Chapter 4

Accounts Receivable

PROBLEM 1: TRUE OR FALSE

1. FALSE
2. FALSE 105
3. FALSE April 2, 20x1
4. TRUE
5. TRUE
6. FALSE 25
7. FALSE 25
8. FALSE 7
9. TRUE
10. FALSE required balance of allowance

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. D
2. C

3. Solution: (85,000 + 5,000 – 2,000 + 3,000) = 91,000

*Security deposits are normally long-term.

4. C
5. Solution: 550,000 – FOB shipping point

6. C

7. Solutions:

Requirement (a): Traditional GAAP

Gross method Net method

1. Sale on account
Accounts receivable 90,000 Accounts receivable 87,300
Sales 90,000 Sales
87,300
(₱100,000 x 90%)
(₱100,000 x 90% x 97%)

2. Collection is made within the discount period

Cash 87,300 Cash 87,300
Sales discounts (90K x 3%) 2,700 Accounts receivable

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 Accounts receivable 87,300
90,000

3. Collection is made beyond the discount period.

Cash 90,000 Cash 90,000
Accounts receivable Sales discount forfeited
90,000 2,700
Accounts receivable
87,300

Requirement (b.1): PFRS 15

Invoice amount (100,000 x 90%) 90,000
Multiply by: 3%
Total available discount 2,700
Multiply by: 80%
Discount expected to be taken 2,160

Invoice amount 90,000

Less: Discount expected to be taken (2,160)
Transaction price 87,840

1. Sale on account
Accounts receivable 87,840
Revenue 87,840

2. Portion collected within the discount period

Cash (90,000 x 80% x 97%) 69,840
Accounts receivable 69,840

3. Portion collected beyond the discount period

Cash (90,000 x 20%) 18,000
Accounts receivable 18,000

Requirement (b.2): PFRS 15

1. Sale on account
Accounts receivable (100K x 90%) 90,000
Revenue 90,000
Sales discount 2,160
Allowance for sales discount 2,160

2. Portion collected within the discount period

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Cash on hand (90,000 x 80% x 97%) 69,840
Allowance for sales discount 2,160
Accounts receivable (90,000 x 80%) 72,000

3. Portion collected beyond the discount period

Cash on hand [(90K x 20%) or remaining balance] 18,000
Accounts receivable 18,000

8. 100,000 x 90% x 97%* = 87,300

*If the customer fully settles the account within 10 days, the customer
cannot take anymore the 1% discount that is available if he pays
within the 11th day and 15th day.

9. C
10. Solution:
Requirement (a):
(a)
Accounts receivable 250,000
Sales 250,000

(b)
Cash 220,000
Accounts receivable 220,000

(c)
Bad debt expense 30,000
Allowance for doubtful accounts 30,000

(d)
Allowance for doubtful accounts 15,000
Accounts receivable 15,000

(e)
Accounts receivable 8,000
Allowance for doubtful accounts 8,000

Cash 8,000
Accounts receivable 8,000

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 Requirement (b):

Accounts
receivable
beg. 120,000
Collections, excluding
Sales on account 250,000 220,000 recoveries
15,000 Write-offs
Recovery 8,000 8,000 Collection on recovery
135,000 end.

Allowance for bad debts

  9,000 beg.
Write-off 15,000 30,000 Bad debts
  8,000 Recovery
end. 32,000

Requirement (c):
Accounts receivable, end. 135,000
Allowance for bad debts, end. (32,000)
Carrying amount, end. 103,000

11. Solutions:
Requirement (a):

(1) Percentage of net credit sales

Sales ₱650,000
Sales returns and allowances (50,000)
Net sales 600,000
Rate 1½%
Bad debt expense ₱ 9,000

Bad Debt Expense 9,000

Allowance for Doubtful Accounts 9,000

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(2) Percentage of ending receivable

Allowance for doubtful

accounts
2,500 beg.
Write- Bad debts expense
offs - 5,500 (squeeze)
- Recoveries
a
end. 8,000

a
(100,000 x 8%) = 8,000

Bad Debt Expense 5,500

Allowance for Doubtful Accounts 5,500

Requirement (b):

(1) Percentage of net credit sales

The entry would not change under the percentage of net credit sales method.

