 7 – Depreciation

Depreciation – store equipment 70,000Depreciation – office equipment 40,000Total 110,000


Earthquake loss 300,000

Problem 2-8 Youth Company

Income StatementYear ended December 31, 2008

NoteNet sales revenue (1) 8,870,000Cost of goods sold (2) (5,900,000)Gross income 2,970,000Expenses: Selling expenses (3) 690,000 Administrative expenses (4) 580,000 Other expense (5) 340,000 1,610,000Income before tax 1,360,000Income tax expense ( 360,000)Net income 1,000,000

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Sales 9,070,000 Sales returns and allowances ( 200,000)Net sales revenue 8,870,000


Beginning inventory 1,500,000Purchases 5,750,000Transportation in 150,000Purchase discounts ( 100,000) 5,800,000Goods available for sale 7,300,000Ending inventory (1,400,000)Cost of goods sold 5,900,000

Note 3 – Selling expenses

Depreciation – store equipment 110,000Store supplies 80,000Sales salaries 500,000Total 690,000


Officers’ salaries 400,000Depreciation – building 120,000Office supplies 60,000Total 580,000


Uninsured flood loss 340,000

22Problem 2-9

Christian CompanyStatement of Cost of Goods Manufactured


Purchases 1,600,000Freight in 80,000Total 1,680,000Increase in raw materials ( 100,000)Raw materials used 1,580,000Direct labor 1,480,000Factory overhead: Indirect labor 600,000 Depreciation – machinery 50,000 Factory taxes 130,000 Factory supplies expense 120,000 Factory superintendence 480,000 Factory maintenance 150,000 Factory heat, light and power 220,000 1,750,000Total manufacturing cost 4,810,000Decrease in goods in process 90,000Cost of goods manufactured 4,900,000

Christian CompanyIncome Statement


NoteSales revenue 8,000,000Cost of goods sold (1) (5,100,000)Gross income 2,900,000Expenses: Selling expenses (2) 800,000 Administrative expenses (3) 930,000 1,730,000Income before tax 1,170,000Income tax expense ( 170,000)Net income 1,000,000


Cost of goods manufactured 4,900,000Decrease in finished goods 200,000Cost of goods sold 5,100,000

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Note 2 – Selling expenses

Sales salaries 520,000

Advertising 120,000

Delivery expense 160,000

Total 800,000


Office supplies expense 30,000Office salaries

800,000Doubtful accounts

100,000Total

930,000

Problem 2-10

Ronald CompanyStatement of Cost of Goods Manufactured


Materials – January 1 1,120,000Purchases 1,600,000Freight on purchases 220,000Purchase discounts ( 20,000) 1,800,000Materials available for use 2,920,000

Less: Materials – December 31 1,560,000Materials used 1,360,000Direct labor 2,000,000Factory overhead: Heat, light and power 600,000 Repairs and maintenance 100,000 Indirect labor 360,000 Other factory overhead 340,000 Factory supplies used (300,000 + 660,000 – 540,000) 420,000 Depreciation – factory building 280,000 2,100,000Total manufacturing cost 5,460,000Goods in process – January 1 360,000Total cost of goods in process 5,820,000Less: Goods in process – December 31 320,000Cost of goods manufactured 5,500,000

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Ronald CompanyIncome Statement


Note

Net sales revenue (1) 6,980,000

Cost of goods sold (2) (5,400,000)Gross income 1,580,000 Other income (3) 160,000

Total income 1,740,000 Expenses: Selling expenses 200,000 Administrative expenses 340,000 540,000

Income before tax 1,200,000

Income tax expense ( 200,000)Net income 1,000,000


Sales 7,120,000 Sales returns and allowances ( 140,000) Net sales revenue 6,980,000


Finished goods – January 1 420,000 Cost of goods manufactured 5,500,000 Goods available for sale 5,920,000 Finished goods – December 31 ( 520,000) Cost of goods sold 5,400,000


Interest revenue 160,000

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Problem 2-11

Reliable CompanyStatement of Retained EarningsYear Ended December 31, 2008

Retained earnings – January 1 200,000Prior period error – overdepreciation in 2007 100,000Change in accounting policy from FIFO to weighted average method – credit adjustment 150,000Corrected beginning balance 450,000Net income 1,300,000Decrease in appropriation for treasury share 200,000 Total 1,950,000Cash dividends paid to shareholders ( 500,000)Current appropriation for contingencies ( 100,000) Retained earnings – December 31 1,350,000

Problem 2-12

Net income 3,000,000Loss from fire ( 50,000)Goodwill impairment ( 250,000)Loss on sale of equipment ( 200,000)Gain on retirement of bonds payable 100,000Gain on life insurance settlement 450,000Adjusted net income 3,050,000

Gondola CompanyStatement of Retained EarningsYear ended December 31, 2008

Balance – January 1 2,600,000Compensation of prior period not accrued ( 500,000)Correction of prior period error – credit 400,000Adjusted beginning balance 2,500,000Net income – adjusted 3,050,000Stock dividend ( 700,000)Loss on retirement of preference share ( 350,000)Appropriated for treasury share (1,000,000)Balance – December 31 3,500,000

26CHAPTER 3

Problem 3-1 Problem 3-2

1. D 6. D 1. D 6. D2. A 7. B 2. D 7. D3. A 8. C 3. C 8. B4. C 9. C 4. A 9. D5. B 10. A 5. C 10. B

Problem 3-3

a. Undeposited collections 60,000 Cash in bank – PCIB 500,000 Cash in bank – PCIB (for payroll) 150,000 Cash in bank - PCIB (savings deposit) 100,000

Money market instrument – 90 days 2,000,000 Total cash and cash equivalents 2,810,000

b. Accounts receivable (15,000 + 25,000) 40,000 Cash in foreign bank 100,000 Advances to officers 30,000 Sinking fund cash 450,000 Trading securities 120,000

Bank overdraft 50,000Cash 690,000

Problem 3-4

Adjusting entries on December 31, 2008

a. Cash 100,000Accounts payable 100,000

b. Cash 50,000Accounts payable 50,000

c. Accounts receivable 200,000Cash 200,000

d. Accounts receivable (20,000 + 60,000 + 30,000) 110,000 Money market placement 1,000,000 Cash in closed bank 50,000 Advances to employee 30,000 Pension fund 400,000

Cash 1,590,000

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Cash and cash equivalents:Demand deposit (see below) 1,450,000Time deposit – 30 days

500,000Petty cash fund 10,000Total 1,960,000

Demand deposit per book 1,500,000 Undelivered check 100,000 Postdated check delivered 50,000 Window dressing of collection ( 200,000) Adjusted balance 1,450,000

Problem 3-5

1. Cash on hand 500,000 Postdated check (100,000)

Adjusted cash on hand 400,000

2. Petty cash fund 20,000 Unreplenished petty cash expenses ( 2,000) Postdated employee check ( 3,000) Adjusted petty cash 15,000

3. Security Bank current account 1,000,000 Postdated company check delivered 200,000 Adjusted balance 1,200,000

4. Cash on hand 400,000 Petty cash fund 15,000 Security Bank current account 1,200,000 PNB current account No. 1 400,000 PNB current account No. 2 ( 50,000) BSP Treasury bill – 60 days 3,000,000 Total cash and cash equivalents 4,965,000

*The BPI Time deposit of P2,000,000 is shown as noncurrent investment because it is restricted for land acquisition.

