INACCT1 MID TERM EXAM

INSTRUCTIONS:
1. INPUT THE LETTER OF YOUR CHOICE ON THE ANSWER SHEET IN EXCEL
FORMAT. FILL-IN THE REQUIRED INFORMATION.
2. SUBMIT YOUR FILE THRU THE ASSIGNMENT TAB IN MS TEAMS

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MULTIPLE CHOICE: CHOOSE THE LETTER THAT BEST
COMPLETE THE ITEM OR ANSWERS THE QUESTION.

1. The information below was taken from the bank transfer schedule prepared during the audit of Fox Co.’s financial
statements for the year ended December 31, 2001. Assume all checks are dated and issued on December 30,
2021.
Bank Accounts Disbursement date Receipt date
Check no. From To Per books Per bank Per books Per bank
101 BPI BDO Dec. 30 Jan. 4 Dec. 30 Jan. 3
202 UCPB PNB Jan. 3 Jan. 2 Dec. 30 Dec. 31
303 BDO CBC Dec. 31 Jan. 3 Jan. 2 Jan. 2
404 PNB EWB Jan. 2 Jan. 2 Jan. 2 Dec. 31

Which of the following checks might indicate kiting?

A. #101 and #303.
B. #202 and #404
C. #101 and #404
D. #202 and #303

2. Trask Corporation's ledger balance of cash on December 31, 2001, was ₱8,000. In addition, Trask held the
following items in its safe on December 31:

Check payable to Trask Corporation, dated January 2, 2002, not included in December
31 ledger balance of cash ₱2,000
Check payable to Trask Corporation, deposited December 20, and included in
December 31 ledger balance of cash, but returned by bank on December 30,
stamped "NSF." The check was redeposited Jan. 2, 2002, and cleared Jan. 7 500
Post-dated checks 550
Check drawn on Trask Corporation's account, payable to a vendor, dated but not yet
recorded December 31, but not mailed until January 15, 2002 1,000

The proper amount to be shown as cash on Trask's balance sheet at December 31, 2001, is
A. ₱7,500.
B. ₱8,000.
C. ₱8,500.
D. ₱9,750.

3. In preparing its bank reconciliation for the month of February, James Company has available the following
information:
Balance per bank statement, February 28 ₱18,025
Deposit in transit, February 28 2,875
Outstanding checks, February 28 3,125
Check erroneously deducted by bank from James' account, February 10 125
Bank service charges for February 25

What is the adjusted cash balance at February 28?

A. ₱17,125
B. ₱17,900
C. ₱18,275
D. ₱18,400

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Use the following information for the next three questions:
The accounting records and bank statement of Entity A show the following information:

CASH RECEIPTS AND DISBURSEMENTS BOOK

CASH IN BANK - BDO CURRENT ACCOUNT
Date Description Debit Credit Balance
6/1 Bal. forwarded ₱881,000
6/11 Check #1113 130,800 750,200
6/15 Check #1114 220,000 530,200
6/16 Deposit 295,800 826,000
6/22 Deposit 670,000 1,496,000
6/24 Check #1115 80,000 1,416,000
6/28 Check #1116 380,000 1,036,000
6/29 Deposit 160,000 1,196,000

BANCO DE ORO
BANK STATEMENT - ENTITY A
Date Description Debit Credit Balance
6/1 Bal. forwarded ₱881,000
6/10 Deposit 350,000 1,231,000
6/15 Payment 1,229,000
2,000
6/15 Check #1114 1,009,000
220,000
6/16 Deposit 295,800 1,304,800
6/20 Payment 50,000 1,254,800
6/22 Deposit 1,924,800
670,000
6/24 Check #1115 80,000 1,844,800
6/26 Check #1113 130,800 1,714,000
6/28 Deposit 410,000 2,124,000

Additional information:
• The payments of ₱2,000 and ₱50,000 shown on the bank statement pertain to the cost of checkbook requested
from the bank and the monthly amortization of a bank loan, respectively. The loan payment includes payment
for interest of ₱8,000.
• Deposits shown on the bank statement but not on the cash ledger represent collections of accounts receivable.

