Attachment
Attachment
Audit of Receivables
DEFINITION:
Receivables refer to claims against others for money, goods or services arising from sale
of merchandise or money lent or the performance of services. For accounting purposes
however, the term is employed to mean claims expected to be settled by the receipts of cash.
RECOGNITION:
Receivables are recognized when title to the goods passes to the buyer or when transfer
of resources take place. The point at which title passes may vary with the terms of the sales.
MEASUREMENT:
1. At face value
2. At discounted amount (present value)
VALUATION:
1. Receivable are valued at their net realizable value or their expected cash value.
Determination of NRV requires estimation of uncollectible receivables, as
such, an allowance account should be set up for doubtful accounts and for any
anticipated adjustments which in the normal course of the business will reduce
the amount receivable.
CLASSIFICATION:
1. Current Assets vs. Non Current
Current - receivables which are expected to be realized cash within the
normal operating cycle or one year, whichever is longer.
Non current - receivables which are expected to be realized beyond one year
or those receivables which are not currently collectible.
2. Trade vs. Non-trade
Trade receivable - refers to claims arising from credit sale of merchandise or
services in the ordinary course of the business. The usual type of
trade receivables are:
a. Accounts receivable - short term, unsecured and informal
credit arrangements (open accounts).
b. Notes receivable - evidenced by a formal instrument which
is the promissory note.
Non trade receivables - represent claims arising from sources other than the sale
of merchandise or services in the ordinary course of the business.
AUDIT OBJECTIVES:
1. Existence - to determine whether receivables actually exist.
Audit Procedure: Obtain a schedule of aged trade accounts receivable
and notes receivable schedules and reconcile them to the general
ledger.
2. Rights and Obligations - to determine whether receivables represent bona
fide obligations owed to the company as of balance sheet date.
Audit Procedures:
a. Confirm receivables with debtors
b. Inspect notes on hand
c. Perform analytical review procedures
3. Completeness - to determine that all transactions relative to
receivables have been recorded in the proper accounting period.
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OTHER ITEMS:
1. Methods of Receivable Confirmation
a. Positive confirmation
- used when individual account balances are relatively large.
- there is a reason to believe that there may be a substantial number
of accounts in dispute or with inaccuracies or irregularities.
- internal substantiating evidences are not adequate
- internal control system is weak
b. Negative confirmation
- internal control procedures regarding receivables are
considered effective.
- a large number of small balances are involved
- the auditor has no reason to believe that persons receiving the
requests are unlikely to give them consideration.
and revenue is achieved because bad debt loss is directly related to sales and reported in the
year of sales
b). Percentage of Receivables (Balance sheet approach) - results in a more
accurate valuation of receivables on the balance sheet since this method attempts to value
accounts receivables at their future collectible amounts.
a. Composite percentage - a single rate is applied to Accounts
receivable at the end of the period to obtain the desired ending balance of the allowance.
The amount of bad debts expenses recognized is the difference between the existing balance
in the allowance account and the desired ending balance.
b. Aging - accounts receivable are classified by age and a different
percentage is applied to each age group. The allowance is then determined by multiplying the
total of each classification by the rate or percent of loss depending on the experience of the
company for each category.
6. NOTES RECEIVABLES
a. Definition -these are claims supported by formal promises to pay, which are in the
form of notes.
b. Recognition
1. Short term notes are generally recorded at face value because the interest
implicit in the maturity value is immaterial.
2. Long term notes should be recorded at present value.
a. Interest bearing notes - the PV of the note is the same as the face
amount of the note.
b. Non interest bearing notes
Present Value
note exchanged solely for cash equal to the amount of cash proceeds
note exchanged for property, goods Present value is according to the
ff. order of priority:
1. FMV of the property, goods or
services
2. FMV of the note received
3. Discounted amount of note using
appropriate rate of interest.
The difference between the face amount of the note and its PV is recorded as
discount or premium and amortized to Interest income account over the life of
the note using the effective interest method.
d. Discounting - this is a sale of the note to a third party, usually a bank. The sales is
usually on a with recourse basis which means that upon the default of the debtor, the seller of
the note becomes liable for its maturity value. Proceeds from discounting is computed as
follows:
1. Interest to maturity (P x R x T)
2. Maturity value (P + I)
3. Discount (MV x DR x DP)
4. Net Proceeds (MV - Discount)
If the face value of the note is > proceeds, the difference is interest expense.