5. Accounts receivable 100,000Cash on hand 100,000

Expenses 2,000 Receivable from employee 3,000

Petty cash fund 5,000

Security Bank current account 200,000Accounts payable 200,000

28Problem 3-6

1. Cash on hand 500,000 NSF customer check ( 40,000) Postdated customer check ( 60,000) Adjusted on hand 400,000

2. Currency and coins 1,000 Check drawn payable to petty cashier 14,000 Adjusted petty cash 15,000

3. Cash in bank 2,000,000 Undelivered company check 100,000 Postdated company check delivered 150,000 Adjusted cash in bank

2,250,000

4. Accounts receivable (40,000 + 60,000) 100,000Cash on hand

100,000

Advances to employees 3,000 Cash short or over 2,000


Cash in bank (100,000 + 150,000) 250,000Accounts payable

250,000

Problem 3-7

1. Cash on hand 200,000 NSF customer check ( 35,000) Postdated customer check ( 15,000) Adjusted cash on hand 150,000

2. Petty cash fund:Currency and coins 5,000

3. Philippine Bank current account 5,000,000 Undelivered company check 25,000 Postdated company check delivered 45,000 Adjusted balance 5,070,000

4. Cash on hand 150,000 Petty cash fund 5,000 Philippine Bank current 5,070,000 Manila Bank current 4,000,000 Asia Bank time deposit 2,000,000 Total cash and cash equivalent 11,225,000

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5. Accounts receivable 50,000Cash on hand

50,000

Receivable from officer 2,000 Expenses 12,000 Cash short or over 1,000

Petty cash 15,000

Philippine Bank current 70,000Accounts payable 70,000

City Bank current100,000

Bank overdraft

100,000

Problem 3-8

Fluctuating Fund System Imprest Fund System

1. Petty cash fund 10,000 1. Petty cash fund 10,000Cash in bank 10,000 Cash in bank 10,000

2. Postage 1,500 2. No entry Supplies 5,500 Transportation 1,200 Miscellaneous expense 800


3. Petty cash fund 14,000 3. Petty cash fund 5,000Cash in bank 14,000 Postage 1,500

Supplies 5,500 Transportation 1,200

Miscellaneous expense 800 Cash in bank 14,000

Problem 3-9


1. Petty cash fund 10,000 1. Petty cash fund 10,000Cash in bank 10,000 Cash in bank 10,000

2. Postage 1,500 2. No entry Supplies 2,000 Petty cash fund 3,500

3. No entry3. Transportation 1,000 Miscellaneous expense 500

Cash in bank 1,500 4. No entry

30


4. Supplies 1,000 Accounts payable 3,000 5. Postage 1,500 Petty cash fund 4,000 Supplies 3,000

Transportation 1,0005. Petty cash fund 9,000 Miscellaneous expense 500 Cash in bank 9,000 Accounts payable 3,000

Cash in bank 9,0006. Postage 2,000 Supplies 3,000 6. No entry Transportation 4,000 Petty cash fund 9,000 7. Petty cash fund 10,000

Postage 2,0007. Petty cash fund 19,000 Supplies 3,000 Cash in bank 19,000 Transportation 4,000

Cash in bank 19,000

Problem 3-10Fluctuating Fund System Imprest Fund System

May 2 Petty cash fund 10,000 May 2 Petty cash fund 10,000 Cash in bank 10,000 Cash in bank 10,000

29 Postage 1,000 29 Postage 1,000 Supplies 3,000 Supplies

3,000 Transportation 2,500 Transportation 2,500 Miscellaneous expense 1,500 Miscellaneous expense 1,500

Petty cash fund 8,000 Petty cash fund 8,000

Petty cash fund 8,000 Cash in bank

8,000

June 30 Supplies 2,000 June 30 Supplies 2,000 Accounts payable 1,000 Accounts payable 1,000 Transportation 1,000 Transportation 1,000

Petty cash fund 4,000 Petty cash fund 4,000

July 1 Petty cash fund 4,000 Supplies 2,000 Postage 1,000 Transportation 1,000

To reverse the adjustment made on June 30.

15 Petty cash fund 5,000 July 15 Supplies 1,500

Supplies 3,500 Postage 500 Postage 1,500 Transportation 500 Transportation 1,500 Miscellaneous expense 500 Miscellaneous expense 500 Petty cash fund 3,000

Cash in bank 12,000Petty cash fund 12,000 Cash in bank 12,000

31Problem 3-11

2008Nov. 2 Petty cash fund 10,000

Cash in bank 10,000

30 Postage 2,000 Supplies 5,000 Petty cash fund 10,000

Cash in bank 17,000

Dec. 31 Postage 3,000 Supplies 4,000 Special deposit 2,000


2009Jan. 1 Petty cash fund 9,000

Postage 3,000Supplies 4,000Special deposit 2,000

2 No entry

31 Postage 5,000 Supplies 6,000 Accounts payable 7,000 Cash short or over 1,000

Cash in bank 19,000

Problem 3-12Requirement 1

2008Dec. 1 Petty cash fund 10,000

Cash in bank 10,000

20 Selling expenses 5,000 Miscellaneous expenses 2,000 Equipment 2,000

Cash in bank 9,000

31 Receivable from employee 2,000 Selling expenses 1,500 Transportation 500


Jan. 1 Petty cash fund 4,000Receivable from employee 2,000Selling expenses 1,500Transportation 500

322009Jan. 15 No entry

31 Selling expenses 2,000 Administrative expenses 2,000 Transportation 1,500 Purchases 1,200

Cash in bank 6,700

Requirement 2

Petty cash 10,000Less: Petty cash expenses from December 21, 2008 to January 31, 2009:

Selling expenses (1,500 + 500) 2,000Administrative expenses 2,000Transportation (500 + 1,000) 1,500Purchases 1,200 6,700

Petty cash before replenishment 3,300

Problem 3-13 Answer B Problem 3-14 Answer C

Problem 3-15 Answer A Problem 3-16 Answer A

Petty cash fund 50,000 Payroll account 2,500,000Undeposited collections 1,100,000 Value added tax account 1,000,000Cash in bank 2,500,000 Traveler’s check 300,000Total 3,650,000 Money order 700,000

Petty cash fund 40,000Total 4,540,000

Problem 3-17 Answer C

Checking account #101 1,750,000Checking account #201 ( 100,000)Time deposit account 250,00090-day Treasury bill 500,000Total cash and cash equivalent 2,400,000

Problem 3-18 Answer B

Cash in First Bank 5,000,000 Change fund 50,000Petty cash fund 15,000Total 5,065,000


Cash balance per book 6,000,000Credit adjustment (1,600,000)Adjusted cash balance 4,400,000

33

Note receivable 1,000,000Accounts receivable (400,000 + 200,000) 600,000

Cash 1,600,000

Problem 3-20 Answer A

Checkbook balance 8,000,000Postdated customer check (2,000,000)NSF check ( 500,000)Undelivered company check 1,500,000Adjusted balance 7,000,000


Cash on hand 2,400,000Cash in bank 3,500,000Petty cash 40,000Saving deposit 2,000,000Total deposit 7,940,000

Problem 3-22 Answer B Problem 3-23 Answer A Problem 3-24 Answer A Problem 3-25 Answer A

