CHAPTER 4
Problem 4-1
Dreamer Company reported the “Receivables” account with a debit balance of P2,000,000 at yearend. The allowance for doubtful accounts had a credit balance of P50,000 on same date.
Subsidiary details revealed the following:
Trade accounts receivable
Trade notes receivable
Installment receivable,
normally due 1 year to two years
Customers’ accounts reporting credit
balances arising from sales return
Advance payments for purchase
of merchandise
Customers’ accounts reporting credit
balances arising from advance payments
Cash advance to subsidiary
Claim from insurance entity
Subscriptions receivable due in 60 days
Accrued interest receivable
775,000
100,000
300,000
(30,000)
150,000
(20,000)
400,000
15,000
300,000
10,000
2,000,000
Required:
a. Prepare one compound entry to reclassify the receivables account.
b. Compute the amount to be presented as “trade and other receivables” under current assets.
c. Indicate the classification and presentation of the other items excluded from “trade and other
receivables”.
ANSWERS:
a.
b.
Accounts receivable
Notes receivable
Installment receivable
Advances to suppliers
Advances to subsidiary
Claims receivable
Subscription receivable
Accrued interest receivable
Customer’s credit balances
Advances from customers
Receivables
Accounts receivable
Allowance for doubtful accounts
Notes receivable
Installment receivable
Advances to suppliers
Claim receivable
Subscription receivable
Accrued interest receivable
Total Trade and Other Receivables
775,000
100,000
300,000
150,000
400,000
15,000
300,000
10,000
30,000
20,000
2,000,000
775,000
(50,000)
100,000
300,000
150,000
15,000
300,000
10,000
1,600,000
c. The advances to subsidiary should be classified as noncurrent and presented as long-term
investment.
The customer’s credit balances and advances from customers should be classified as current
liabilities and included as part of “Trade and Other Payables”.
Problem 4-3
Affectionate Company sold merchandise on account for P500,000. The terms are 3/10, n/30. The
related freight charge amounted to
P10,000. The account was collected within the discount period.
Required:
Prepare journal entries to record the transactions under the following freight terms:
1. FOB destination and freight collect
2. FOB destination and freight prepaid
3. FOB shipping point and freight collect
4. FOB shipping point and freight prepaid
ANSWERS:
FOB destination and freight collect
1. Accounts receivable
Freight out
Sales
Allowance for freight charge
2. Cash
Sales discount
Allowance for freight charge
Accounts receivable
FOB destination and freight prepaid
1. Accounts receivable
Freight out
Sales
Cash
2. Cash
Sales discount
Accounts receivable
FOB shipping point and freight collect
1. Accounts receivable
Sales
2. Cash
Sales discount
Accounts receivable
FOB shipping point and freight prepaid
1. Accounts receivable
Sales
Cash
2. Cash
Sales discount
Accounts receivable
500,000
10,000
500,000
10,000
475,000
15,000
10,000
500,000
500,000
10,000
500,000
10,000
485,000
15,000
500,000
500,000
500,000
485,000
15,000
500,000
510,000
500,000
10,000
495,000
15,000
510,000
Problem 4-4
Fiancee Company records sales return during the year as a credit to accounts receivable.
However, at the end of the accounting period, the entity estimates the probable sales return and records the
same by means of an allowance account.
The following transactions occurred in summary form:
1.
2.
3.
4.
5.
Sale of merchandise on account, 2/10, n/30
Collection within the discount period
Collection within the discount period
Sales return granted
Sales return estimated at the end of the year
4,000,000
1,470,000
1,000,000
100,000
20,000
Required:
Prepare journal entries to record the transactions
ANSWERS:
Trans 1:
Trans 2:
Trans 3:
Accounts receivable
Sales
4,000,000
Cash (98% of receivable)
Sales discount
Accounts receivable
1,470,000
30,000
Cash
1,000,000
4,000,000
1,500,000
Accounts receivable
Trans 4:
Trans 5:
1,000,000
Sales return
Accounts receivable
100,000
Sales return
Allowance for sales returns
20,000
100,000
20,000
Problem 4-7
Raven Company started business in January 2021. Sales for the first year totaled P4,000,000. The entity
priced its merchandise to yield a 40% gross profit based on sales.
Industry statistics suggest that 10% of the merchandise sold to customers will be returned.
The entity estimated sales returns based on the industry average. During the year, customers returned goods
with sale price of P300,000.
Required:
Prepare journal entries to record sales, sales returns and the year-end adjusting entry for estimated
sales returns
ANSWERS:
Sales
1. Accounts receivable
4,000,000
Sales revenue
4,000,000
Sales Return
2. Sales return
300,000
Accounts receivable
300,000
Year-end adjusting entry
3. Sales return
100,000
Allowance for sales return
100,000
Estimated sales return (10% x 4,000,000)
400,000
Actual returns
Balance
300,000
100,000
Problem 5-1 (IAA)
Marvelous Company reported the following information before adjustments at year-end:
Accounts receivable
500,000
Notes receivable
200,000
Allowance for doubtful accounts
20,000
Sales
5,000,000
Sales return and allowances
30,000
Sales Discount
20,000
Required:
Prepare adjusting entry to provide for doubtful accounts under each of the following independent
assumptions:
Past experience indicates that 75% of all sales are credit sales and that an average 2% of credit sales may
prove uncollectible.
