Accounts Receivable- EXERCISES

Trade and other receivables

Use the following information for the next two questions:
Information from the records of ABC Co. is shown below:
 Accounts receivable - net of P8,000 100,0
credit balance in customers' accounts 00
15,00
 Notes receivable (trade) 0
 Notes receivable (non-trade), P15,000 30,00
collectible within one year 0
 Dividends receivable 2,000
 Subscriptions receivable 2,000
 Advances to officers and employees
(due in 10 months) 4,000
 Accounts payable - net of P10,000
debit balance in
suppliers' accounts 3,000

1. How much is the total trade receivables?

a. 108,000 b. 118,000 c. 123,000 d. 133,000

2. How much is the total current receivables?

a. 156,000 b. 144,000 c. 150,000 d. 154,000

Goods in-transit
3. On December 27, 20x1, ABC Co. received a sale order for a credit sale of
goods with selling price of ₱3,000. The goods were shipped by ABC on
December 31, 20x1 and were received by the buyer on January 2, 20x2.
The related shipping costs amounted to ₱20. ABC Co. collected the
receivable on January 5, 20x2. If the term of the sale is FOB destination,
freight collect, how much net cash is collected on January 5, 20x2?
a. 3,020 b. 3,000 c. 2,980 d. 0

Gross method and Net method

Use the following information for the next two questions:
STALWART STRONG Co. sells inventory with a list price of ₱200,000 on
account under credit terms of 20%, 10%, 2/10, n/30.

4. If STALWART uses the gross method, how much is the debit to account
receivable on initial recognition?
a. 114,120 b. 144,000 c. 200,000 d. 141,120

5. If STALWART uses the net method, how much is the debit to account
receivable on initial recognition?
a. 114,120 b. 144,000 c. 200,000 d. 141,120
Allowance for sales return
The next two questions are based on the following information:
On December 31, 20x1, ABC Co. sold goods for ₱20,000 to XYZ, Inc. on
account. To induce sale, ABC Co. provides its buyers the right to return goods
within 30 days upon purchase if the buyers are not satisfied with the goods.

Case #1: Reliable estimate

6. ABC Co. can reliably estimate that 20% of the goods sold will be returned
within the agreed period of time. However, 25% of the goods are actually
returned on January 5, 20x2. How much is the net accounts receivable
recognized on the date of sale?
a. 20,000 b. 16,000 c. 15,000 d. 0

Case #2: No reliable estimate

7. ABC Co. cannot reliably estimate future returns. much is the net accounts
receivable recognized on the date of sale?
a. 20,000 b. 16,000 c. 15,000 d. 0

Percentage of credit sales method

8. ABC Co. has the following information on December 31, 20x1 before any
year-end adjustments.
Allowance for doubtful accounts, Jan. 1 30,400
Write-offs 19,000
Recoveries 3,800
Sales (including cash sales of ₱380,000) 2,280,000
Sales returns and discounts (including ₱3,800 sales returns
22,800
on cash sales)
Accounts receivable, Dec. 31 570,000
Percentage of credit sales 3%

How much is the recoverable historical cost of accounts receivable?

a. 498,370 b. 502,630 c. 486,780 d. 478,970

Percentage of receivable method

Use the following information for the next two questions:
ABC Co. has the following information on December 31, 20x1 before any
year-end adjustments.
Accounts receivable, Jan. 1 80,000
Net credit sales 270,000
Collections from customers (including recoveries) 140,000
Allowance for doubtful accounts, Jan. 1 10,000
Write-offs 5,000
Recoveries 1,000
Percentage of receivables 5%

9. How much is the bad debt expense?

a. 4,250 b. 4,300 c. 4,550 d. 10,300

10. How much is the recoverable historical cost of accounts receivable?

a. 194,750 b. 200,450 c. 196,250 d. 195,700

Computation of percentage
11. ABC Co. has been recognizing bad debt expenses based on the direct
write-off method. In 20x4, ABC Co. decided to change to the allowance
method and that doubtful accounts shall be estimated using the
percentage of receivables method. The percentage is to be computed
based on all available historical data up to a maximum of four years.
Information for five years is shown below:
Year Write-offs Recoveries Net credit sales
20x0 10,000 600 80,000
20x1 7,000 1,000 100,000
20x2 10,000 3,000 160,000
20x3 15,000 5,000 200,000
20x4 28,000 2,000 240,000
70,000 11,600 780,000

The balances of accounts receivables on January 1, 20x4 and December 31,

20x4 are ₱100,000 and ₱200,000, respectively.

How much is the doubtful accounts expense to be recognized in 20x4?

a. 19,900 b. 34,000 c. 35,000 d. 24,600

Aging based on days outstanding

12. ABC Co. has the following information:
 Days outstanding Receivable balances % uncollectible
0 – 60 180,000 1%
61 – 120 135,000 2%
Over 120 150,000 6%
Total accounts receivables 465,000

During the year, ABC Co. wrote off ₱10,500 receivables and recovered
₱6,000 that had been written-off in prior years. The allowance for doubtful
accounts has a beginning balance of ₱3,000.