Cash on hand and in bank 5,000,000Time deposit 6,000,000Saving deposit 1,000,000Total 12,000,000


Currencies 4,000 Coins 1,000Accommodation check 6,000Total 11,000


Coins and currency 2,000Replenishment check 4,000Total 6,000


Total petty cash 10,000Currency and coins ( 3,000)Amount of replenishment 7,000

34

CHAPTER 4

Problem 4-1

1. D 6. C 11. C2. A 7. D 12. B3. B 8. C 13. A4. C 9. A 14. C5. C 10. B 15. C

Problem 4-2

Balance per book 65,000 Add: CM for note collected 30,000 Total 95,000 Less: DM for service charge 2,000 Adjusted book balance 93,000 Balance per bank 108,000 Add: Deposit in transit 80,000 Total 188,000Less: Outstanding checks: No. 102 15,000 105 30,000 107 50,000 95,000 Adjusted bank balance 93,000 Adjusting entries: 1. Cash in bank 30,000 Note receivable 30,000

2. Bank service charge 2,000 Cash in bank 2,000

Problem 4-3

Balance per book 110,000 Add: CM for note collected

45,000 Total 155,000 Less: DM for service charge 5,000

NSF check 10,000

Book error (52,000 – 25,000) 27,000 42,000 Adjusted book balance 113,000

35

Balance per bank 135,000 Add: Deposit in transit 60,000Erroneous bank debit 8,000 68,000Total 203,000Less: Outstanding checks: No. 770 20,000

775 30,000 777 40,000 90,000 Adjusted bank balance 113,000 Adjusting entries:

1. Cash in bank 45,000 Bank service charge 5,000 Note receivable 50,000

2. Bank service charge 5,000 Accounts receivable 10,000 Accounts payable 27,000 Cash in bank 42,000 Problem 4-4

Balance per book 2,840,000Add: CM for note collected 270,000 Total 3,110,000Less: DM for service charge 5,000Adjusted book balance 3,105,000

Balance per bank 3,265,000 Add: Deposit in transit 450,000Total 3,715,000Less: Outstanding checks: No. 116 60,000

122 180,000

124 120,000 125 250,000 610,000 Adjusted bank balance 3,105,000

Adjusting entries:

1. Cash in bank 270,000 Bank service charge 10,000

Note receivable 250,000Interest income 30,000

2. Bank service charge 5,000Cash in bank 5,000

36

Problem 4-5

Balance per book 5,000,000 Add: Note collected by bank 2,150,000Total 7,150,000 Less: Bank service charge 50,000

NSF check 500,000 550,000

Adjusted book balance 6,600,000Balance per bank 4,450,000 Deposit in transit 3,000,000 Total 7,450,000Less: Outstanding checks 850,000Adjusted bank balance 6,600,000

Adjusting entries:

1. Cash in bank 2,150,000 Bank service charge 50,000

Note receivable 2,000,000

Interest income 200,000

2. Bank service charge 50,000 Accounts receivable 500,000

Cash in bank 550,000

Problem 4-6

Book balance 1,405,000Add: Collection of note 2,500,000 Interest on note 150,000 Book error on check no. 175 45,000 2,695,000Total 4,100,000Less: Bank service charge 5,000 Payment for light and water 245,000 NSF check 220,000 470,000Adjusted book balance 3,630,000

Bank balance 5,630,000Add: Deposit in transit 750,000Total 6,380,000Less: Bank error 1,100,000 Outstanding checks 1,650,000 2,750,000

Adjusted bank balance 3,630,000

37

Adjusting entries:

1. Cash in bank 2,695,000 Note receivable 2,500,000 Interest income 150,000 Accounts payable 45,000

2. Bank service charge 5,000 Light and water 245,000 Accounts receivable 220,000 Cash in bank 470,000

Problem 4-7

a. Balance per book – April 30 1,100,000 Credit memo for note collected 60,000 Outstanding checks: No. 1331 40,000 1332 30,000 1334 60,000 1335 10,000 140,000 Total 1,300,000 Less: Bank service charge 5,000 NSF check 25,000 Undeposited collections 270,000 300,000 Balance per bank – April 30 1,000,000

b. Adjusting entries:

1. Cash in bank 60,000 Note receivable 60,000

2. Bank service charge 5,000 Accounts receivable 25,000 Cash in bank 30,000

c. Balance per book – April 30 1,100,000 CM for note collected 60,000 Bank service charge ( 5,000) NSF check ( 25,000) Adjusted cash in bank 1,130,000

38

Problem 4-8

a. Balance per bank 3,500,000 Add: Undeposited collections 550,000 NSF check 50,000 DM for safety deposit 5,000 Unrecorded check 125,000 730,000 Total 4,230,000 Less: Checks outstanding 650,000 Overstatement of creditor’s check 270,000 Understatement of customer’s check 180,000 1,100,000 Balance per book 3,130,000

b. Adjusting entries:

1. Cash in bank 450,000 Accounts payable 270,000 Accounts receivable 180,000

2. Accounts receivable 50,000 Bank service charge 5,000 Accounts payable 125,000

Cash in bank 180,000

c. Balance per book 3,130,000 Overstatement of creditor’s check 270,000 Understatement of customer’s check 180,000 Total 3,580,000 Less: NSF check 50,000 DM for safety box 5,000 Unrecorded check 125,000 180,000 Adjusted book balance 3,400,000

Problem 4-9

Balance per book 2,700,000Add: Proceeds of bank loan 940,000 Note collected by bank 435,000 1,375,000Total 4,075,000Less: Service charge 10,000 Customer’s check charged back 50,000 60,000Adjusted book balance 4,015,000

39

Balance per bank 4,000,000Add: Deposit in transit 475,000 Incorrect deposit 90,000 Erroneous bank charge 150,000 Erroneous debit memo 200,000 915,000Total 4,915,000Less: Outstanding checks 600,000

Erroneous bank credit 300,000 900,000Adjusted bank balance 4,015,000

Adjusting entries:

1. Cash in bank 1,375,000 Bank service charge 5,000 Interest expense (60,000 x 1/6) 10,000 Prepaid interest expense 50,000 Loan payable (940,000/94%) 1,000,000 Note receivable 400,000 Interest income 40,000


Problem 4-10

Balance per book (squeeze) 2,120,000Add: Proceeds of bank loan 500,000 Proceeds of note collected 435,000 935,000Total 3,055,000Less: Bank service charge 5,000 NSF check 50,000 55,000 Adjusted book balance 3,000,000

Balance per bank (squeeze) 3,070,000Add: Deposit in transit 450,000 Bank error (200,000 – 20,000) 180,000 630,000Total 3,700,000Less: Outstanding checks (750,000 – 50,000) 700,000Adjusted bank balance 3,000,000

Adjusting entries:

Cash in bank 880,000Bank service charge (5,000 + 15,000) 20,000Accounts receivable 50,000 Loan payable 500,000 Notes receivable 400,000 Interest income 50,000

40

Problem 4-11

Balance per book 5,000,000Add: Proceeds of bank loan 516,000Total 5,516,000Less: Understatement of check in payment of account (200,000 – 20,000) 180,000 Petty cash fund 10,000 190,000Adjusted book balance 5,326,000

Balance per bank 5,500,000Add: Undeposited collections 300,000 Erroneous bank charge 50,000 Deposit omitted from bank statement 150,000 500,000Total 6,000,000Less: Erroneous bank credit 130,000 Outstanding checks 544,000 674,000Adjusted bank balance 5,326,000