4. How much is the deposit in transit?

A. ₱160,000
B. ₱102,000
C. ₱52,000
D. ₱380,000

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5. How much is the credit memo?
A. ₱52,000
B. ₱160,000
C. ₱760,000
D. ₱380,000

6. How much is the adjusted cash balance?

A. ₱1,940,000
B. ₱1,760,000
C. ₱1,380,000
D. ₱1,904,000

Use the following information for the next three questions:

Information on ABC Co. is shown below:
30-Jul Aug. 31
Book balance 132,200 180,000
Book debits 60,000
Book credits ?
Bank balance 100,600 169,000
Bank debits 20,600
Bank credits ?
Notes collected by bank 10,000 35,000
Debit memos 7,800 8,900
Understatement of book receipts - 2,800
Deposit in transit 45,000 43,800
Outstanding checks 11,200 3,900

7. How much is the adjusted receipts in August?

A. ₱78,800
B. ₱80,700
C. ₱88,700
D. ₱87,800

8. How much is the adjusted disbursements in August?

A. ₱13,300
B. ₱17,800
C. ₱16,200
D. ₱14,300

9. How much is the adjusted balance of cash on August?

A. ₱136,200
B. ₱134,400
C. ₱132,600
D. ₱208,900

10. The information below is from the books of the Seminole Corporation on June 30:

Balance per bank statement ₱11,164

Deposits in transit 1,340
Bank charges not recorded 16

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 Note collected by bank and not recorded on books 1,120
Outstanding checks 1,100
NSF checks - not recorded on books nor redeposited 160

Assuming no errors were made, how much is the cash balance per books on June 30 before any reconciliation
adjustments?
A. ₱11,404
B. ₱10,980
C. ₱10,460
D. ₱11,440

11. The following were taken from the records of SML Co. as of December 31, 20x1:
Checks drawn but not yet issued to payees ₱120,000
Customers’ checks dated January 15, 20x2 35,000
Customers’ checks dated Dec. 31, 20x1 40,000
SML’s check dated Jan. 15, 20x2 already mailed to payee 16,000
Cash on hand 130,000
Employees’ checks representing unclaimed salaries, held by the treasurer 14,000
Petty cash fund (fully replenished) 20,000

How much of the items listed above will be included in SML’s Dec. 31, 20x1 cash?
A. ₱340,000
B. ₱260,000
C. ₱280,000
D. ₱320,000

12. The accountant for Baccah Inc. established a petty cash fund of ₱1,400. During September, the fund was depleted
by the following disbursements:

Shipping expense ................................... ₱740

Travel expense .......................................... 240
Postage expense ......................................... 230
Miscellaneous supplies .................................. 170

In addition to receipts for the above items, the petty cash box contained ₱8 in coins and an IOU of ₱8 from the
secretary handling the fund. The company uses a cash over and short expense account, as needed. The company
decided to decrease the petty cash fund to ₱1,000.

How much is the cash (shortage) or overage?

A. (₱4)
B. ₱4
C. (₱12)
D. ₱12

13. Yesterday, you wrote a ₱2M check and gave it to a supplier as payment for the goods you have purchased. Today,
you received your bank statement. You noticed that the ₱2M check is not reflected in the statement. What should
you do?
A. Call your friends and celebrate, telling them that you just saved ₱2M.
B. Call the supplier and demand him or her to go to the bank and present the check for payment.
C. Post the incident on your Facebook page and wait for likes.
D. Treat the ₱2M check as outstanding check in your bank reconciliation for today.