(2) Percentage of ending receivable

The percentage of receivables approach would be affected as follows:
Allowance for doubtful
accounts
beg. 2,500
Write- Bad debts expense
offs - 10,500 (squeeze)
- Recoveries
end. 8,000

Bad Debt Expense 10,500

Allowance for Doubtful Accounts 10,500

12.Solutions:
Requirement (a):

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 No. of Days Probability Required
of Uncollectabilit
Outstanding Amount Allowance
Collection y
0-30 days 500,000 0.98 0.02
10,000
31-60 days 200,000 0.9 0.1
20,000
Over 60 days 100,000 0.8 0.2
20,000

50,000

Allowance for doubtful

accounts
- beg.
Write- Bad debts expense
offs 5,000 53,000 (squeeze)
2,000 Recoveries
end. 50,000

Bad debt expense 53,000

Allowance for bad debts 53,000

Requirement (b):
50,000 (see computations above)

Requirement (c):
Gross accounts receivable (500K + 200K + 100K) 800,000
Less: Allowance for bad debts (50,000)
Accounts receivable, net – end. 750,000

13. D
14. A
15. D
16. B
17. A

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PROBLEM 3: EXERCISES

1. Solution:

Accounts receivable
beg. 140,000
Credit sales 680,000 568,000 Collections, excluding recoveries
12,000 Write-off

240,000 end.

Allowance for bad debts

  18,000 beg.
Write-off 12,000 28,000 Bad debts
  2,000 Recovery
end. 36,000

Carrying amount = 240,000 – 36,000 = 204,000

2. Solution:

Accounts receivable
beg. 150,000
Credit sales 600,000 410,000 Collections, excluding recoveries
9,000 Write-off

331,000 end.

Allowance for bad debts

  12,000 beg.
Write-off 9,000 15,000 Bad debts
  2,000 Recovery
end. 20,000

Carrying amount = 331,000 – 20,000 = 311,000

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3. Solution:

Accounts receivable
beg. 80,000
150,00
Credit sales 0 120,000 Collections, excluding recoveries
10,000 Write-off
100,000 end.

4. Solution:

Accounts receivable
beg. -
Credit sales 360,000 124,000 Collections, including recoveries
22,000 Write-off
Recoveries 6,000
220,000 end.

5. Solution:

Accounts receivable
beg. 220,000
Collections, excluding
Credit sales 360,000 558,000 recoveries
22,000 Write-off

- end.

6. Solutions:
(1)
Doubtful Accounts Expense
(3% x 128,000) - ₱1,220 .................. 2,620
  Allowance for Doubtful Accounts ........... 2,620

(2)
Doubtful Accounts Expense ................... 5,374.50
  Allowance for Doubtful Accounts ........... 5,374.50
  
(₱747,000 - ₱18,000 - ₱12,400) x 30% x 2.5% = ₱5,374.50

7. Solutions:
(1)
Doubtful Accounts Expense ................... 35,700
  Allowance for Doubtful Accounts ........... 35,700
  [(3% x ₱590,000) + ₱18,000]

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(2)
Doubtful Accounts Expense ................... 32,025
  Allowance for Doubtful Accounts ........... 32,025
  [1.5% x (₱2,180,000 - ₱18,000 - ₱27,000)]

(3)
Doubtful Accounts Expense ................... 39,400
  Allowance for Doubtful Accounts ........... 39,400
  (₱21,400 + ₱18,000)

8. Solutions:
(1) Bad Debt Expense 4,670
Allowance for Doubtful Accounts 4,670

Gross receivables ₱90,000

Rate 6%
Total allowance needed 5,400
Present allowance (730)
Adjustment needed ₱ 4,670