Adjusting entries:

Cash in bank 326,000Interest expense (84,000 x 2/12) 14,000Prepaid interest expense 70,000Accounts payable 180,000Petty cash fund 4,000Supplies 2,000Transportation 3,000Postage 1,000 Loan payable (516,000/86%) 600,000

Problem 4-12

Balance per book 1,300,000Add: Overstatement of check number 765 20,000 Check number 555 stopped for payment 10,000 30,000Total 1,330,000Less: Service charge 5,000 NSF check 85,000 90,000Adjusted book balance 1,240,000

Balance per bank 1,200,000Add: Undeposited collections 275,000Total 1,475,000Less: Outstanding checks: Number 761 55,000 762 40,000

763 25,000 764 65,000

765 50,000 235,000

Adjusted bank balance 1,240,000

41Adjusting entries:

1. Cash in bank 30,000 Accounts payable 20,000 Miscellaneous income 10,000


3. Receivable from cashier 40,000 Accounts receivable 30,000 Sales discounts 10,000

Problem 4-13

a. Bank reconciliation – June 30

Book balance 1,000,000 Add: Credit memo for note collected 300,000 Total 1,300,000 Less: NSF check 100,000 Service charge 4,000 104,000 Adjusted book balance 1,196,000

Bank balance 1,650,000 Add: Deposit in transit 400,000 Total 2,050,000 Less: Outstanding checks 854,000 Adjusted bank balance 1,196,000

Bank reconciliation – July 31

Book balance 1,400,000 Add: Credit memo for bank loan 500,000 Total 1,900,000 Less: Service charge 1,000 Adjusted book balance 1,899,000

Bank balance 2,650,000 Add: Deposit in transit 1,100,000

Total 3,750,000 Less: Outstanding checks 1,851,000 Adjusted bank balance 1,899,000

b. Adjusting entries, July 31

1. Cash in bank 500,000

Bank loan payable 500,000

42

2. Bank service charge 1,000Cash in bank 1,000

Computation of deposit in transit – July 31

Deposit in transit – June 30 400,000Add: Deposits during July: Book debits 4,000,000 Less: June credit memo for note collected 300,000 3,700,000Total 4,100,000Less: Deposits credited by bank during July: Bank credits 3,500,000 Less: July credit memo for bank loan 500,000 3,000,000Deposit in transit – July 31 1,100,000

Computation of outstanding checks – July 31

Outstanding checks, June 30 854,000Add: Checks drawn by company during July: Book credits 3,600,000 Less: June debit memos for NSF check 100,000 Service charge 4,000 104,000 3,496,000Total 4,350,000Less: Checks paid by bank during July: Bank debits 2,500,000 Less: July service charge 1,000 2,499,000Outstanding checks, July 31 1,851,000

Problem 4-14

a. Reconciliation – October 31

Adjusted book balance 600,000

Bank balance 400,000 Add: Deposit in transit 300,000 Total 700,000

Less: Outstanding checks 100,000 Adjusted bank balance 600,000

Reconciliation – November 30

Book balance 1,000,000 Add: Understatement of collection from customer 90,000 Total 1,090,000 Less: Understatement of check disbursement 270,000 Adjusted book balance 820,000

43

Bank balance 930,000 Add: Deposit in transit 190,000 Check of Susan Company charged in error 200,000 390,000 Total 1,320,000 Less: Outstanding checks 400,000 Deposit of Susan Company erroneously credited 100,000 500,000 Adjusted bank balance 820,000

b. Adjusting entries – November 30

1. Cash in bank 90,000 Accounts receivable 90,000

2. Accounts payable 270,000 Cash in bank 270,000

Computation of outstanding checks – October 31

Outstanding checks – October 31 (squeeze) 100,000Add: Checks issued by depositor: Book disbursements 1,800,000 Understatement of check paid 270,000 2,070,000Total 2,170,000Less: Checks paid by bank: Bank disbursements 1,970,000 Check of Susan Company charged in error ( 200,000) 1,770,000Outstanding checks – November 30 400,000

Computation of deposit in transit – November 30

Deposit in transit – October 31 300,000Add: Cash receipts deposited during November: Book receipts 2,200,000 Understatement of collection from customer 90,000 2,290,000Total 2,590,000Less: Deposits credited by bank during November: Bank receipts 2,500,000 Deposit of Susan Company erroneously credited ( 100,000)

2,400,000Deposit in transit – November 30 190,000

Problem 4-15

a. Reconciliation on July 1

Adjusted book balance 1,270,000

44

Bank balance 1,720,000 Add: Deposit in transit 500,000 Total 2,220,000 Less: Outstanding checks 950,000 Adjusted bank balance 1,270,000

Reconciliation on July 31

Book balance 470,000 Add: Note collected by bank 1,500,000 Total 1,970,000 Less: Bank service charge 20,000 Adjusted book balance 1,950,000

Bank balance 2,700,000 Add: Deposit in transit 400,000 Total 3,100,000 Less: Outstanding checks: Check # 107 650,000 108 500,000 1,150,000 Adjusted bank balance 1,950,000

b. Adjusting entries on July 31

1. Cash in bank 1,500,000 Note receivable 1,500,000

2. Bank service charge 20,000 Cash in bank 20,000

Computation of deposit in transit – July 1

Deposit in transit – July 1 (squeeze) 500,000Cash receipts per book 3,400,000Total 3,900,000Less: Deposits credited by bank 3,500,000Deposit in transit – July 31 400,000

Computation of outstanding checks – July 1

Outstanding checks – July 1 (squeeze) 950,000Checks drawn by depositor 4,200,000Total 5,150,000Less: Checks paid by bank 4,000,000Outstanding checks – July 31 1,150,000

45

Problem 4-16

Balance per book – November 30 500,000Less: Service charge 10,000 NSF check 50,000 Customer’s note erroneously recorded as cash receipt 100,000 160,000Adjusted book balance 340,000

Balance per bank – November 30 600,000Add: Deposit in transit 120,000

Total 720,000Less: Outstanding checks 380,000Adjusted bank balance 340,000

Deposit in transit – October 31 45,000Cash receipts deposited: Book debits 710,000 October collections recorded in November ( 45,000) Customer’s note recorded as cash receipt (100,000) 565,000Total 610,000Less: Deposits credited by bank: Bank credits 500,000 Correction of bank error ( 10,000) 490,000Deposit in transit – November 30 120,000

Outstanding checks – October 31 125,000Checks issued by depositor: Book credits 1,200,000 October bank service charge ( 5,000) 1,195,000Total 1,320,000Checks paid by bank: Bank debits 1,000,000 November bank service charge ( 10,000) November NSF check ( 50,000) 940,000Outstanding checks – November 30 380,000

Adjusting entry:

Bank service charge 10,000Accounts receivable 50,000Note receivable 100,000 Cash in bank 160,000

46

Problem 4-17

March 31 Receipts Disbursements April 30Book balance 200,000 800,000 720,000 280,000Note collected by bank March 60,000 ( 60,000) April 100,000 100,000Service charge March ( 8,000) ( 8,000) April 2,000 ( 2,000)

NSF check March ( 20,000) ( 20,000) April 30,000 ( 30,000)Deposit in transit March 31 ( 80,000) 80,000 April 30 (220,000) (220,000)Outstanding checks March 31 178,000 178,000 April 30 (372,000) 372,000Bank balance 330,000 700,000 530,000 500,000