If the face value of the note is < proceeds, the difference is interest income.
END
Problem 1
The Accounts Receivable control account balance of James Company. was
P861,200 as of December 31, 2004. The subsidiary ledger accounts of the company are
summarized below. Credit terms are 60 days net.
The Allowance for Doubtful Accounts before audit has a credit balance of P20,000. The
Allowance for Doubtful Accounts is to be adjusted to a balance determined as follows:
The provision is to be based only on the trade accounts. Except where payments are
earmarked, the oldest items are paid first.
REQUIREMENTS:
1. Prepare a schedule for aging of accounts receivable.
2. Adjusting journal entries.
Problem 2
The following transactions affecting the Accounts receivable account of Astoria
Company for the year ended December 31, 2004 were gathered in the course of your audit:
Sales (Cash and credit) P 118,210
Cash received from cash customers 41,035
Cash received from credit customers (P62,080 was received from
customers who took advantage of the discount, 3/10, n/30) 64,160
Accounts receivable written off as worthless 990
Credit memoranda issued to credit customers for sales returns 5,255
Cash refunds given to cash customers for sales returns & allowances 3,395
Recoveries on accounts receivable written off as uncollectible in prior
periods (not included in the cash collections stated above) 1,323
An aging of the receivables indicate that P3,460 of the accounts receivable balance are
deemed uncollectible. The following balances were taken from the December 31, 2003
balance sheet:
Accounts receivable P 19,170
Allowance for doubtful accounts 1,948 credit
REQUIREMENTS:
Compute for the balances of the following as of December 31, 2004:
1. Accounts receivable
2. Allowance for doubtful accounts
3. Doubtful accounts expense
Problem 3
You are engaged to perform an audit of the accounts of the SCOT CO. for the year
ended December 31, 2004 and have observed the taking of the physical inventory of the
company on December 30, 2004. Only merchandise shipped by the SCOT CO. to customers up
to and including December 30, 2004 have been eliminated from inventory. The inventory as
determined by physical inventory count has been recorded on the books by the company's
controller. No perpetual inventory records are maintained. All sales are made on an FOB
shipping point basis. You are to assume that all purchase invoices have been correctly
recorded.
The following lists of sales invoices are entered in the sales books for the months of
December 2004 and January 2005 respectively:
REQUIREMENT: Prepare the necessary adjusting journal entries at December 31, 2004
in connection with the foregoing data.
Problem 4
During December 2004, the Accounts receivable controlling account on the books of
Jones Inc. showed one debit posting and two credit postings. The debit represents receivable
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from December sales, P260,000. One credit was for P156,800, made as a result of cash
collections on November and December receivables; the second credit was an adjustment for
estimated uncollectibles of P30,000. The December 31, balance was P90,000.
When receivables were collected, the bookkeeper credited Accounts receivable for the
cash collected. All customers who paid their accounts during December took advantage of the
2% discount.
As of December 01, debit balance in customers' subsidiary accounts totaled P59,000. an
adjustment for estimated doubtful accounts of P6,000 had been posted to the Accounts
receivable controlling account at the end of 2003, and no write offs were recorded during 2004.
In addition, a number of customers had overpaid their accounts and as a result, some of the
customers' subsidiary accounts had credit balances on December 01. No overpayments were
made during December nor were any credit balances in customers' accounts reduced during
December.
Problem 5
You are examining the financial statements of Jacklemon Inc. for the year ended
December 31, 2004. During the audit of accounts receivable and other related accounts,
certain information was obtained. From this information you are to prepare audit adjustments
and compute for the correct balances of the Accounts receivable and the Allowance for
doubtful accounts as of December 31, 2004.
The December 31, 2004 debit balance in the Accounts receivable control account is
P98,500. The only entries in the Bad debts expense account were; a credit for P162 on
December 01, 2004 because Company A remitted in full for the accounts charged off on
October 31, 2004 and a debit on December 31 for the amount of the credit to the
Allowance for Doubtful accounts.
The Allowance for doubtful accounts schedule is presented below:
An aging schedule of the accounts receivable as of December 31, 2004 and the
decision are shown in the table below:
There is a credit balance in one account receivable (0-1 month) of P1,000. It represents
an advance on a sales contract. Also, there is a credit balance in one of the 1-3 months
account receivable of P250 for which merchandise will be accepted by the customer.