(2) Bad Debt Expense 7,040

Allowance for Doubtful Accounts 7,040

Sales ₱360,000
Sales returns and allowances 8,000
Net sales 352,000
Rate 2%
Bad debt expense ₱ 7,040

9. Solution:

Requirement (a): Adjusted doubtful accounts expense

Doubtful
Aging Category Balance Percent Accounts
November-December 2002 ₱2,280,000  2% ₱ 45,600
July-October 2002 1,200,000  15% 180,000
January-June 2002 800,000  25% 200,000
Prior to January 1, 2002 140,000 * 80% 112,000
₱4,420,000  ₱537,600
* ₱260,000 - ₱120,000

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 Allowance for doubtful accounts
260,000 Jan. 1, 2002
30,000 Recoveries
W.O. (180K + 120K Adj. DAE
addt'l) 300,000 547,600 (squeeze)
Dec. 31, 2002 (aging) 537,600

Requirement (b): Adjusting entry

Credit sales 18,000,000

Multiply by: 2%
Unadjusted doubtful accounts expense 360,000
Adjusted doubtful accounts expense 547,600
Adjustment (additional expense) 187,600

Doubtful accounts expense 187,600

Allowance for doubtful accounts 187,600
To increase the allowance for doubtful accounts at
December 31, 2002, resulting from a change in accounting
estimate

10. Solution:

Requirement (a):

Allowance for doubtful

accounts
45,000 Jan. 1
Write-offs 50,000 - Bad debts expense*
3,000 Recoveries
2,000 Dec. 31 (Dr.) - unadjusted

* The problem states that BDE is recognized only at each year-end.

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Requirement (b):

No. of Days Probability Required

of Uncollectibilit
Outstanding Amount Allowance
Collection y
0-30 days 500,000 0.98 0.02
10,000
31-60 days 200,000 0.9 0.1
20,000
Over 60 days 100,000 0.8 0.2
20,000

50,000

Allowance for doubtful accounts

Dec. 31
(unadjusted) 2,000
Write-offs - - Recoveries
Bad debts
expense
52,000 (squeeze)
Dec. 31 (aging) 50,000

OR

Allowance for doubtful accounts

45,000 Jan. 1
Write-offs 50,000 3,000 Recoveries
Bad debts expense
52,000 (squeeze)
Dec. 31 (aging) 50,000

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PROBLEM 4: CLASSROOM ACTIVITIES

ACTIVITY #1: TOTAL CURRENT RECEIVABLES

Solutions:

Requirement (a): Adjusted accounts receivable

Unadjusted accounts receivable 10,537,089

Credit balance (DEF Co.) 341,236
Sales Order #21022394 20,000
Adjusted accounts receivable 10,898,325

Requirement (b): Total current receivables

Adjusted accounts receivable 10,898,325

Notes receivable (3-month) 35,000
Dividends receivable (10,000 sh. x ₱5) 50,000
Total Current receivables 10,983,325

Requirement (c): Adjusting entries

Accounts receivable 341,236
Advances from customers 341,236
To eliminate the credit balance in DEF Co.’s account

Accounts receivable 20,000

Sales 20,000
To record the unrecorded sales

Notes receivable 35,000

Cash 35,000
To record the loan to Mr. Wilson

Dividends receivable 50,000

Dividend income 50,000
To accrued the dividends

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ACTIVITY #2: JOURNAL ENTRIES

Solutions:

Requirement (a): Journal entries

1) Accounts receivable 20,000

Sales 20,000
To record SI#001101

2)
a. Accounts receivable 3,000
Allowance for bad debts 3,000
To reverse the previous write-off

Cash 3,000
Accounts receivable 3,000
To record the collection of accounts receivable

b. Cash 25,000
Accounts receivable 25,000
To record the collection of accounts receivable

c. Accounts receivable 19,000

Cash 19,000
To record the NSF check

3) Bad debts expense 22,415*

Allowance for bad debts 22,415
To accrue bad debts for the year

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 *Unadjusted credit sales 2,221,488
Add: SI#001101 20,000
Adjusted credit sales 2,241,488
Multiply by: 1%
Bad debts expense - 20x1 22,415