Problem 4-18

July 31 Receipts Disbursements August 31Bank balance 800,000 5,000,000 3,940,000 1,860,000Book error on collection ( 180,000) ( 180,000)Book error on payment ( 540,000) 540,000Bank error on deposit ( 200,000) ( 200,000)Bank error on payment ( 400,000) 400,000NSF check: July 100,000 100,000 August ( 50,000) 50,000Note collected by bank: July ( 200,000) 200,000 August ( 300,000) ( 300,000)Deposit in transit: July 600,000 ( 600,000) August 480,000 480,000Outstanding checks: July ( 100,000) ( 100,000) August 650,000 ( 650,000) Book balance 1,200,000 4,400,000 3,600,000 2,000,000

47

Problem 4-19

Nov. 30 Receipts Disbursements Dec. 31

Book balance 2,032,000 2,568,000 1,440,000 3,160,000Bank service charge November 30 ( 2,000) ( 2,000) December 31 4,000 ( 4,000)Collection of note November 30 ( 200,000) 200,000 December 31 ( 300,000) ( 300,000)Adjusted book balance 1,830,000 2,468,000 1,442,000 2,856,000

Bank balance 1,890,000 2,090,000 1,080,000 2,900,000Outstanding checks November 30 ( 180,000) ( 180,000) December 31 592,000 ( 592,000)Deposit in transit November 30 80,000 ( 80,000) December 31 498,000 498,000Check erroneously charged by bank November 30 40,000 ( 40,000) December 31 ( 50,000) 50,000Adjusted bank balance 1,830,000 2,468,000 1,442,000 2,856,000

Adjusting entry:

Bank service charge 4,000Note receivable 300,000 Cash in bank 304,000

48

Problem 4-20

Sept. 30 Receipts Disbursements Oct. 31

Book balance 1,900,000 1,400,000 2,400,000 900,000NSF check: September 30 ( 60,000) ( 60,000) October 31 40,000 ( 40,000)Collection of accounts receivable September 30 30,000 ( 30,000) October 31 50,000 50,000Overstatement of check September 30 90,000 ( 90,000) October 31 ________ ( 120,000) 120,000Adjusted balance 1,960,000 1,330,000 2,260,000 1,030,000

Bank balance 2,100,000 1,200,000 2,500,000 800,000Deposit in transit September 30 130,000 ( 130,000) October 31 260,000 260,000Outstanding checks September 30 ( 270,000) ( 270,000) October 31 30,000 ( 30,000)Adjusted balance 1,960,000 1,330,000 2,260,000 1,030,000

Adjusting entries on October 31

1. Accounts receivable 40,000 Cash in bank 40,000

2. Cash in bank 170,000 Accounts receivable 50,000 Salaries 120,000

49

Problem 4-21 May 31 Receipts Disbursements

June 30

Balance per book 2,500,000 5,300,000 5,400,000 2,400,000Bank service charge: May 31 ( 20,000) ( 20,000) June 30 25,000 ( 25,000)NSF check: June 30 200,000 ( 200,000)Interest collected: June 30 75,000 75,000Book error: June 30 _________ ( 300,000) 300,000Adjusted balance 2,480,000 5,375,000 5,305,000 2,550,000

Balance per bank 2,700,000 5,500,000 5,600,000 2,600,000Deposit in transit May 31 625,000 ( 625,000) June 30 500,000 500,000Outstanding checks May 31 ( 845,000) ( 845,000) June 30 550,000 ( 550,000)Adjusted balance 2,480,000 5,375,000 5,305,000 2,550,000

Adjusting entries on June 30:

1. Cash in bank 375,000 Interest income 75,000 Equipment 300,000



Balance per book 4,000,000 Bank charges ( 10,000) Customer note collected by bank 1,500,000

Interest on customer note 60,000NSF customer check ( 250,000) Depositor’s note charged to account (1,000,000)Adjusted book balance 4,300,000

50


Balance per bank 2,000,000Add: Deposit in transit 200,000Total 2,200,000Less: Outstanding checks 400,000 Erroneous bank credit 300,000 700,000 Adjusted bank balance 1,500,000

The adjusted cash in bank can also be computed by starting with the balance per book.

Balance per book 850,000Add: Proceeds of note collected 750,000 Total 1,600,000Less: NSF checks (150,000 – 50,000) 100,000Adjusted book balance 1,500,000 Problem 4-24 Answer C Balance per book 8,500,000 Note collected by bank 950,000 Book error (200,000 – 20,000) ( 180,000) NSF check ( 250,000) Bank service charge ( 20,000) Adjusted book balance 9,000,000




Problem 4-28 Answer D

Balance per ledger 3,750,000

Service charges ( 50,000)

Collection of note 1,500,000

Book error ( 100,000)

Unrecorded check for traveling expenses ( 500,000)Adjusted book balance 4,600,000

Balance per bank 6,200,000 Deposit in transit 1,400,000Total 7,600,000Outstanding checks (squeeze) 3,000,000Adjusted bank balance 4,600,000

51Problem 4-29 Answer B



Outstanding checks – May 31 3,000,000Checks issued by depositor in June: Total credits to cash in June 9,000,000 Service charge in May recorded in June ( 100,000) 8,900,000Total 11,900,000Checks paid by bank in June: Checks and charges by bank in June 8,000,000 Service charge in June ( 50,000) NSF check in June (1,000,000) 6,950,000Outstanding checks – June 30 4,950,000

Problem 4-32 Answer A Balance per book – June 30 2,100,000 Service charges ( 50,000) Collection by bank 550,000

NSF check ( 100,000) Adjusted book balance 2,500,000

Balance per bank – June 30 2,400,000Deposits outstanding – June 30 500,000 Checks outstanding – June 30 ( 400,000) Adjusted bank balance 2,500,000Outstanding checks – May 31 100,000Checks recorded by book in June 2,500,000Total 2,600,000 Less: Checks recorded by bank in June 2,200,000Outstanding checks – June 30 400,000

Deposits outstanding – May 31 300,000Deposits recorded by book in June 1,800,000Total 2,100,000Less: Deposits recorded by bank in June 1,600,000Deposits outstanding – June 30 500,000


Note collected 1,936,000Book error (1,930,000 – 1,390,000) ( 540,000)NSF check ( 840,000)Service charge ( 47,000)Net debt to cash 509,000

52




Balance per bank – November 30 3,600,000December deposits 5,500,000Total 9,100,000December disbursements (4,400,000)Balance per bank – December 31 4,700,000Deposit in transit – December 700,000Outstanding checks – December ( 500,000)Adjusted bank balance – December 31 4,900,000

Balance per book – December 31 (squeeze) 4,300,000Note collected by bank 1,000,000NSF check ( 350,000)Service charge ( 50,000)Adjusted book balance 4,900,000


Bank disbursements for July 9,000,000 Outstanding checks – June 30 (1,400,000) Outstanding checks – July 31

1,000,000 Book disbursements for July 8,600,000


Bank receipts for April 6,000,000Deposits in transit – March 31 (1,000,000)Deposits in transit – April 30 1,500,000Book receipts for April 6,500,000

53

CHAPTER 5

Problem 5-1 Problem 5-2Problem 5-3

1. D 6. A 1. A 6. A 1. D2. D 7. B 2. C 7. D 2. B3. D 8. C 3. A 8. C 3. C 4. B 9. A 4. A 9. C 4. D5. A 10. C 5. A 10. D 5. A

Problem 5-4

a. Accounts receivable 775,000 Notes receivable 100,000 Installments receivable 300,000 Advances to suppliers 150,000 Advances to subsidiary 400,000 Claim receivable 15,000 Subscriptions receivable 300,000 Accrued interest receivable 10,000

Customer’s credit balances 30,000Advances from customers 20,000Receivables 2,000,000

b. Accounts receivable 775,000 Allowance for doubtful accounts ( 50,000) Notes receivable 100,000 Installments receivable 300,000 Advances to suppliers 150,000 Claim receivable 15,000 Subscription receivable 300,000 Accrued interest receivable 10,000 Total trade and other receivables 1,600,000

c. The advances to subsidiary should be classified as noncurrent and presented as

long-term investment.