One percent of gross sales may prove uncollectible
An analysis of the aging of trade receivables indicates that accounts receivable in the amount P80,000 may
prove uncollectible.
The policy is to maintain an allowance for doubtful accounts equal to 10% of the outstanding accounts
receivable.
MARVELOUS COMPANY
Credit Sales (5,000,000x.75)
3,750,000
Entry:
Doubtful Account (3,750,000x0.2)
75,000
Allowance for doubtful accounts
Doubtful Accounts (5,000,000x0.1)
75,000
50,000
Allowance for doubtful accounts
Allowance required
80,000
Less: Balance of Allowance
20,000
Doubtful Account Expense
60,000
50,000
Entry:
Doubtful Accounts
60,000
Allowance for doubtful accounts
Allowance required
50,000
Less: balance of allowances
20,000
Doubtful Account Expense
30,000
Entry:
60,000
Doubtful Accounts
30,000
Allowance of doubtful accounts
30,000
Problem 5-2 (IAA)
At the beginning of current year, Template Company showed the following account balances:
Accounts receivable
1,000,000
Allowance for doubtful accounts
40,000
The following summary transactions occurred during the current year:
Sales on account, 2/30, n/30
7,000,000
Collections from customers within the discount period
2,450,000
Collections from customers beyond the discount period
3,900,000
Accounts receivable within off as worthless
30,000
Recovery of accounts previously written off not included
10,000
in the above collections
Credit memo for sales return
70,000
Required:
Prepare journal entries pertaining to accounts receivable.
Prepare the adjustment for doubtful accounts at year-end if the entity uses the percentage of accounts
receivable method consistently.
What is the realizable value of account receivable at year-end?
Template Company
Required:
Prepare journal entries pertaining to accounts receivable.
Answers:
Sales on account 2/30, n/30
Accounts receivable
7,000,000
Sales
7,000,000
Collections from customers within the discount period.
Cash
2,450,000
Sales discount
50,000
Accounts receivable
2,500,000
Collections from customers beyond the discount period
Cash
3,900,000
Accounts receivable
3,900,000
Accounts receivable written off as worthless
Allowance for doubtful accounts
30,000
Accounts receivable
30,000
Recovery of accounts previously written off not included in the above collections.
Accounts receivable
10,000
Allowance for doubtful accounts
Cash
10,000
10,000
Accounts receivable
10,000
Credit memo for sales return
Sales returns
70,000
Accounts receivable
70,000
Prepare the adjustment for doubtful accounts at year-end if the entity uses the percentage of accounts
receivable method consistently.
Doubtful accounts
40,000
Allowance for doubtful accounts
40,000
Rate = 40,000/1,000,000 = 4%
Allowance for doubtful accounts (1,500,000 X 4%)
60,000
Less: Allowance before adjustments
20,000
Doubtful accounts expense
40,000
What is the net realizable value of accounts receivable at year-end?
Accounts receivable
1,500,000
Allowance for doubtful accounts
60,000
Net realizable value
1,440,000
Problem 5-6 (PHILCPA Adapted)
At the beginning of current year, Rampant Company reported that the allowance for doubtful accounts has
a credit balance of P170,000.
Bad debt recoveries and bad debts written off in the current year were P30,000 and P235,000, respectively.
The allowance account had been previously calculated as a percentage of net sales.
It was decided however to provide for doubtful accounts commencing with the year-end adjusting entry on
the basis of an analysis of the age of the receivable.
The following schedule was prepared.
Percent uncollectible
Not due yet
1,700,000
NIL
1-30 days past due
1,200,000
5
31-60 days past due
100,000
25
61-90 days past due
150,000
50
Over 90 days past due
120,000
100
Additional accounts to be written off
30,000
Required:
What is the required allowance for doubtful accounts at year-end?
How much would be the doubtful accounts expense for the current year?
What is the adjusting entry for the doubtful accounts expense for the current year?
What is the net realizable value of accounts receivable at year-end?
Answers:
What is the required allowance for doubtful accounts at year-end?
Percent Uncollectible
Not due yet
1,700,000
1-30 days past due
1,200,000
5
31-60 days past due
100,000
25
61-90 days past due
150,000
50
Over 90 days past due
120,000
100
3,270,000
How much would be the doubtful accounts expense for the current year?
Required:
280,000
Add: Credit balance of AFDA
170,000
Doubtful accounts expense
110,000
What is the adjusting entry for the doubtful accounts expense for the current year?
Doubtful accounts expense
110,000
Allowance for doubtful accounts
110,000
What is the net realizable value of accounts receivable at year-end?
Accounts receivable
Allowance for doubtful accounts
Net realizable value
3,270,000
280,000
2,990,000
Problem 5-3
At the beginning of the current year, Jocose Company reported the following:
Accounts receivable
2,000,000
Allowance for doubtful accounts
100,000
Additional information for the current year;
1.
2.
3.
4.
Cash sales of the entity amount to P800,000 and represent 10% of gross sales.