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14. Entity A is preparing its March 31, 20x1 bank reconciliation. The following information was determined:
• The cash balance per books is ₱280,000 while the cash balance per bank statement is ₱320,000.
• Credit memo – ₱20,000
• Debit memo – ₱15,000
• Deposits in transit – ₱75,000
• Outstanding checks – ₱25,000
• The disbursements per books are overstated by ₱45,000.
• The bank debits are understated by ₱40,000.

How much is the adjusted balance of cash?

A. ₱370,000
B. ₱330,000
C. ₱285,000
D. ₱380,000

Use the following for the next three items

In the December 31, 2018 statement of financial position of Gerbera Company, the total current assets and current
liabilities were P4,355,000 and P3,250,000 respectively. On January 1, 2019, Gerbera Company had the following
transactions in relation to its trade and other receivables:
• Assigned P1,500,000 of its receivables to Hyacinth Company on a notification basis. Hyacinth Company shall
advance 80% of the receivables assigned to Gerbera Company less a service charge of 2.5% based on the loan
amount
• Factored P1,200,000 of its receivables to Iris Company. Iris Company charged a fee of 4%, as well as, a 12%
interest for 45 days (use 360 days). A holdback equal to 6% of the receivables was agreed upon by both parties.
• Discounted a P400,000, 9%, 10-month note dated July 1, 2018 at a rate of 12%.

15. The net cash proceeds generated by the above-mentioned transactions was
A. ₱2,616,000
B. ₱2,637,300
C. ₱2,644,800
D. ₱2,716,800

16. The total loss on from the above-mentioned transactions reported in the profit or loss section of the 2019
comprehensive income statement is
A. ₱53,200
B. ₱71,200
C. ₱83,200
D. ₱101,200

17. The working capital ratio after the above-mentioned transactions was
A. 1.21
B. 1.23
C. 1.32
D. 1.68

18. At the end of its first year of operation, December 31, 2018, Solid Company had accounts receivable of P500,000,
which where net of the related allowance for doubtful accounts. During 2018, Solid recorded charges to bad debt
expense of P80,000 and wrote off uncollectible accounts receivable of P20,000. How much should Solid
Company report in its December 31, 2018 balance sheet as accounts receivable before the allowance for doubtful
accounts?

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 A. P500,000
B. P520,000
C. P560,000
D. P600,000

19. Warner, Inc. accepted from a customer a P400,000, 90-day, 12% interest bearing note dated August 31, 2018.
On September 30, 2018, Warner discounted the note at Mega bank at 15%. However, the proceeds were not
received until October 1, 2018.

If the discounting is treated as a sale, what amount of receivable should the company report in its September
30, 2018 statement of financial position?
A. P400,000
B. P401,700
C. P410,300
D. P412,000

20. Semblance company purchase from Resemble Corporation a P400,000, 8%, five-year note that requires five
annual year-end installments of P100,180. The note was discounted to yield a 9% rate to Semblance. At a date of
purchase, Semblance recorded the note at its present value of P389,700. What is the total unearned interest
revenue that will be realized over the term of the financial instruments?
A. P100,900
B. P111,200
C. P160,000
D. P180,000

21. On December 31, 2019, the “Receivables” account of G company shows a debit balance of P5,950,000.
Subsidiary details show the following:

Accounts receivable, P725,000; Notes receivable, P100,000; Installments receivable, normally due one year to
two years, P300,000; Customers’ account reporting credit balances arising from sales returns, P30,000; Advance
payments for purchase of merchandise, P150,000; Cash advances to subsidiary, P400,000; Claim from insurance
company, P15,000; Subscription receivable due in 60 days, P300,000; Accrued interest receivable, P10,000,
Deposit on contract bids, P3,000,000 and Advances to shareholders (collectible in 2020), P1,000,000.