The ledger accounts have not been closed as of December 31, 2004. The Accounts
receivable control account is not in agreement with the subsidiary ledger. The difference
cannot be located and the auditor decides to adjust the control to the sum of the subsidiaries
after corrections are made.
REQUIREMENTS:
1. Working paper that will show the adjustments and aging of the accounts receivable
account.
2. Adjusting journal entries
3. How much is the doubtful accounts expense to be reported in the 2004 Income Statement?
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Problem 6
From inception of operations to December 31, 2004, Troy Corporation provided for uncollectible
accounts receivable under the allowance method. Provisions were made monthly at 2% of credit sales;
bad debts written off were charged to the allowance account; recoveries of bad debts previously
written off were credited to the allowance account and no year end adjustments to the allowance
account were made. Troy Corp.’s usual credit terms are net 30 days.
The balance in the Allowance for Doubtful Accounts was P65,000 at January 01, 2004. During
2004 credit sales totaled P4,500,000, interim provisions for doubtful accounts were made at 2% of credit
sales, P45,000 of bad debts were written off and recoveries of accounts previously written off amounted
of P7,500. Troy Corporation installed a computer facility in November 2004 and an aging of accounts
receivable was prepared for the first time as of December 31, 2004.
A summary of the aging is as follows:
CLASSIFICATION AMOUNT % OF
By Month of Sale UNCOLLECTIBILITY
Nov-Dec P 570,000 2%
July-Oct 300,000 10%
Jan-June 200,000 25%
Prior to Jan 1,2004 65,000 75%
Based on the review of collectibility of the account balances in the over “prior to Jan 1, 2004 “
category, additional receivables totaling P30,000 was written off as of December 31, 2004. Effective
with the year ended December 31, 2004, Troy Corp. adopted a new accounting method for estimating
the allowance for doubtful accounts at the amount indicated by the year end aging analysis of
accounts receivable.
Requirements:
1. Prepare and analysis of the Allowance account.
2. Adjusting journal entry
Problem 7
Assad Co. has the following data relating to accounts receivable for the year ended
December 31, 2004:
An analysis of cash received from customers during the year revealed that the P2,116,800 was
received from customers availing the 10 day discount period; P1,188,000 from customers
availing the 15 day discount period; P7,200 represented recovery of accounts written off and the
balance was received from customers paying beyond the discount period. Assad Co.’s year
end balance of Allowance for doubtful accounts was estimated to be 5% of the outstanding
accounts receivable as of December 31, 2004.
Problem 8
You are engaged in your fifth annual examination of the financial statements of Lain
Corporation. Your examination is for the year ended December 31, 2004. The client prepared
the following schedules of Trade Notes Receivables and Interest Receivables for you at
December 31, 2004. You have checked the opening balances to your prior year’s audit working
papers.
1. The Marcos’ Company’s 90 day note was discounted on May 16 at 10% and the
proceeds were credited to the Trade Notes Receivable account. The note was paid at
maturity.
2. Aquino Industries became bankrupt on August 31 and the Corporation will recover P0.75
for every peso. All of Lain Corporation’s Note Receivable provide for interest at the legal
rate of 12% on the maturity value of a dishonored noted.
3. J. Lain, President of Lain Corporation confirmed that he owed the Corporation P75,000
and that he expects to pay the note within six months. You are satisfied that the note is
collectible.
4. Roxas Corporation’s 60 day note was discounted on November 01 at 8% and the
proceeds were credited to the Trade Notes Receivable and Interest Receivable
accounts. On December 02, Lain Corporation received notice from the bank that Roxas
Corporation’s note was not paid at maturity and that it had been charged against Lain’s
checking account by the bank. Upon receiving the notice from the bank, the
bookkeeper recorded the note and accrued interest thereon in the Trade Noted
Receivable and Interest Receivable accounts. Roxas Corporation paid Lain Corporation
the full amount due in January 2005.
5. The Pelaez Inc. 90 day note was pledged as collateral for P175,000, 60 day 6% loan from
the Philippine National Bank on December 01.
6. On November 1, the Corporation received four P40,000 90 day notes from Recto
Company. On December 01, the Corporation received payment from Recto Company
for one of the P40,000 notes with accrued interest. Prepayment of the notes is allowed
without penalty. The bookkeeper credited Accounts Receivable account for cash
received.