The customers’ credit balances and advances from customers should be classified as current liabilities and included as part of “trade and other payables”.

Problem 5-5

a. Accounts receivable – January 1 600,000 Charge sales 6,000,000 Total 6,600,000 Less: Collections from customers 5,300,000

Writeoff 35,000 Merchandise returns 40,000 Allowances to customers 25,000 5,400,000

Accounts receivable – December 31 1,200,000

54

b. Subscription receivable 150,000 Deposit on contract 120,000 Claim receivable 60,000 Advances to employees 10,000 Advances to affiliated 100,000 Advances to supplier 50,000

Accounts receivable490,000

c. Accounts receivable 1,200,000 Claim receivable 60,000 Advances to employees 10,000 Advances to supplier 50,000 Total trade and other receivables 1,320,000

d. The subscriptions receivable should be deducted from subscribed share capital.

The deposit on contract should be classified as noncurrent and presented as other noncurrent asset.

The advances to affiliates should be classified as noncurrent and presented as long-term investment.

Problem 5-6

Requirement 1

1. Accounts receivable 3,600,000Sales

3,600,000

2. Notes receivable 400,000Accounts receivable

400,000

3. Doubtful accounts 90,000Allowance for doubtful accounts

90,000

4. Allowance for doubtful accounts 20,000Accounts receivable

20,000

5. Sales return 15,000Accounts receivable

15,000

6. Cash 2,450,000Accounts receivable

2,450,000

7. Sales discount 45,000Accounts receivable

45,000

8. Cash 150,000Notes receivable

150,000

55

Requirement 2

Notes receivable 250,000

Requirement 3

Accounts receivable 670,000Less: Allowance for doubtful accounts 70,000Net realizable value 600,000

Problem 5-7

FOB destination and freight collect

1. Accounts receivable 500,000

Freight out 10,000Sales 500,000Allowance for freight charge 10,000

2. Cash 475,000 Sales discount 15,000 Allowance for freight charge 10,000

Accounts receivable 500,000

FOB destination and freight prepaid

1. Accounts receivable 500,000 Freight out 10,000

Sales 500,000Cash 10,000

2. Cash 485,000 Sales discount 15,000


FOB shipping point and freight collect

1. Accounts receivable 500,000Sales 500,000

2. Cash 485,000 Sales discount 15,000


FOB shipping point and freight prepaid

1. Accounts receivable 510,000Sales 500,000Cash 10,000

56 2. Cash 495,000 Sales discount 15,000


Problem 5-8

1. Accounts receivable 4,000,000Sales 4,000,000

2. Cash 1,470,000 Sales discount 30,000

Accounts receivable 1,500,000

3. Cash 1,000,000Accounts receivable 1,000,000

4. Sales return 100,000Accounts receivable 100,000

5. Sales return 40,000Allowance for sales return 40,000

Problem 5-9

Gross method Net method

July 1 Accounts receivable 50,000 July 1 Accounts receivable 49,000

Sales 50,000 Sales 49,000

2 Accounts receivable 200,000 2 Accounts receivable 196,000 Sales 200,000 Sales

196,000

12 Cash 196,000 12 Cash 196,000 Sales discount 4,000 Accounts receivable 196,000 Accounts receivable 200,000

30 Cash 50,000 30 Cash 50,000 Accounts receivable 50,000 Accounts receivable 49,000 Sales discount

forfeited 1,000

Problem 5-10

a. Credit sales (75% x 5,000,000) 3,750,000

Doubtful accounts (2% x 3,750,000) 75,000

Doubtful accounts 75,000Allowance for doubtful accounts

75,000

b. Doubtful accounts (1% x 5,000,000) 50,000Allowance for doubtful accounts

50,000

57

c. Required allowance 80,000 Less: Credit balance of allowance 20,000 Doubtful accounts expense 60,000

Doubtful accounts 60,000Allowance for doubtful accounts 60,000

d. Required allowance (10% x 500,000) 50,000

Less: Credit balance of allowance 20,000 Doubtful accounts expense 30,000


Problem 5-11

a. Required allowance (5% x 600,000) 30,000 Add: Debit balance in allowance account 10,000 Doubtful accounts expense 40,000


b. Required allowance 50,000 Add: Debit balance in allowance account 10,000 Doubtful accounts expense 60,000


c. Doubtful accounts (2% x 1,900,000) 38,000

Allowance for doubtful accounts 38,000

Problem 5-12

a. Doubtful accounts (3% x 8,000,000) 240,000Allowance for doubtful accounts 240,000

b. Doubtful accounts 170,000Allowance for doubtful accounts 170,000

Allowance – January 1 100,000 Doubtful accounts (squeeze) 170,000 Recovery 20,000 Total 290,000 Accounts written off 130,000 Allowance – December 31 (8% x 2,000,000) 160,000

c. Doubtful accounts 210,000Allowance for doubtful accounts 210,000

58

Allowance – January 1 100,000 Doubtful accounts (squeeze) 210,000 Recovery 20,000 Total 330,000 Accounts written off 130,000 Allowance – December 31 200,000

Problem 5-13

Requirement a

1. Accounts receivable 7,000,000Sales 7,000,000


Accounts receivable(2,450,000/98%) 2,500,000


4. Allowance for doubtful accounts 30,000Accounts receivable 30,000

5. Accounts receivable 10,000Allowance for doubtful accounts 10,000

Cash 10,000Accounts receivable 10,000


Requirement b


Rate = 40,000/1,000,000 = 4%

Allowance for doubtful accounts – December 31 (4% x 1,500,000) 60,000Less: Allowance before adjustment 20,000Doubtful accounts expense 40,000

Requirement c

Accounts receivable – December 31 1,500,000Allowance for doubtful accounts ( 60,000)Net realizable value 1,440,000

59

Problem 5-14

Requirement a

1. Cash 800,000

Accounts receivable 7,200,000Sales (800,000/10%) 8,000,000

2. Cash 684,000 Sales discount (5% x 720,000) 36,000

Accounts receivable(10% x 7,200,000) 720,000


4. Sales discount 10,000

Allowance for sales discount 10,000



Accounts receivable 10,000Allowance for doubtful accounts 10,000


7. Doubtful accounts 70,000Allowance for doubtful accounts 70,000

Required allowance – December 31 (5% x 2,400,000) 120,000 Less: Allowance before adjustment 50,000 Doubtful accounts 70,000