How much is the doubtful accounts expense for the year?

a. 20,000 b. 25,000 c. 15,000 d. 30,000

Aging based on days past due

13. ABC Co. sells to wholesalers on terms of 2/15, net 30. An analysis of
ABC Co.’s trade receivable balances at December 31, 20x1, revealed the
following:
Receivable
Age in days balances
0 – 15 180,000
16 – 30 108,000
31 – 60 90,000
61 – 90 72,000
91 – 120 54,000
121 – 150 36,000
Total accounts
540,000
receivables

ABC Co. uses the aging of receivables method. The estimated percentages of
collectibility based on past experience are shown below.
Accounts which are overdue for less than 31 days 97%
Accounts which are overdue 31 – 60 days 90%
Accounts which are overdue 61 – 90 days 85%
Accounts which are overdue 91 – 120 days 65%
Accounts which are overdue for over 120 days 40%

The allowance for doubtful accounts has a balance of ₱18,000 as of January

1, 20x1. Write-offs and recoveries during the year amounted to ₱6,000 and
₱3,000, respectively.

How much is the doubtful accounts expense for the year?

a. 15,600 b. 9,000 c. 22,600 d. 28,200
Combination of methods
Use the following information for the next two questions:
ABC Co. has the following information on December 31, 20x1 before any
year-end adjustments.
Net credit sales 6,300,000
Accounts receivable, December 976,500
Allowance for doubtful accounts, Dec. 31 (before any
53,550
necessary year-end adjustments)
Percentage of credit sales 2%

The aging of receivables is shown below:

Days outstanding Receivable balances % uncollectible
0 – 60 378,000 1%
61 – 120 283,500 2%
Over 120 315,000 6%
Total accounts
976,500
receivables

Additional information:
 ABC Co. uses the percentage of credit sales in determining bad debts in
monthly financial reports and the aging of receivables for its annual
financial statements.
 Accounts written-off during the year amounted to ₱119,700 and accounts
recovered amounted to ₱28,350.
 As of December 31, ABC Co. determined that ₱63,000 accounts receivable
from a certain customer included in the “61-120 days outstanding” group
is 95% collectible and a ₱31,500 account included in the “Over 120 days
outstanding” group is worthless and needs to be written-off.

14. How much is the balance of the allowance for doubtful accounts on
January 1, 20x1?
a. 12,600 b. 18,900 c. 19,200 d. 23,400

15. How much is the adjusted bad debt expense to be reported in the year-
end financial statements?
a. 123,300 b. 128,700 c. 143,300 d. 132,300

Debit balance in allowance for doubtful accounts

16. ABC Co. has the following information before any year-end adjustment.
Accounts receivable, Dec. 31 200,000
Allowance for doubtful accounts, Jan. 1 6,000 (Dr.)
Percentage of receivables 2%

Recoveries and write-offs during the year amounted to ₱1,000 and ₱7,600,
respectively.
How much is the bad debts expense for the year?
a. 3,400 b. 4,600 c. 16,600 d. 10,600
SOLUTIONS:
1. C
2. D
Solutions:
Trade receivables:
Accounts receivable 100,000
Add back credit balance in customers' accounts 8,000
Adjusted accounts receivable 108,000
Notes receivable (trade) 15,000
Total trade receivables 123,000
Non-trade receivables currently collectible:
Notes receivable (current portion only) 15,000
Dividends receivable 2,000
Advances to officers and employees 4,000
Advances to suppliers (from debit balance in accounts payable) 10,000
Total current non-trade receivables 31,000
Trade and other receivables 154,000

3. C
Solution:
Dec. 31, 20x1 -
No entry
-
Jan. 2, 20x2 Accounts receivable 990
Freight-out 10
Sales 1,000
to record sale on account and freight accommodated by the buyer

Jan. 5, 20x2 Cash on hand 990

Accounts receivable 990
to record collection of account receivable net of reimbursement for
the freight
4. B
5. D
6. B
Solution:

7. D
8. A Solution:
Total sales 2,280,000
Cash sales (380,000)
Gross credit sales 1,900,000
Sales returns and discounts on credit sales (22,800 – 3,800) (19,000)
Net credit sales 1,881,000
Multiply by: Percentage of net credit sales 3%
Bad debt expense 56,430

Allowance for
doubtful accounts
30,400 Jan. 1
Write-off 19,000 3,800 Recoveries
 56,430 Bad debts expense
Dec. 31 (squeeze) 71,630

Accounts receivable, Dec. 31 – gross 570,000

Allowance for doubtful accounts, Dec. 31 (71,630)
Accounts receivable, Dec. 31 – net 498,370