How much is the amount to be presented as “loans and receivables” under current assets section of the statement
of financial position?
A. P725,000
B. P1,125,000
C. P1,590,000
D. P1,600,000

22. On January 1, 2019, F Company Trade Loans and Receivables has an outstanding balance of P500,000. Below
are the transactions in its Trade Loans and Receivables and other related accounts during 2019:

Total Sales including a P500,000 cash sales, P7,700,000; Account receivable written-off, P50,000; Purchases on
account, P7,800,000; Payments to creditors, P6,400,000; Purchase discounts, P520,000; Total sales returns,
P50,000 of which P20,000 were sales on a cash basis; Amount received from credit customers, P4,900,000; Sales
discount lost, P80,000; Notes given to settle accounts, P500,000; Purchase returns, P140,000, Payments of notes,
P200,000; Proceeds from collection on notes receivable including interest of P10,000 P370,000. Provision for
future return and discounts on outstanding receivables, P25,000.

What is the amortized cost of the Loans and Receivable on December 31, 2019?

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 A. P2,255,000
B. P2,280,000
C. P2,415,000
D. P2,440,000

23. Mould Corp. sells to wholesalers on terms of 2/15, n/30. Mould has no cash sales but based on historical
experience 50% of Mould’s customers take advantage of the discount. Mould uses the gross method of recording
sales and trade receivables. An analysis of Mould’s trade receivables balances at December 31, 2019 revealed
the following:
Age Amount Collectibility
0-15 days P300,000 100%
16-30 days 180,000 95%
31-60 days 15,000 90%
Over 60 days 7,500 P1,500
P502,500
In its December 31, 2019 statement of financial position, what amount should Mould report for provision for
discounts?
A. P3,000
B. P4,860
C. P5,025
D. P6,000

24. Megabank granted an 8%, 3-year P6,000,000 loan to Global Company on January 1, 2019. The interest on the
loan is payable every December 31. Megabank incurred P148,122 of direct origination cost but an origination
fee of P300,000 was charged against Global Company. The effective rate on the loan as a result of the origination
fee and sot is now 9%.
What is the amortized cost of the loan on December 31, 2019 in Megabank’s accounting books?
A. P5,848,122
B. P5,894,453
C. P5,944,954
D. P6,000,000

25. Refer item#24. What amount of interest income should Megabank disclose in its December 31, 2019?
A. P526,331
B. P530,500
C. P535,046
D. P540,000

26. Wellington Corp has an outstanding account receivable totaling P6.5 million as of December 31 and sales on
credit during the year of P24 million. There is also a credit balance of P12,000 in the allowance for doubtful
accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the
amount of bad debt expense recognized for the year?
A. P508,000
B. P520,000
C. P532,000
D. P1,920,000

27. Sun Inc assigns P2,000,000 of its accounts receivables as collateral for a P1 million 8% loan with a bank. Sun
Inc. also pays a finance fee of 1% on the transaction upfront. What would be recorded as a gain (loss) on the
transfer of receivables?
A. None
B. Loss of P20,000

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 C. Loss of P160,000
D. Loss of P180,000

28. On Dec. 2, 2019, Peter Company assigned P1,000,000 of accounts receivable to Paul Finance as a security for a
one-year loan of P600,000. Paul Finance charged a 2% commission on the amount of the loan; the interest rate
on the note was 10%. During December, Peter collected P245,000 on assigned accounts after deducting P5,000
of discounts. Peter Company accepted returns worth P10,000 and wrote off assigned accounts totaling P9,000.
What amount of receivable should Peter Company continue to disclose in its December 31, 2019 statement of
financial position?
A. None
B. P731,000
C. P736,000
D. P740,000

29. Noli Inc. factors P2,000,000 of its accounts receivable without guarantee (recourse) for a finance charge of 5%.
The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. What
would be recorded as a gain (loss) on the transfer of receivables?
A. (P100,000)
B. P100,000
C. (P60,000)
D. P60,000

30. Ryan Inc. factors P2,000,000 of its accounts receivable with guarantee (recourse) for a finance charge of 3%. The
finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. What would
be recorded as a gain (loss) on the transfer of receivables?
A. 0
B. P60,000
C. (P60,000)
D. (P260,000)