Rate = 100,000/2,000,000 = 5%

Requirement b

Accounts receivable 2,400,000Less: Allowance for doubtful accounts 120,000 Allowance for sales discount 10,000 130,000Net realizable value 2,270,000

60

Problem 5-15

Requirement a

1. Accounts receivable 2,600,000Sales (3,070,000 – 470,000) 2,600,000

2. Cash (2,455,000 – 1,455,000) 1,000,000Accounts receivable

1,000,000


Accounts receivable (1,455,000/97%) 1,500,000


5. Cash 470,000Sales 470,000

6. Sales return and allowances 55,000Accounts receivable 55,000

7. Sales return and allowances 10,000Cash 10,000

8. Accounts receivable 5,000Allowance for doubtful accounts 5,000



Credit sales 2,600,000 Less: Sales discount 45,000 Sales return and allowances 55,000 100,000 Net credit sales 2,500,000

Doubtful accounts (2,500,000 x 2%) 50,000

Requirement b

Accounts receivable 625,000Less: Allowance for doubtful accounts 60,000Net realizable value 565,000

61

Problem 5-16

1. Accounts receivable – Jan. 1 1,500,000 4,410,000/98% 4,500,000 Sales 7,935,000 Recovery 15,000 2,475,000/99% 2,500,000 Collections (8,000,000) Sales discount ( 115,000) Sales discount: Writeoff ( 55,000) 2% x 4,500,000 90,000 Sales return ( 30,000) 1% x 2,500,000 25,000 Accounts receivable – Dec. 31 1,250,000 115,000Problem 5-17

Percent of Required

Amount Uncollectible allowance1. Not yet due 1,700,000 - - 1 – 30 days past due 1,200,000 5% 60,000 31 – 60 days past due 100,000 25% 25,000 61 – 90 days past due 150,000 50% 75,000 Over 90 days past due 1,200,000 100% 120,000

3,270,000 280,000

2. Allowance – January 1 170,000 Receivables 30,000 Doubtful accounts expense (squeeze) 345,000 Total 545,000 Less: Writeoff (235,000 + 30,000) 265,000 Required allowance – December 31 280,000

3. Accounts receivable 3,270,000 Less: Allowance for doubtful accounts 280,000 Net realizable value 2,990,000

Problem 5-18

1. 1,000,000 x 1% 10,000 2. Allowance – January 1 90,000 400,000 x 5% 20,000 Recoveries 20,000 300,000 x 10% 30,000 Doubtful accounts (squeeze) 200,000 200,000 x 25% 50,000 Total 310,000 60,000 x 100% 60,000 Less: Writeoff (100,000 + 40,000) 140,000 1,960,000 170,000 Allowance – December 31 170,0003. Doubtful accounts 20,000

Allowance for doubtful accounts 20,000

Correct amount 200,000 Recorded (2% x 9,000,000) 180,000 Understatement 20,000

4. Accounts receivable – December 31 1,960,000 Less: Allowance for doubtful accounts 170,000 Net realizable value 1,790,000

62

Problem 5-19

2005 2006 2007 Total1. Writeoff 26,000 29,000 30,000 85,000 Less: Recoveries 2,000 3,000 4,000 9,000 Net writeoff 24,000 26,000 26,000 76,000

76,000 Percentage to be used in computing the allowance = ------------------- = 2%

3,800,000

2. Credit sales for 2008 3,000,000 Multiply by bad debt percentage 2% Provision for doubtful accounts 60,000

3. Accounts receivable – January 1, 2008 250,000 Add: Credit sales for 2008 3,000,000

Recoveries 5,000 3,005,000 Total 3,255,000 Less: Collections in 2008 2,615,000

Writeoff 40,000 2,655,000 Accounts receivable – December 31, 2008 600,000

4. Allowance for doubtful accounts – January 1 20,000 Add: Doubtful accounts for 2008 60,000 Recoveries 5,000 65,000 Total 85,000 Less: Writeoff 40,000 Allowance for doubtful accounts – December 31 45,000

Problem 5-20

1. Accounts receivable – December 31, 2007 600,000 Add: Sales for 2008 5,000,000

Recovery of accounts written off 10,000 5,010,000 Total 5,610,000 Less: Collection from customers 4,360,000

Accounts written off 50,000 Accounts settled by issuance of note 200,000 4,610,000

Accounts receivable – December 31, 2008 1,000,000

2. Allowance for doubtful accounts – December 31, 2007 30,000 Add: Recovery of accounts written off 10,000 Total 40,000 Less: Accounts written off 50,000 Allowance before adjustment – December 31, 2008 (debit balance) (10,000)

63

3. Required allowance – December 31, 2008On current accounts (700,000 x 5%)

35,000On past due accounts (300,000 x 20%) 60,000

Total 95,000

4. Required allowance – December 31, 2008 95,000 Add: Debit balance before adjustment 10,000 Increase in allowance 105,000


Problem 5-21 170,000 – 10,000 258,000 – 20,000

Rate in 2007 = ------------------------ = .016 Rate in 2008 = -------------------------- = .017

10,000,000 14,000,000

1. Retained earnings (.016 x 1,250,000) 20,000Allowance for doubtful accounts 20,000

2. Allowance – January 1 20,000 Recoveries – 2008 10,000 Doubtful accounts – 2008 (squeeze) 92,000 Total 122,000 Less: Writeoff – 2008 88,000 Allowance – December 31 (.017 x 2,000,000) 34,000

3. Accounts receivable 2,000,000 Less: Allowance for doubtful accounts 34,000 Net realizable value 1,966,000

Problem 5-22

1. Allowance – January 1, 2008 500,000 Doubtful accounts recorded (2% x 20,000,000) 400,000 Recovery 50,000 Total 950,000 Less: Writeoff (300,000 + 100,000) 400,000 Allowance balance before adjustment 550,000

2. 5,000,000 x 5% 250,000 2,000,000 x 10% 200,000 1,000,000 x 25% 250,000 500,000 – 100,000 x 75% 300,000 Required allowance – December 31, 2008 1,000,000

3. Doubtful accounts 450,000Allowance for doubtful accounts (1,000,000 – 550,000) 450,000

64Problem 5-23

1. Allowance – 1/1/2008 (1% x 2,800,000) 28,000

2. Allowance – 1/1/2008 28,000 Doubtful accounts recorded in 2008 (1% x 3,000,000)

30,000 Recovery 7,000

Total 65,000 Writeoff (27,000) Allowance before adjustment 38,000

3. 300,000 x 1% 3,000 80,000 x 5% 4,000 60,000 x 20% 12,000 25,000 x 80% 20,000 Required allowance – 12/31/2008

39,000

4. Doubtful accounts 1,000Allowance for doubtful accounts (39,000 – 38,000)

1,000

Problem 5-24

2008Jan. 1 Loan receivable 4,000,000

Cash 4,000,000

Cash 342,100Unearned interest income

342,100

Unearned interest income 150,000Cash

150,000

Dec. 31 Cash 400,000Interest income

400,000

Unearned interest income 56,948Interest income 56,948

(10%) (12%) Date Interest received Interest income Amortization

Carrying value01/01/2008 3,807,90012/31/2008 400,000 456,948 56,948 3,864,84812/31/2009 400,000 463,782 63,782 3,928,63012/31/2010 400,000 471,370* 71,370 4,000,000

*12% x 3,928,630 equals 471,435, or a difference of P65 due to rounding.