4) Allowance for bad debts (7K + 2K) 9,000

Accounts receivable 9,000
To record the write-off of accounts

Requirement (b): Adjusted balances of A/R & Allowance

Accounts receivable
Unadjusted 480,000
(1) 20,000
(2a) 3,000 3,000
25,000 (2b)
(2c) 19,000 9,000 (4)
485,000 Adjusted

Allowance for bad debts

12,000 Unadjusted
3,000 (2a)
22,415 (3)
(4) 9,000  
 
Adjusted 28,415  

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Requirement (c): Carrying amount of accounts receivable

Accounts receivable 485,000

Allowance for bad debts (28,415)
Carrying amount 456,585

ACTIVITY #3: DEBTS EXPENSE

Solutions:

Requirement (a):
BDE - 20x2: (9,824,000 x 80% x 2.5%) = 196,480
BDE - 20x1: (2,670,000 x 80% x 2.5%) = 53,400

Requirement (b):

Allowance for bad debts

12.31.x1 (836K x
41,800 5%)
BDE - 20x2
Write-offs 115,000 196,000 (squeeze)
12.31.x2 (2.456M x
5%) 122,800

Allowance for bad debts

- 3.7.x1
BDE - 20x1
Write-offs 12,000 53,800 (squeeze)
12.31.x1 (836K x
5%) 41,800

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ACTIVITY #4: AGING (PROVISION MATRIX)

Dear Sir / Ma’am:

The answer is already indicated in the activity (*Hints). The student
will be graded based on his/her creativity and extra effort in making
the report look professional. Suggested criteria:
1. Heading for the report (e.g., Aging Report or Provision
Matrix)
2. All headings, including the cut-off date, are in bold letters
3. Totals are double-ruled
4. The required balance of the allowance is labeled as such
5. The percentages are formatted as percentages (i.e., x%)
6. etc….. (end of thinking capacity )

Sincerely,

Zeus Vernon B. Millan

PROBLEM 5: MULTIPLE CHOICE - THEORY

1. B 6. A
2. D 7. D
3. D 8. A
4. D 9. B
5. B 10. A*

* Choice (a) is the best answer. Bad debts are computed on credit
sales (excluding cash sales).

Choice (d) is correct – PFRS 9 encourages a combination of

collective assessment (e.g., aging) and individual assessment (i.e.,
specific accounts).

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PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL
1. B (450 x 2%) = 9
2. C 1,000 – 200 sales returns – 9 sales discount = 791
3. A (100,000 x 50% x 2%) = 1,000
4. C (100K + 611K – 591K – 45K) = 75,000
5. A
Solution:
Allowance for bad debts
10,800 Jan. 1
Bad debts expense (450K x
Write-offs 18,000 13,500 3%)
Dec. 31 6,300

6. D (1,000,000 x 3%) = 30,000

7. A
Solution:
Days Estimated Amoun %
Allowance
outstanding t uncollectible
0 - 60 120,000 1% 1,200
61 - 120 90,000 2% 1,800
Over 120 100,000 6% 6,000
9,000
8. B
Solution:
Accounts receivable at 12/31/x1 - gross 350,000
Accounts receivable at 12/31/x1 - net (325,000)
Allowance for uncollectible accounts - 12/31/x1 25,000

Allowance for uncollectible accounts

30,000 Jan. 1
Write-offs 18,000 2,000 Recoveries
Bad debts expense
11,000 (squeeze)
Dec. 31 25,000

9. C 650K + 2.7M – 75K – 40K – 2.15M = 1.085M

10. D
Solution:
Percentage of credit sales: (1,750,000 x 2%) = 35,000
Percentage of accounts receivable:
Allowance for bad debts
16,000 Jan. 1
Bad debts expense
29,000 (squeeze)

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Dec. 31 (900K x 45,00
5%) 0

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