31. On October 31, 2019 ACE Company discounted at the bank a customer’s P600,000, 6-month, 10% note
receivable date August 31, 2019. The bank discounted the note of 12%.
What amount of gain or loss should ACE Company recognize from the transfer assuming the discounting is
treated as a sale?
A. None
B. P5,200
C. P12,600
D. P17,400

32. January 1, 2019, Arc Company sold goods for Matt Company. Matt signed a non-interest bearing note requiring
payment of P60,000 annually every December 31 for seven years, The prevailing rate of interest for this type of
note at the date of issuance was 10%. Information on present value factors is as follows:

Periods Present Value of 1 at 10% PV of Ordinary annuity of 1 at 10%

6 0.56447 4.355226
7 0.51315 4.86842

What should be the amortized cost of the receivable on December 31, 2019?
A. P321,316
B. P292,105
C. P261,316
D. P227,447

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33. Jim Yount, M.D., keeps his accounting records on the cash basis. During 2016, Dr. Yount collected Rp 360,000
from his patients. At December 31, 2015, Dr. Yount had accounts receivable of Rp 50,000. At December 31,
2016, Dr. Yount had accounts receivable of Rp 70,000 and unearned revenue of Rp 15,000. On the accrual basis,
how much was Dr. Yount's patient service revenue for 2016?
A. P 315,000.
B. P 370,000.
C. P 380,000.
D. P 390,000.

34. Fig Corporation provides an allowance for its doubtful accounts receivable. At December 31, 2018, the allowance
account had a balance of P6,000. Each month Fig Corporation accrues bad debts expense in an amount equal to
2% of credit sales. Total credit sales during 2019 amounted to P950,000. During 2019 uncollectible accounts
receivable totaling P14,000 were written off against the allowance account while collection of previously written-
off amounted to P3,000. An aging of accounts receivable at December 31, 2019 indicates that an allowance of
P12,000 should be provided for doubtful accounts as of the date. Accordingly, bad debts expense previously
accrued during 2019 should be increased (decreased) by
A. 2,000
B. 7,000
C. (2,000)
D. (7,000)

35. On January 1, 2019, the capital of Breakfast at Tiffany’s Company was P2,600,000 and on December 31, 2019,
the capital was P3,600,000. During the current year, Tiffany, the owner, withdrew merchandise with carrying
amount of P150,000 which were marked to sell for P230,000, and paid a P400,000 note payable of the business
with interest of 10% for six months with a check drawn on a personal checking account. The net income for 2019
is
A. 710,000
B. 730,000
C. 1,270,000
D. 1,290,000

36. Ice Plant Company started its business on January 1, 2019. After considering the collection experience of other
entities in the industry, Ice Plant established an allowance for doubtful accounts estimated at 5% of credit sales.
Outstanding accounts receivable recorded on December 31, 2019 totalled P823,000, while the allowance for
doubtful accounts had a credit balance of P90,000 after recording estimated doubtful accounts expense for
December and after writing off P10,000 of uncollectible accounts.
Further analysis of the entity’s accounts showed that merchandise purchased amounted to P1,800,000 and ending
merchandise inventory was P50,000. Goods were sold at 20% above cost. The total sales comprised 90% sales
on account and 10% cash sales. Total cash collections from customers, amounted to P1,195,000.
The receivable balance is understated (overstated) by
A. 72,000
B. 192,000
C. (30,000)
D. (138,000)

37. Sun Inc assigns P2,000,000 of its accounts receivables as collateral for a P1 million 8% loan with a bank. Sun
Inc. also pays a finance fee of 1% on the transaction upfront. What would be recorded as a gain (loss) on the
transfer of receivables?
A. Loss of P20,000.
B. Loss of P160,000.
C. Loss of P180,000.