2009Dec. 31 Cash 400,000


652009Dec. 31 Unearned interest income 63,782

Interest income 63,7822010Dec. 31 Cash 400,000


Unearned interest income 71,370Interest income 71,370

Cash 4,000,000Loan receivable

4,000,000

Problem 5-25

2008Jan. 1 Loan receivable 3,000,000

Cash 3,000,000

Direct origination cost 260,300Cash

260,300

Cash 100,000Direct origination cost

100,000

Dec. 31 Cash 240,000Interest income

240,000

Interest income 50,382Direct origination cost 50,382

(8%) (6%) Date Interest received Interest income Amortization

Carrying value01/01/2008 3,160,30012/31/2008 240,000 189,618 50,382 3,109,91812/31/2009 240,000 186,595 53,405 3,056,51312/31/2010 240,000 183,487 56,513 3,000,000

2009Dec. 31 Cash 240,000


Interest income 53,405Direct origination cost 53,405

2010Dec. 31 Cash 240,000

Interest income

240,000

66

2010Dec. 31 Interest income 56,513

Direct origination cost 56,513

Cash 3,000,000Loan receivable

3,000,000

Problem 5-26

Requirement 1

December 31, 2009 (1,000,000 x .93) 900,000December 31, 2010 (2,000,000 x .86) 1,720,000December 31, 2011 (3,000,000 x .79) 2,370,000Total present value of loan 5,020,000

Requirement 2

Loan receivable – 12/31/2008 6,000,000Accrued interest (6,000,000 x 8%) 480,000Total carrying value 6,480,000Present value of loan 5,020,000Impairment loss 1,460,000

Requirement 3

2008 Impairment loss 1,460,000 Accrued interest receivable

480,000 Allowance for loan impairment

980,000

2009 Cash 1,000,000 Loan receivable

1,000,000

Allowance for loan impairment 401,600 Interest income (8% x 5,020,000)

401,600


2,000,000

Allowance for loan impairment 353,728 Interest income

353,728

Loan receivable – 12/31/2009 5,000,000

Allowance for loan impairment (980,000 – 401,600) ( 578,400)

Carrying value – 12/31/2009 4,421,600

Interest income for 2010 (8% x 4,421,600) 353,728

67


3,000,000

Allowance for loan impairment 224,672 Interest income

224,672

Loan receivable – 12/31/2010 3,000,000

Allowance for loan impairment (578,400 – 353,672) ( 224,672)

Carrying value – 12/31/2010 2,775,328


Allowance per book 224,672

Difference due to rounding 2,646Problem 5-27

Requirement 1

December 31, 2009 ( 500,000 x .89) 445,000December 31, 2010 (1,000,000 x .80) 800,000December 31, 2011 (2,000,000 x .71) 1,420,000December 31, 2012 (4,000,000 x .64) 2,560,000Total present value of loan 5,225,000

Requirement 2

Loan receivable 7,500,000Accrued interest receivable (12% x 7,500,000) 900,000Total carrying value 8,400,000Present value of loan 5,225,000Impairment loss 3,175,000

Requirement 3

2008 Impairment loss 3,175,000 Accrued interest receivable 900,000 Allowance for loan impairment 2,275,000

2009 Cash 500,000 Loan receivable 500,000

Allowance for loan impairment 627,000 Interest income (12& x 5,225,000) 627,000

2010 Cash 1,000,000 Loan receivable 1,000,000

Allowance for loan impairment 642,240 Interest income 642,240

68

Loan receivable – 12/31/2009 7,000,000

Allowance for loan impairment (2,275,000 – 627,000) (1,648,000)

Carrying value – 12/31/2009 5,352,000


Problem 5-28

December 31, 2011 ( 360,000 x .772) 277,920 Face value of loan 4,000,000December 31, 2012 ( 360,000 x .708) 254,880 Present value of loan 3,365,360December 31, 2013 ( 360,000 x .650) 234,000 Impairment loss 634,640December 31, 2014 (4,360,000 x .596) 2,598,560Total present value of loan 3,365,360

2008 Cash 360,000 Interest income

360,000

Impairment loss 634,640 Allowance for loan impairment

634,640

2009 Allowance for loan impairment 302,882 Interest income (9% x 3,365,360)

302,882

2010 Allowance for loan impairment 331,758 Interest income (634,640 – 302,882)

331,758


360,000


360,000


360,000

2014 Cash 4,360,000 Interest income

360,000

Loan receivable 4,000,000Problem 5-29

12/31/2008 Impairment loss 338,500 Allowance for loan impairment 338,500

The remaining term of the loan is 4 years. Accordingly, the present value

factor for 4 periods is used.

69

Present value of principal (500,000 x .735) 367,500

Present value of interest (80,000 x 5 = 400,000 x .735) 294,000

Total present value of loan 661,500

Loan receivable 1,000,000Present value of loan 661,500Loan impairment loss

338,500

12/31/2009 Allowance for loan impairment 52,920 Interest income (8% x 661,500)

52,920


Accounts receivable-January 1 1,300,000 Credit sales 5,500,000 Collections from customers (5,000,000) Sales return ( 150,000) Accounts written off ( 100,000) Accounts receivable-December 31 1,550,000 Allowance for doubtful accounts ( 250,000)Allowance for sales return ( 50,000)

Net realizable value 1,250,000


Trade accounts receivable 2,000,000Allowance for doubtful accounts ( 100,000)Claim receivable 300,000Total trade and other receivables 2,200,000


Accounts receivable (squeeze) 6,700,000

Allowance for doubtful accounts (900,000 – 200,000) ( 700,000)

Net realizable value 6,000,000


Allowance – January 1 300,000 Doubtful accounts expense 650,000 Recovery of accounts written off 100,000 Total 1,050,000Accounts written off 450,000Allowance – December 31 600,000

70Problem 5-34 Answer D

Allowance – January 1 280,000Uncollectible accounts expense (squeeze) 100,000Recovery of accounts written off 50,000Total 430,000Accounts written off (230,000)Allowance – December 31 (2,700,000 – 2,500,000) 200,000


Allowance – December 2007 180,000Doubtful accounts expense 50,000Total 230,000Accounts written off (squeeze) 30,000Allowance – December 2008 200,000


0 –60 days (1,200,000 x 1%) 12,00061 – 120 days (900,000 x 2%) 18,000Over 120 days (1,000,000 x 6%) 60,000Allowance – December 31, 2008 90,000

Allowance – December 31, 2007 60,000Uncollectible accounts expense (squeeze) 80,000

Recovery 20,000Total 160,000Accounts written off ( 70,000)Allowance – December 31, 2008 90,000


Allowance for sales discount (5,000,000 x 2% x 50%) 50,000



Doubtful accounts expense (3% x 3,000,000 + 10,000) 100,000


Doubtful accounts expense (2% x 7,000,000) 140,000

71Problem 5-41 Answer A

Allowance – January 1 40,000Doubtful accounts expense (4% x 5,000,000) 200,000Collection of accounts written off 10,000Total 250,000Accounts written off 30,000Allowance – December 31 220,000


Allowance – January 1 250,000Doubtful accounts expense (squeeze) 175,000Total 425,000Accounts written off 205,000Allowance – December 31 220,000



1-5

Documents

d b d d problem

d c d d c c b c d

d d c b c

c problem

b b c c

b problem

e d b c g

expense recognition