9. B
Solution:
The ending balance of accounts receivable is computed as follows:
Accounts receivable
Jan. 1 80,000 5,000 Write-off
Collections on accounts,
excluding recovery
Net credit sales 270,000 139,000 (140,000 - recovery of 1,000)

206,000 Dec. 31 (squeeze)

The required balance of allowance for doubtful accounts as of December 31, 20x1 is
computed as follows:
Accounts receivable, Dec. 31 206,000
Percentage of receivables 5%
Allowance for doubtful accounts - Dec. 31 10,300
The bad debt expense for the year is computed as follows:
Allowance for doubtful accounts
10,000 Jan. 1
Write-off 5,000 1,000 Recovery
4,300 Bad debts expense (squeeze)
Dec. 31 10,300

10. D
Solution:
Accounts receivable, Dec. 31 – gross 206,000
Allowance for doubtful accounts, Dec. 31 (10,300)
Accounts receivable, Dec. 31 – net 195,700

11. B
Solution:
Formula: Percentage = (Write-offs – Recoveries) ÷ (Net credit sales)
The percentages to be applied on the beginning and ending balances of receivables in 20x4
are computed as follows:
(Total Write-offs from 20x0 to 20x3) less (Total Recoveries from 20x0 to
Percentage (Jan. 1,
20x3)
20x4) =
Total Net credit sales from 20x0 to 20x3
= [(10K+7K+10K+15K) – (.6K+1K+3K+5K)] ÷ (80K+100K+160K+200K)
= (42,000 – 9,600) ÷ 540,000
Percentage (Jan. 1, 20x4) = (32,400 ÷ 540,000) = 6%

(Total Write-offs from 20x1 to 20x4) less (Total Recoveries from 20x1 to
Percentage (Dec. 31,
20x4)
20x4) =
Total Net credit sales from 20x1 to 20x4
= [(7K+10K+15K+28K) – (1K+3K+5K+2K)] ÷ (100K+160K+200K+240K)
= (60,000 – 11,000) ÷ 700,000
Percentage (Dec. 31, 20x4) = (49,000 ÷ 700,000) = 7%
The doubtful accounts expense is computed as follows:
Allowance for doubtful accounts
6,000 Jan. 1, 20x4 (6% x 100,000)
20x4 write-offs 28,000 2,000 20x4 recoveries
34,000 Bad debts expense (squeeze)
Dec. 31, 20x4 (7% x 200,000) 14,000
12. C
Solution:
Requirement (a): Doubtful accounts expense
Days outstanding Receivable balances % uncollectible Required allowance
(a) (b) (c) = (a) x (b)
0 – 60 180,000 1% 1,800
61 – 120 135,000 2% 2,700
Over 120 150,000 6% 9,000
Totals 465,000 13,500

The doubtful accounts expense is computed as follows:

Allowance for doubtful accounts
3,000 Beg. bal.
Write-offs 10,500 6,000 Recoveries
15,000 Doubtful accounts expense (squeeze)
End. Bal. 13,500

13. A
Solution:
Receivable Required
Days past due balances % Uncollectible allowance
(a) (b) (a) x (b)
 Not due (cash discounts available) - 0 to 15 days
180,000
of age None -
 Not due (cash discounts forfeited) - 16 to 30 days
108,000
of age None -
 1 - 30 days past due 90,000 3% 2,700
 31 - 60 days past due 72,000 10% 7,200
 61 - 90 days past due 54,000 15% 8,100
 91 - 120 days past due 36,000 35% 12,600
Totals 540,000 30,600

Doubtful accounts expense for the year is computed as follows:

Allowance for doubtful accounts
18,00
0 Beg. bal.

Write-offs 6,000 3,000 Recoveries

15,60
0 Doubtful accounts expense (squeeze)
30,60
End. Bal. 0
14. B
Solution:
Allowance for doubtful accounts
18,900 Jan. 1, 20x1 (squeeze)
Write-offs 119,700 28,350 Recoveries
Unadjusted bad debts
126,000
(6.3M x 2%)
Dec. 31 unadjusted bal. 53,550

15. D
Solution:
Receivable Required
Days outstanding balances % uncollectible allowance
(a) (b) (c) = (a) x (b)
 0 – 60 378,000 1% 3,780
 61 - 120 (283.5K – 63K) 220,500 2% 4,410
 Segregated account 63,000 5% 3,150
 Over 120 (315K – 31.5K) 283,500 6% 17,010
Totals 945,000 28,350
Allowance for doubtful accounts
18,900 1/1/x1 [see previous question]
Write-offs 151,20
28,350
(119.7K + 31.5K) 0 Recoveries
132,30
0 Adjusted bad debts (squeeze)
12/31/x1 bal. 28,350

16. C
Solution:
Allowance for doubtful accounts
Beg. bal. – debit 6,000
Write-offs 7,600 1,000 Recoveries
16,60
0 Bad debts expense (squeeze)
End. Bal. (200,000 x 2%) 4,000