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 D. P0

38. On February 1, 2019, Henson Company factored receivables with a carrying amount of P300,000 to Agee
Company. Agee Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables.
Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement
of Henson Company for February.
Assume that Henson factors the receivables on a with guarantee (recourse) basis. The amount of cash received is
A. P285,000.
B. P276,000.
C. P291,000.
D. P300,00

Use the following for the next three items

CEBU Corporation started business at the beginning of current year. The entity established an allowance for doubtful
accounts estimated at 5% of credit sales. During the year, the entity wrote off P40,000 of uncollectible accounts.

Further analysis showed that merchandise purchased amounted to P10,000,000 and ending merchandise inventory
was P2,000,000. Goods were sold at 40% above cost.

The total sales comprised 80% sales on account and 20% cash sales. Total collections from customers, excluding
cash sales, amounted to P6,000,000.

39. What is the cost of goods sold?

A. 8,000,000
B. 6,000,000
C. 7,000,000
D. 5,000,000

40. What is the amount of sales on account?

A. 13,400,000
B. 13,440,000
C. 13,000,000
D. 13,500,000

41. What is the net realizable value of accounts receivable at year-end?

A. 7,400,000
B. 7,000,000
C. 6,768,000
D. 6,632,000

42. LAMBORGHINI Company uses the statement of financial position approach in estimating uncollectible
accounts expense. The company prepares an adjusting entry to recognize this expense at the end of each month.
During the month of July, the company wrote off a P 1,000 receivable and made no recoveries of previous write-
offs. Following the adjusting entry for July, the credit balance in the Allowance for Doubtful Accounts was P
2,500 larger than it was on July 1.

What amount of uncollectible account expense was recorded for July?

A. P 2,500
B. P 1,000
C. P 1,500
D. P 3,500

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43. Based on the information:
Credit sales P 172,000 credit
Collections on accounts receivable during the year 170,000 credit
Cash sales 810,000 credit
Unadjusted balance in Allowance for doubtful accounts 50 debit
Sales returns and allowances for credit sales 4,000 credit
Accounts receivable, beginning of the year 14,000 credit

If bad debts are estimated to be 1 ½% of ending accounts receivable, in the adjusting entry to recognize bad
debts, you would debit bad debt expense for:
A. P 230
B. P 190
C. P 130
D. P 180

44. On September 30, 2014, a corporation sold to a bank, a customer’s 18 percent, 60-day note, dated August 31,
2014, with a face amount of P 3,000. The bank discounted the note at 12 percent. The cash received by the
corporation was (assume 360 days per year):
A. P 3,059.00
B. P 3,000.00
C. P 3,012.00
D. P 2,970.00

Use the following for the next two items

On October 31, 2017, Lavander Company engaged in the following transactions.
• Obtained a P750,000, six-month loan from NFL Bank, discounted at 12%. The company pledged P900,000
of accounts receivable as security for the loan.
• Factored P1,000,000 of receivable without recourse on a non-notification basis with Mimosa Company.
Mimosa Company charged a factoring fee of 2% of the amount of receivables factored and withheld 10% of
the amount factored.

45. The total cash received from the financing of receivables

A. 1,587,000
B. 1,585,000
C. 1,578,000
D. 1,576,000

46. The total loss from the financing of the receivables

A. 20,000
B. 65,000
C. 120,000
D. 185,000

47. Upon examination of the petty cash fund of Maverick Company on January 2, 2021, the following items were found:
Total currency bills and coins P1,825
Certified check of the general manager dated Dec 15, 2020 1,500
Petty cash vouchers not yet replenished
PCV7163 Postage stamps 280
PCV7164 Supplies 650
PCV7165 IOU of employee 500

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 Company check representing replenishment of petty cash fund 5,150
Unused postage stamps 120
An envelope containing contributions of employees for the death of a
fellow employee (contents intact) 3,000
The petty cash fund was established for an amount of P10,000. For financial statement reporting purposes,
what is the correct amount of petty cash fund at December 31, 2020?
A. P9,905
B. P8,475
C. P6,975
D. P1,825
E. Some other answer

