CLASSROOM EXERCISES ON RECEIVABLES

PROBLEM 1: Accounts Receivable, Gross and Net Method

Clark Co. sold its products to a customer on July 1, 2023. The item had a list price of P5,000,000; trade
discounts of 10% and 5% were granted by Clark to the buyer. The credit terms of the sales were 2/10,
n/30. Two days after, the customer returned items worth P500,000 because of wrong specifications. Full
payment was received by the company on July 11.

Prepare the necessary journal entries on the book of Clark using:

1. Gross method
2. Net method
3. Suppose the buyer paid Clark on July 31, prepare the journal entry on the said date using a) the gross
method and b) the net method.

PROBLEM 2: Allowance for Doubtful Accounts

An analysis of the accounts receivable of Vaughn Inc. shows the following information:
Age Balance % Collectible
Current P4,000,000 99
1 to 30 days past due 3,000,000 97.5
31 to 60 days past due 1,800,000 96
61 to 90 days past due 1,200,000 90
91 to 120 days past due 1,000,000 80
121 to 180 days past due 600,000 60
181 to 360 days past due 400,000 40
More than 360 days past due 150,000 0

Before any adjustments were made, Vaughn’s allowance for doubtful accounts had a balance of P100,000.

Prepare the journal entry to adjust Vaughn’s allowance for doubtful accounts.

PROBLEM 3: Credit Card Sales

Luke Co. accumulated P7,500,000 McAndrew Bank credit card receipts on August 1, 2023. These receipts
were forwarded to the bank on that date and Luke received the payment from the bank less a 4% service
charge.

1. Prepare the journal entries needed on the books of Luke.

2. Suppose that Luke deposits the McAndrew Bank credit card receipts to a current account, and Luke’s
account is immediately increased by such deposits. Prepare the entries needed on the books of Luke.

PROBLEM 4: Pledging of Accounts Receivable

Dylan Corp., a company that operates on a calendar-year basis, has been approved of a loan from Manila
Bank on July 1, 2023, for P10,000,000. The loan, which matures on June 30, 2024, bears an interest of
10% per annum. According to the agreement, Dylan pledged P16,000,000 of its accounts receivable as a
security for the loan.

1. Prepare the entries needed on the books of Dylan to record the loan, to accrue interest expense, and
to record the payment of the loan.
2. Prepare the notes on Dylan’s financial statements that should be disclosed in relation to the note and
the corresponding pledged receivables.
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PROBLEM 5: Assignment of Accounts Receivable, Non-notification basis

The following transactions relate to Stalla Inc. in 2023:

August 1 Assigned P6,000,000 of accounts receivable to Manila Universal Bank under a non-
notification basis. The bank advanced 75% of the face value of the receivables less
a service charge of P2,500. Stalla signed a promissory note agreeing to pay monthly
interest of 1% of the unpaid balance of the loan.
4 Issued a P60,000 credit memo for sales allowance granted to a customer whose
account was assigned
9 Collected 50% of the face value of the assigned accounts. Sales discounts of 3%
were granted to 60% of the face value of the collected accounts
31 Remitted the collection to Manila along with the monthly interest
Sept. 1 Issued credit memo amounting to P80,000 to a customer whose account was
assigned for merchandise returned
29 Collected P2,000,000 of assigned accounts
30 Remitted the amount due to manila to pay the loan balance plus interest due

Prepare the necessary journal entries.

PROBLEM 6: Assignment of Accounts Receivable, Notification basis

The following transactions relate to Rhea Co. in 2023:

October 31 Rhea Corp. assigned P4,000,000 of its assigned accounts to Makati National bank
under a notification basis. The bank forwarded 80% of the face value of the
assigned accounts, less 0.25% of the face value of the assigned accounts as
service charge. The loan is evidenced by a promissory note which provides for a
monthly interest of 1.5% of the unpaid balance of the loan.
November 30 Received notice from Makati that 60% of the assigned accounts was collected.
2.5% sales discount was granted to half of the accounts collected. Rhea paid the
interest to Makati.
December 31 Received notice from Makati stating that P1,500,000 of the assigned accounts
were collected. Final settlement was made by the bank for the excess collections
together with the uncollected assigned accounts.

Prepare the necessary journal entries.

PROBLEM 7: Factoring of Accounts Receivable, Casual

Palacios Corp. factored its accounts receivable having a face value of P1,000,000 and net realizable value
of P900,000 for P850,000 on December 31, 2023.

Prepare the entry to record the transaction.

PROBLEM 8: Factoring of Accounts Receivable, Continuing Arrangement

Citi Inc. factored accounts receivable from different customers to Hunter Financials amounting to
P10,000,000 immediately after the shipment of the goods on July 1, 2023. The credit terms of the sale are
3/10, n/30. Hunter charged a commission of 5% based on the gross amount of the receivable factored,
and withheld 30% of the face value of the accounts assigned to cover sales returns and allowances.
On July 5, Citi granted credit worth P400,000 to a customer whose account was factored for goods that
were damaged.

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On July 11, Citi was informed that the full payment, less applicable discount, was received by Hunter from
a certain customer whose account was factored. The invoice price of the goods paid by such customer
amounted to P3,500,000.

On July 31, Citi received a notification from Hunter stating that the remaining factored accounts were
collected with no additional returns or allowances. Accordingly, the final settlement was made with Hunter.

Prepare the necessary journal entries to be recorded in the books of Citi.