Lain Corporation
TRADE NOTES RECEIVABLE AND RELATED INTERST RECEIVABLE
Interest Balance 2004
Maker Issue Date Terms Rate 12.31.03 Debits Credits
Balance
Lawton Co. 04.01.03 One year 12% P300,000 P300,000
-
Marcos Co. 05.01.04 90 days after date - 150,000 146,875
3,125
Aquino 07.01.04 60 days 12% 30,000
30,000
Lain 08.03.04 Demand 12% 75,000
75,000
Roxas Corp. 10.02.04 60 days after date 12% 250,000 250,000
- 250,000
250,000
Pelaez Inc, 11.01.04 90 days after date 8% 210,000 175,000
35,000
Recto Co. 11.01.04 90 days after date 12% 160,000 160,000
_______ _______ _______ _______
P300,000 1,125,000 871,875 553,125
===== ===== ====== =======
INTEREST RECEIVABLES
BALANCE BALANCE
2.31.03 DEBIT CREDIT 12.31.04
Lawton Co. P 27,000 P 9,000 P 36,000
Aquino Ind. 600 P 600
Lain 2,000 2,000
Roxas Corp 5,000 3,300 1,700
Pelaez Inc. 2,800 2,800
Recto Co. 3,200 3,200
__________ ________ _________ ________
P 27,000 P 22,600 P 39,300 P 10,300
======= ======= ======= ======
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REQUIREMENT: Prepared the adjusting journal entries that you would suggest at December 31,
2004 for the above transaction. Disregard income tax implications.
Problem 9
Determine the cash proceeds from the following discounted notes ( Use 360 days)
a. A 2 month 11% note for P750,000 dated September 01, 2004, discounted on October 01,
2004 at the bank at 12%.
b. A one year, 5% note for P1,500,000 discounted at the bank at 10% after holding the note
for 3 months.
c. A 60 day non interest bearing note for P500,000 dated November 16, 2004 discounted at
the bank on December 1, 2004 at 9%.
d. A P1,000,000 note bearing interest of 10% dated July 01, 2003. The note is payable in two
installments of P100,000 plus accrued interest on December 31, 2003 and December 31, 2004.
The note was discounted on July 01, 2004 at 12%.
e. On June 01, 2003, Frat Corp. sold merchandise with a list price of P25,000 to Jerry Co. on
account. Frat allowed trade discounts of 30% and 20%. Credit terms were 2/15 and 4/30 and
the sale was made FOB shipping point. Frat prepaid P200 delivery costs for Jerry Co. as an
accommodation. On June 12, 2004, how much did Frat received as full payment of the
account of Jerry Co.?
f. On December 21, the following notes are discounted by the bank at 15%. Determine the
cash proceeds rounded to the nearest pesos from discounting each note.
a. 30 day, P 4,500 non interest bearing note dated December 15
b. 60 day, P 3,380, 9% note dated December 01.
c. 60 day, P 15,000, 13% note dated November 16
d. 90 day, P 6,775, 10% note dated November 24
Problem 10
From inception of operation 1n 2000, Peter Co. carried no allowance for doubtful
accounts. Uncollectible receivables were expenses as written off and recoveries were credited
to income as collected, On March 01, 2004 (after the 2003 financial statements were issued),
management recognized that Peter’s accounting policy with respect to doubtful accounts was
not correct and determined that an allowance for doubtful accounts was necessary. A policy
was established to maintain al allowance for doubtful accounts based on Peter’s historical bad
debt loss percentage applied to year end accounts receivable. The historical bad debt loss
percentage is to be recomputed each year based on the relationship of net write offs to credit
sales for all available past years up to a maximum of five years.
Accounts receivable balances were P625,000 and P700,000 at December 31, 2003 and
December 31, 2004 respectively.
REQUIREMENTS:
1. Prepared journal entry to set up the Allowance for Doubtful accounts as of January 01,
2004. Disregard income tax. Show supporting computations
QUIZZER:
1. NEWTOWN Corporation decided that the allowance for bad debts should be adjusted
to equal the estimated amount required based on aging the accounts as of December 31.