48. Refer to Item #47, what was the amount of shortage or overage?
A. P95 shortage
B. P95 overage
C. P25 shortage
D. P25 overage
E. P215 shortage
F. P215 overage

49. Jack Company sold a tract of land with carrying amount of P3M to Jill Company on July 1, 2020. P1,200,000 was
collected on the date of sale and the balance of P2,800,000 is collectible in four equal annual installments of P902,500,
consisting of principal and 11% interest on the unpaid balance. The first annual installment is due on July 1, 2021.
What amount related to the notes receivable shall be classified as current assets on December 31, 2021?
A. P594,500
B. P659,895
C. P781,198
D. P902,500

50. Refer to Item #49, how much is the interest income for the year ended December 31, 2021?
A. P121,303
B. P275,303
C. P154,000
D. P308,000

51. Fiesta found itself in financial difficulties and decided to use its accounts receivable as a means of obtaining cash to
continue operations. On July 1, 2020, Fiesta factored P750,000 of its accounts receivable for cash proceeds of
P695,000. No bad debt allowance was associated with these accounts.

On December 17, 2020, Fiesta assigned the remainder of its accounts receivable, P2,500,000 as of that date, as
collateral on a P1,250,000, 12% annual interest rate loan from BPI Bank. Fiesta received P1,250,000 less 2%
finance charge.

Additional information are as follows:

Allowance for bad debts, 12/31/20 (unadjusted) P32,000
Estimated uncollectibles 12/31/20 3% of accounts receivable
Accounts receivable 12/31/20 (not including factored and assigned) P500,000

Of the assigned accounts receivable, P300,000 had been collected by the end of the year.

How much were the proceeds from factoring and assignment of the accounts receivable?
A. P3,145,000
B. P1,920,000

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 C. P1,895,000
D. P1,225,000

52. Refer to Item #51, assuming that these are the only transactions affecting accounts receivables, compute the bad debts
expense for the year ended December 31, 2020?
A. P90,000
B. P81,000
C. P58,000
D. P49,000

53. Campbell, one of the Silver Company’s credit customers, is experiencing financial difficulties and a downward trend
in its financial performance. The firm is unable to service its debts and as a result has missed the payment of its notes
and accrued interest with Silver Company. The principal amount of the note is P500,000 (already due) with annual
interest of 10% payable annually. Accrued interest balance at December 31, 2020 is P50,000. Campbell
management has negotiated a modification of its debt terms with Silver Company. At this time, the prevailing market
rate of interest for similar transaction remained at 10%.

Silver Company agreed to the following new terms:

• Forgive the accrued interest at December 31, 2020
• Extend the payment of the principal for two years
• Reduce the interest rate payable annually to 8%

How much impairment loss should be recognized by Silver Company on December 31, 2020?
A. P0
B. P50,000
C. P67,330
D. P103,744

54. On December 31, 2020, the Oriental Finance Company had a P5M note receivable from Red Company. The note
bears 10% interest. The books reported accrued interest of P500,000 on this date. Because of financial difficulties
being suffered by Red Company, Oriental Finance agreed to the restructuring and modification of the terms of its loan
to Red Company as follows:
• Reduction of principal to P4M
• Reduction of interest to 8% payable annually beginning December 31, 2021
• Accrued interest on December 31, 2020 is condoned
• Principal payment was reset to December 31, 2022

The prevailing market interest rate for similar obligations on the date of restructuring decreased to 9%.

How much impairment loss should Oriental Finance record on December 31, 2020?
A. P1,623,200
B. P1,576,800
C. P1,123,200
D. P1,076,800

55. Refer to Item #54, At what amount would the restructured notes receivable be reported at December 31, 2020?
A. P5,500,000
B. P4,640,000
C. P3,923,200
D. P3,876,800

End of Mid Term Exam

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