PROBLEM 9: Notes Receivable

On September 1, 2023, Ezekiel Co. sold its used equipment originally acquired for P6,000,000 and having
a carrying amount of P4,800,000 to Jedson Co. Ezekiel received a 3-year note receivable from Jedson
having a face value of P5,000,000.

Prepare the journal entries to record the receipt of the note under the following independent situations:
1. The fair value of the asset is P5,200,000. The fair value of the note cannot be measured reliably.
2. The note bears an annual interest of P12%. The fair value of the equipment cannot be measured
reliably.

PROBLEM 10: Notes Receivable, noninterest-bearing note, installment, lump-sum

On January 1, 2023, Donna Corp. sold merchandise having a cost of P2,000,000 to Jack Corp. for
P6,000,000. Upon the delivery of the goods, Jack paid a 20% down payment to Donna and signed a 3-
year noninterest-bearing note for the balance. The prevailing interest rate on similar notes on the date of
the sale was P8%.

Prepare the journal entries on the books of Donna in 2023 and the amortization table from 2023 to 2025
under the following independent situations:
1. The principal is to be paid in three equal annual instalments. The first instalment was received on
December 31, 2023.
2. The whole principal is to be paid on December 31, 2025.

PROBLEM 11: Notes Receivable, noninterest-bearing note, installment (annual & semi-annual)

On January 1, 2023, Jem Inc. sold merchandise costing P1,200,000 to David Inc., receiving a three-year,
noninterest-bearing note receivable. Interest on similar notes on the date of the transaction was 10%.

Prepare the journal entries on the books of Jem in 2023 and the amortization table for the whole duration
of the note given the following independent assumptions:
1. The note is to be paid in three equal annual instalments. The first instalment is to be received on
December 31, 2023.
2. The note is to be paid in six equal semi-annual instalments every January 1 and July 1. The first
instalment was received by Sheff on the date of the sale.

PROBLEM 12: Notes Receivable, interest-bearing at a premium, interest annually & semi-annual

On January 1, 2023, Carter Co. received a four-year, 10% note having a face value of P4,000,000 for the
sale of its equipment which had a cost and a carrying amount of P5,000,000 and P3,500,000, respectively.
The prevailing market interest rate on similar notes on the date of the transaction was 8%.

Prepare (a) the journal entries on the books of Carter on January 1, 2023, (b) the receipt of the first interest
payment, and (c) the amortization table for the note given the following independent situations:
1. Interest is paid every Dec. 31.
2. Interest is paid every June 30 and Dec. 31.
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PROBLEM 13: Notes Receivable, interest-bearing at a premium, annual installment

On January 1, 2023, Emilia Co. received a 10% note from a customer upon the sale of its inventory. The
inventory had a cost of P1,500,000, and was sold at a list price of P5,000,000. The payment terms call for
four equal payments of the principal and interest on the outstanding balance of the note every December
31, starting December 31, 2023. The effective rate on the note is 7%.

Prepare the necessary entries in 2023 and the amortization table for the note.

PROBLEM 14: Notes Receivable, interest-bearing at a discount, annual installment

On January 1, 2023, Emilia Co. received a 8% note from a customer upon the sale of its inventory. The
inventory had a cost of P1,500,000, and was sold at a list price of P5,000,000. The payment terms call for
four equal payments of the principal and interest on the outstanding balance of the note every December
31, starting December 31, 2023. The effective rate on the note is 10%.

Prepare the necessary entries in 2023, as well as the amortization table for the note.

PROBLEM 15: Discounting Notes Receivable

Alhambra Inc. discounted a P1,800,000, 10-month, 10% note dated May 1, 2023, it received from a
customer to Mason Financials on August 1. The note was discounted at 14%.

Prepare the journal entries needed on the books of Alhambra on August 1 and on the date of the note’s
maturity given the following independent assumptions:
1. The note was paid by the maker.
2. The note was dishonoured by the maker. Alhambra paid the whole maturity value of the note plus
protest fees of P2,500. The maker paid Alhambra 10 days after the maturity, including interest of
18% from the date of the note’s maturity.

PROBLEM 16: Loans Receivable

Pilipino Bank granted a loan to Celia Co. on January 1, 2023. The interest on the loan is 10% payable
annually starting December 31, 2023. The loan matures in three years on December 31, 2025. The related
data to the loan are:

Principal amount P4,000,000

Origination fees received from Celia Co. 342,100
Direct origination cost incurred 150,000

After considering the origination fees charged against the Celia Co. and the direct origination cost incurred,
the effective rate in the loan is 12%.

Prepare the necessary journal entries in 2023.

PROBLEM 17: Loans Receivable, Expected Credit Losses

On January 1, 2021, Manila Bank loaned P1,000,000 to ABC Company. The loan has an 8% effective
rate payable annually every December 31. The principal is due on December 31, 2024

On December 31, 2021, the bank determined that the loan had 12-month probability of default of 3% and
expected to collect only 90% of the principal.

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On December 31, 2022, the bank determined that there was a significant increase in the credit risk of the
loan receivable but no objective evidence of impairment. The bank concluded that there is a 30%
probability of default over the remaining life of the loan and the bank expected to collect only 70% of the
principal balance.

On December 31, 2023, the borrower was in financial difficulty and loan was considered impaired. The
bank concluded that only 50% of the principal amount will be collected on December 31, 2024. Interest
for 2023 was collected.

Required: Prepare the necessary journal entries.

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