The following data were gathered:
Allowance for bad debts, Jan. 01, 2004 P 120,000
Provision for bad debts during 2004
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2. BART Company started operations on January 01, 2004. The following are available as of
June 30, 2004:
3. PALE Inc. sells to wholesalers on terms of 2/15, net 30. PALE INC. has no cash sales but
50% of its customers take advantage of the discount. PALE Inc. uses the gross method of
recording sales and trade receivable. An analysis of PALE INC.'s trade receivables
balances at December 31, 2004 revealed the following:
AGE AMOUNT UNCOLLECTIBLE
0-15 days P 100,000 none
16-30 days 60,000 5%
31-60 days 5,000 10%
over 60 days 2,500 P2,000
P 167,500
==========
In its December 31, 2004 balance sheet, what amount should PALE Inc. report as
allowance for discounts?
a. P 1,000
b. P 1,620
c. P 1,676
d. P 2,000
SALES INVOICES
Date Amount Date Shipped
December 2004 a. 12.23.04 P 12,500 12.31.04
b. 12.27.04 9,000 12.27.04
c. 12.30.04 15,000 01.05.05
d. 12.22.04 6,000 01.18.05
e. 12.28.04 8,000 12.29.04
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5. How much sales for the month of January 2005 were erroneously recorded in December
2004?
a. P 0
b. P 31,000
c. P 6,500
d. P 10,000
6. How much is the correct amount of sales for the month ended December 31, 2004?
a. P 71,500
b. P 46,750
c. P 40,500
d. P 77,750
7. HARE Inc. received from a customer a one year, P500,000 note, bearing annual interest
of 8%. After holding the note for 6 months, HARE Inc. discounted the note in Philtrust Bank. The
proceeds of P513,000 were credited by the bank to HARE's account. What was the discount
rate charged by the bank?
a. 8%
b. 10%
c. 5%
d. 3%
8. The following information relates to LADY Co.'s accounts receivable for 2004.
Accounts receivable, Jan 01, 2004 P 650,000
Credit sales for 2004 2,700,000
Sales returns for 2004 75,000
Accounts written off during 2004 40,000
Collections from customers during 2004 (including
Recovery of P8,000 written off in prior years) 2,150,000
Estimated future sales returns at December 31, 2004 50,000
Estimated uncollectible accounts at December 31, 2004 110,000
What amount should LADY Co. report for Accounts receivable before allowances for
sales returns and uncollectible accounts at December 31, 2004?
a. P 925,000
b. P 1,085,000
c. P 1,093,000
d. P 933,000
9. In your examination of the books and accounts of PLUM Company for the year 2004, you
have noted that the entire past due accounts of the company amounting to P200,000 should be
set up as Allowance for Doubtful accounts. On these past due accounts, management with
proper recommendation from the company’s legal counsel, has decided to write off accounts
with balance totaling P40,000. As of December 31, 2004, the balance of Allowance for Doubtful
Accounts was P125,000.
The additional provision required for the company’s doubtful accounts is:
a. P 35,000
b. P 75,000
c. P 160,000
d. P 200,000
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10. The Allowance for Bad debts in the books of STEAM Co. had a credit balance of P8,900
at the close of calendar year 2003. During 2004, uncollectible accounts P7,250 were written off
against the allowance. The provision for doubtful accounts is computed at 3% of the net sales
for the year. The credit balance in the Allowance account at December 31, 2004 amounted to
P14,775. The net sales for 2004 is:
a. P 492,500
b. P 437,500
c. P 296,667
d. P not given
11. WILCON Company has an 8% note receivable dated June 30, 2002 in the original
amount of P150,000. Payments of P50,000 in principal plus accrued interest are due annually on
July 01, 2003 , 2004 and 2005. How much is the interest revenue that should be recognized by
WILCON for the year ended December 31, 2004?
a. P 2,000
b. P 4,000
c. P 6,000
d. P 8,000
12. MASTER Co. purchased from Royal Co. a P 20,000, 8%, 5 year note that required five
annual year end payments of P 5,009. The note was discounted to yield a 9% rate to MASTER. At
the date of the purchase, MASTER recorded the note at its present value of P19,485.
How much is the total interest revenue earned by MASTER over the life of this note?
a. P 9,000
b. P 8,000
c. P 5,560
d. P 5,045
13. On July 01, 2004, UNION Co. sold goods in exchange for a P200,000, 8 month non interest
bearing note receivable. At the time of the sale, the note's market rate of interest was 12%. On
September 01, 2004. UNION discounted the note with the bank at 10%.
