POST TEST 2 Receivables Answer KEY PDF

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Far Eastern UniversityINSTITUTEOF ACCOUNTS, BUSINESS AND FINANCEDepartment of Accountancy & Internal AuditingINTERMEDIATE ACCOUNTING 1 POST-TEST 2 - RECEIVABLESNAME SECTION(Family Name) (First Name) (Middle Name) SCORE DATE RATINGGENERAL INSTRUCTIONS Complete the information above. Only BACK...

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Far Eastern University INSTITUTEOF ACCOUNTS, BUSINESS AND FINANCE Department of Accountancy & Internal Auditing

INTERMEDIATE ACCOUNTING 1 POST-TEST 2- RECEIVABLES NAME (Family Name)

(First Name)

(Middle Name)

DATE

SECTION SCORE RATING

GENERAL INSTRUCTIONS 1. 2. 3. 4.

Complete the information above. Only BACK TEXT is allowed to be used for your answers. Any form of cheating will be dealt with accordingly. Failure to comply with the above rules will merit a grade of “F”.

ANSWER SHEET 1. 2. 3. 4. JE – use the solution guide below 5. JE – use the solution guide below 6. 7. 8. 9. 10.

11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

JE – use the solution guide below JE – use the solution guide below JE – use the solution guide below JE – use the solution guide below

JOURNAL ENTRIES No. 4

5

14

Account Names

Debit

Credit

1

15

16

17

QUIZ PROPER (40 POINTS) Ins Instructi tructi tructions ons ons:: Select the best answer among the given choices. Write only the letter of your choice on the space provided before each number. PRO PROBLE BLE BLEM M 1: On December 31, 2018, Isiah Company, a financing institution lent P4,000,000 to Psalms Corp. due 3 years after. The loan is supported by an 8% note receivable. Transaction costs incurred to originate the loan amounted to P248,000. P374,000 was chargeable to Psalms as origination fees. Interests on the loan are collectible at the end of each year. The yield rate on the loan is 9.25%. Isiah was able to collect interest as it became due at the end of 2019. During 2020, however, due to Psalms Corporation’s business deterioration and due to political instability and faltering global economy, the company was not able to collect amounts due at the end 2020. After reviewing all available evidence at December 31, 2020, Isiah Company determined that it was probable that Psalms would pay back only P3,400,000 collectible as follows: December 31, December 31, December 31, December 31,

2022 2023 2024 2025

1,400,000 1,000,000 600,000 400,000

As of December 31, 2020, the prevailing rate of interest for all debt instruments is 14%. 1.

What is the impairment loss to be recognized in the 2020 statement of comprehensive income? a. 1,336,188 b. 1,294,296 c. 1,094,018 d. 1,6 1,656 56 56,18 ,18 ,187 7

2.

What is the correct carrying value of the loans receivable as of December 31, 2022? a. 2,860,219

2

b. c. d.

2,013,832 1, 1,724 724 724,,789 1,884,332

PRO PROBLE BLE BLEM M 2: On January 1, 2020, Uniform Co. sold its 2-year old equipment to XYZ Inc. for a cash down-payment of P100,000 and a non-interest bearing note with a face amount of P900,000 due December 31, 2021. There is no established price for the equipment but its carrying amount on the company’s books was at P600,000. The prevailing market rate of interest for similar note of this type on the transaction date was at 10%. On December 31, 2020 XYZ developed a financial difficulty and it was apparent that it will no longer be able to settle the amount due on December 31, 2021. To maximize the recovery of the note, Uniform agreed to extend the maturity of the note to up to December 31, 2022. Furthermore, Uniform also agreed to reduce the principal amount by 25%. 3.

How much is the impairment loss to be recognized on the note in 2020? a. 342,149 b. 286,364 c. 204,545 d. 260 260,3 ,3 ,331 31

PRO PROBLE BLE BLEM M 3: Star Bank has a P 10,000,000 loan to Estrella Realty, which was invested by the latter in real estate development. Due to the economic downtrend in the real estate business, Estrella Realty is experiencing declining sales and is likely to default on its obligation to Star. Estrella requests for a restructuring of its loan with Star. Prevailing market rate for similar obligations at the time of the restructuring is 8%. Accrued interest receivable on the loan at December 31, 2020 is P 1,000,000. Based on stated interest rate of 10%. Star had not previously recognized any impairment on this Estrella note based on 12-month expected credit loss on date of initial recognition. • • • • 4.

Reduction of principal to P 9,000,000. Condonation of accrued interest Extension of maturity date to December 31, 2022 Reduction of interest rate to 8%, payable annually on December 31

Give the entry in the books of Star to record the impairment assuming the following agreements. Round off present value factors to four decimal places.

3

PRO PROBLE BLE BLEM M 4: Star Bank has a P 10,000,000 loan to Estrella Realty, which was invested by the latter in real estate development. Due to the economic downtrend in the real estate business, Estrella Realty is experiencing declining sales and is likely to default on its obligation to Star. Estrella requests for a restructuring of its loan with Star. Prevailing market rate for similar obligations at the time of the restructuring is 8%. Accrued interest receivable on the loan at December 31, 2020 is P 1,000,000. Based on stated interest rate of 10%. Star had not previously recognized any impairment on this Estrella note based on 12-month expected credit loss on date of initial recognition. • •

5.

Payment of the accrued interest on the date of restructuring Extension of maturity date of the loan to December 31, 2022, with interest during the extended term at 7% payable on December 31, 2021 and 2022.

Give the entry in the books of Star to record the impairment assuming the following agreements. Round off present value factors to four decimal places.

PRO PROBLE BLE BLEM M 5: Valiant Company reported the following analysis of current receivables at year-end: Trade accounts receivable Allowance for doubtful accounts Claim against shipper for goods lost in transit in November Selling price of unsold goods sent by valiant on consignment at 150% of cost and not included in ending inventory Security deposit on lease of warehouse Total 6.

2,000,000 (100,000) 300,000 600,000 200,000 3,000,000

What total amount should be reported as current trade and other receivables? a. 2,2 2,20 00,00 0,000 0 b. 2,400,000 c. 2,300,000 d. 3,000,000

PRO PROBLE BLE BLEM M 6: Rapture Company had the following information for the current year relating to accounts receivable:

4...