Ninety percent of the credit sales customers do not take advantage of the 5/10, n/30 terms.
Customers who did not take advantage of the discount paid P5,490,000.
It is expected that cash discounts of P10,000 will be taken on accounts receivable outstanding at
December 31, 2019.
5. Sales returns amounted to P80,000. All returns were from charge sales.
6. During the year accounts totaling P60,000 were written off as uncollectible.
Recoveries during the year amounted to P10,000. This amount is not included in the collections.
7. The allowance for doubtful accounts is adjusted so that it represents a certain percentage of the
outstanding accounts receivable at year-end.
Required:
a. Prepare journal entries to record the transactions.
b. What is the net realizable value of accounts receivable at year-end?
ANSWERS:
1
Cash
800,000
Sales
3
Discount allowed
800,000
33,000
Accounts Receivable
4
Cash Discount
33,000
10,000
Accounts Receivable
5
Sales
10,000
80,000
Accounts Receivable
6
Bad-debts written off
80,000
60,000
Allowance for Doubtful debts
6
Accounts Receivable
60,000
10,000
Allowance for Doubtful debts
6
Cash
10,000
10,000
Accounts Receivable
Balance in Accounts of Accounts Receivable:
Opening balance
Add: During the year
Less:Collection/Writeoff/Adjustements
Closing balance
10,000
2,000,000
10,000
133,000
1,877,000
CHAPTER 8
Problem 8-1
Pittance Company provided the following information in connection with a bank
loan.
March 1
Pittance Company borrowed 2,000,000 from bank on a six-month note
carrying an interest of 12% per annum. Accounts of 3,000,000 are
pledged to secure the loan.
April 1
Pledged accounts of 1,000,000 are collected minus 2% discount.
June 1
The remaining pledged accounts are collected.
Sept. 1
The bank loan is repaid plus interest.
Required:
Prepare journal entries to record the transactions.
ANSWERS:
March 1
Cash
2,000,000
Notes Payable – bank
April 1
2,000,000
Cash
980,000
Sales Discount
20,000
Accounts Receivable
June 1
Cash
1,000,000
2,000,000
Accounts Receivable
Sept. 1
Notes Payable – bank
Interest Expense
Cash
(12%x2,000,000x6/12)
2,000,000
2,000,000
120,000
2,120,000
Problem 8-5
Grateful Company provided the following transactions;
July 1 The entity assigned P500,000 of accounts receivable to its bank on a nonnotificaation basis in
consideration for a loan. On this date, the bank advanced P400,000 less a service charge of 2% of
the total accounts assigned, and the entity signed a promissory note bearing interest of 1% per
month on the unpaid loan balance at the beginning of the month.
Aug 1 Collected P330,000 on assigned accounts. The entity remitted this amount to the bank in payment
first for the interest and the balance to the principal.
Sep 1
Collected the remaining balance of assigned accounts. The entity paid off the remaining loan
balance.
Required:
Prepare journal entries to record the transactions.
ANSWERS:
July 1 Accounts Receivable Assigned A/c
500,000
Accounts Receivable
500,000
Cash A/c
Service Charge
390,000
10,000
Note Payable
Aug 1 Cash A/c
400,000
330,000
Accounts Receivable
330,000
Note Payable A/c
326,000
Interest Expense A/c
4,000
Cash A/c
Sept 1 Cash A/c
330,000
170,000
Accounts Receivable Assigned
170,000
Notes Payable A/c
74,000
Interest Expense A/c
740
Cash
74,740
Problem 8-8
Dainty Company sold accounts receivable without recourse with a face amount of P6,000,000. The factor
charged 15% commission on all accounts receivable factored and withheld 10% of the accounts factored as
protection against customer returns and other adjustments.
The entity had previously established an allowance for doubtful accounts of P200,000 for these accounts.
By year-end, the entity had collected the factor’s holdback there being no customer returns and other
adjustments.
Required:
Prepare journal entries to record the factoring and the subsequent collection of the factor’s holdback.
ANSWERS:
Cash
4,500,000
Allowance for doubtful accounts
200,000
Receivable from factor
600,000
Loss on factoring
700,000
Accounts Receivable
6,000,000
(To record factoring of accounts receivable)
Cash
600,000
Receivable from factor
600,000
(To record collection of factors holdback)
Problem 8-9
Generous Company provided the information with respect to factoring of accounts receivable.
July 1 Factored P800,000 of accounts receivable without recourse with a bank on notification basis.
The bank charged a factoring fee of 5% of the amount of accounts receivable factored and withheld
10% of the accounts receivable factored to cover sales return and allowances.
July 15 Received notice from the bank that factored accounts are fully collected less sales return and
allowances of P20,000.
31 Received a check from the bank as a final settlement of the factoring contract.
Required:
Prepare journal entries to record the transactions.
Answers:
July 1 Cash
680,000
Receivable from factor (10% x 800,000)
80,000
Service Charge (5% x 800,000)
40,000
Accounts Receivable
July 15 Sales return and allowances
800,000
20,000
Receivable from factor
July 31 Cash
20,000
60,000
Receivable from factor
60,000