How much was the amount received by UNION from the discounting of the note?
a. P 188,000
b. P 190,000
c. P 193,800
d. P 194,000
14. PRIME Co. received from a customer a one year, P500,000 note bearing annual interest
of 8%. After holding the note for six months, PRIME discounted the note at Asian Bank at an
effective interest rate of 10%
At the date of discounting, PRIME should recognize
a. P 40,000 interest revenue
b. P23,810 interest revenue
c. P13,000 interest revenue
d. P 4,762 interest expense
15. AYALA Corporation entered into an assignment agreement with a finance company
whereby it would advanced 80% of all accounts assigned less a P2,000 service charge. During
the current year, P400,000 of accounts receivable were assigned. P250,000 collections were
made on outstanding assigned accounts and P230,000 was remitted to the finance company.
The remittance included interest charges of P2,300. Sales returns and allowances on assigned
accounts amounted to P5,000.
How much is the equity of AYALA Corporation in the assigned account receivable at the
end of the year?
a. P 60,000
b. P 57,700
c. P 55,000
d. P 82,700
16. Reviewing the accounts receivable of DARE Corp. as at December 31, 2004, you
obtained the following information:
a. DARE Corp. estimated the required allowance for doubtful accounts using the
year end aging of account receivable.
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After year end adjustments, the doubtful accounts expenses of DARE Corp. for the year
2004 should be:
a. P 65,000
b. P 52,500
c. P 57,500
d. P 60,000
Additional information:
a. Goods amounting to P25,000 were invoiced for the accounts of Vase Co., recorded on
January 02, 2005 with terms of net 60 days, FOB Shipping point. The goods were shipped
to Vase Co. on December 30, 2004.
b. The bank returned on December 29, 2004 a customer’s check for P2,500 marked “No
sufficient Funds” but no entry was made.
c. LAZY Co. estimated that allowance fore uncollectible accounts should be one and one
half percent (1 ½%) of the accounts receivable balance as of year end. No provision has
yet been made for 2004.
17. What is the adjusted balance of the accounts receivable on December 31, 2004?
a. P 650,000
b. P 675,000
c. P 652,500
d. P 677,500
18. What is the adjusted balance of the Allowance for Doubtful accounts on December 32,
2004?
a. P 4,000.00
b. P 14,162.50
c. P 18,162.50
d. P 10,162.50
19. What is the adjusted balance of the Bad Debts expenses account?
a. P 6,162.50
b. P 10,162.50
c. P 14,162.50
d. P 18,162.50
20. On July 01, 2004, LEAD Co. sold goods in exchange for a P800,000, 8 month, non interest
bearing note receivable. At the time of the sale, the note's market rate was 12%. LEAD Co.
received P760,000 when it discounted the note at 10%. When did LEAD Co. discount the note?
a. July 01, 2004
b. August 01, 2004
c. October 01, 2004
d. September 01, 2004
21. LILLY Co.'s allowance for uncollectible accounts was P200,000 at the end of 2004 and
P360,000 at the end of 2003. The account was debited in 2004 to write off worthless accounts of
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P12,000. How much did LILLY Co. report as bad debts expenses in its income statement for the
year ended December 31, 2004?
a. P 64,000
b. P 24,000
c. P 40,000
d. P 16,000
22. On June 01, 2004, JAL corp. sold merchandise with a list price of P100,000 to Star Co. on
account. JAL allowed trade discounts of 30% and 20%. Credit terms were 2/10, n/60 and sale
was made FOB Shipping Point. JAL Corp. prepaid P4,000 of delivery costs for Star Co. as an
accommodation. On June 12, 2004, JAL received from Star Co. a remittance in full payment
amounting to
a. P 58,880
b. P 60,000
c. P 50,880
d. P 52,000
23. On July 01, 2004, a company obtained a two year note receivable for services rendered.
The face amount of the note and the entire amount of the interest are due on June 30, 2006.
Interest receivable at December 31, 2004 was 8% of the face value of the note. What is the
note's interest rate?
a. 32%
b. 4%
c. 8%
d. 16%
On July 1, 2008, The Company received a 10-year non-interest bearing note from Reynolds Corporation.
Semi-annual payments of P120,000 are collectible starting on January 1, 2009. How much would be the
carrying amount of the notes receivable in the year-end statement of financial position of The Company
if the financial instrument was purchased at a yield to maturity interest of 13%?
a. 1,322,221
b. 1,288,165
c. 651,149
d. 842,970
Journal entries:
July 1, 2008
Notes Receivable 2,400,000
Unearned interest income 1,077,780
Cash 1,322,220
January 1, 2009
Cash 120,000
Notes Receivable 120,000