PROBLEM 7: KUSINA Inc. had the following long-term receivable account balances at December 31, 2015. Note recelvable from sale of division. P1,500,000 Note receivable from officer 400,000 Transactions during 2015 and other information relating to KUSINA's long-term recelvables were as follows. 1. The P1,500,000 note recelvable is dated May 1, 2015, bears interest at 9%, and represents the balance of the consideration received from the sale of KUSINA's electronics division to York Company. Princbal payments of P500,000 plus appropriate interest are due on May 1, 2016, 2017, and 2018. The first principal and Interest payment was made on May 1, 2016. Collection of the note installments is reasonably assured. 2. The P400,000 note receivable is dated December 31, 2015, bears interest at 8%, and is due on December 31, 2016. The note is due from May Rox, president of KUSINA Inc. and is collateralized by 10,000 shares of KUSINA's ordinary shares. Interest is payable annually on December 31, and all interest payments were pald on their due dates through December 31, 2016. The quoted market price of KUSINA's ordinary shares was P45 per share on December 31, 2016. On April 1, 2016, KUSINA sold a patent to Pen Company In exchange for a P100,000 zero- Interest-bearing note due on April 1, 2018. There was no established exchange price for the patent, and the note had no ready market. The prevalling rate of interest for a note of this type at April 1, 2016, was 12%. The present value of P1 for two periods at 12% is 0.797 (use this factor). The patent had a carrying value of P40,000 at January 1, 2016, and the amortization for the year ended December 31, 2016, would have been P8,000. The collection of the note recelvable from Pen is reasonably assured. On July 1, 2016, KUSINA sold a parcel of land to Sprinter Company for P200,000 under an installment sale contract. Sprinter made a P60,000 cash down payment on July 1, 2016, and signed a 4-year 11% note for the P140,000 balance. The equal annual payments of principal and interest on the note will be P45,125 payable on July 1, 2017, through July 1, 2020. The land could have been sold at an established cash price of P200,000. The cost of the land to KUSINA was P150,000. Circumstances are such that the collection of the installments on the note is reasonably assured. Instructions: Prepare the long-term receivables section of Kusina Inc' balance sheet at December 31, 2016. 2. Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Kusina Inc balance sheet at December 31, 2016. 3. Prepare a schedule showing interest income from long-term receivables and gains recognized on sale of assets that would appear on Kusina Inc' income statement for the year ended December 31, 2016.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
PROBLEM 7: KUSINA Inc. had the following long-term receivable account balances at December 31, 2015.
Note recelvable from sale of division. P1,500,000
Note receivable from officer 400,000
Transactions during 2015 and other information relating to KUSINA's long-term recelvables were as follows.
1. The P1,500,000 note recelvable is dated May 1, 2015, bears interest at 9%, and represents the
balance of the consideration received from the sale of KUSINA's electronics division to York Company. Princbal
payments of P500,000 plus appropriate interest are due on May 1, 2016, 2017, and 2018. The first principal
and Interest payment was made on May 1, 2016. Collection of the note installments is reasonably assured.
2.
The P400,000 note receivable is dated December 31, 2015, bears interest at 8%, and is due on December 31,
2016. The note is due from May Rox, president of KUSINA Inc. and is collateralized by 10,000 shares of
KUSINA's ordinary shares. Interest is payable annually on December 31, and all interest payments were pald on
their due dates through December 31, 2016. The quoted market price of KUSINA's ordinary shares was P45 per
share on December 31, 2016.
On April 1, 2016, KUSINA sold a patent to Pen Company In exchange for a P100,000 zero-
Interest-bearing note due on April 1, 2018. There was no established exchange price for
the patent, and the note had no ready market. The prevalling rate of interest for a note of
this type at April 1, 2016, was 12%. The present value of P1 for two periods at 12% is
0.797 (use this factor). The patent had a carrying value of P40,000 at January 1, 2016,
and the amortization for the year ended December 31, 2016, would have been P8,000.
The collection of the note recelvable from Pen is reasonably assured.
On July 1, 2016, KUSINA sold a parcel of land to Sprinter Company for P200,000 under an installment sale
contract. Sprinter made a P60,000 cash down payment on July 1, 2016, and signed a 4-year 11% note for the
P140,000 balance. The equal annual payments of principal and interest on the note will be P45,125 payable on
July 1, 2017, through July 1, 2020. The land could have been sold at an established cash price of P200,000. The
cost of the land to KUSINA was P150,000. Circumstances are such that the collection of the installments on the
note is reasonably assured.
Instructions:
Prepare the long-term receivables section of Kusina Inc'
2. Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Kusina Inc balance sheet at December 31, 2016.
3. Prepare a schedule showing interest income from long-term receivables and gains recognized on sale of assets that would appear on Kusina Inc' income statement for the year ended December 31, 2016.
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