Problem - The balance sheet of PERSEVERANCE CORPORATION on December 31, 2005, includes the following cash and receivable balances:
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Cash - Davao Bank
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P45,000
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Currency and coins
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16,000
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Petty cash fund
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1,000
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Cash in bond sinking fund
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15,000
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Notes receivable (Including discounted with recourse, P15,500)
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36,000
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Accounts receivable
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P85,600
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Less: Allow. for bad debts
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(4,150)
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81,450
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Interest receivable
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525
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Current liability reported in the December 31, 2005, balance sheet included:
Obligation on discounted notes receivable - 15,500
Transactions during 2006 included the following:
1. Sales on account were P767,000.
2. Notes received in settlement of accounts totaled P82,500.
3. Notes receivable discounted as of December 31, 2005, were paid at maturity with the exception of one P3,000 note on which the company had to pay the bank P3,090, that Included interest and protest fees. It IS expected that recovery will be made on this note early in 2004.
4. Customer notes of P60,000 were discounted with recourse during the year, proceeds from their transfer being P58,500. Of this total, P48,000 matured during the year without notice of protest.
5. Customer accounts of P8,720 were written-off In prior year as worthless.
6. Recoveries of doubtful accounts written-off in prior years were P2,020. (not included in the collection in number 2)
7. Notes receivable collected during the year totaled P27,000 and Interest collected was P2,450.
8. On December 31, accrued interest on notes receivable was P630.
9. Uncollectible accounts are estimated to be 5% of the December 31, 2006, accounts receivable balance.
10. Cash of P35,000 was borrowed from Davao Bank, accounts receivable of P50,000 being pledged on the loan. Collections of P19,500 had been made on these receivables Included In the total given in transaction (2) and this amount was applied on December 31, 2006, to payment of accrued interest on the loan of P600, and the balance to partial payment of the loan.
11. Petty cash fund was reimbursed based on the following analysis of expenditure vouchers:
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Travel expenses
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P 112
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Entertainment expenses
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78
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Postage
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93
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Office supplies
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173
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Cash over
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6
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12. P3,000 cash was added to the bond sinking fund.
13. Currency on hand at December 31, 2006 was P12,000.
14. Total cash payment for all expenses during the year were P468,000.
Charge to General Expense
1. PERSEVERANCE CORPORATION's Notes Receivable at December 31, 2006 is:
a. P 46,500 b. P 31,000 c. P 30,910 d. P 28,500
2. PERSEVERANCE CORPORATION'S Obligation of Discounted of Note Receivable at December 31, 2006 is:
a. P 15,500 b. P 12,000 c. P 11,910 d. P 3,500
3. PERSEVERANCE CORPORATION's Interest Receivable at December 31, 2006 is:
a. P 2,555 b. P 1,155 c. P 630 d. P 525
4. PERSEVERANCE CORPORATION'S Bad Mist December 31, 2006 is:
a. P 16,005.20 b. P 13,875.50 c. P 11,855.50 d. P 11,825.50
Computation on bad debt expense.