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A C C O U N T I N G 102
ACCOUNTS RECEIVABLE
FIRST QUIZ
I.
THEORIES.
1.
Which of the following is classified as a financial asset?
a. Ordinary shares of the issuer
b. Loans payable
c. Accounts receivable
d. Inventory
2.
Statement I: Trade receivables are classified as current assets if they are to be collected within
year or within the normal operating cycle, whichever is shorter.
Statement II: Non-trade receivables are classified as current assets if they are to be collected w
one year or within the normal operating cycle, whichever is longer.
a.
b.
c.
d.
Both
Both
Only
Only
statements are true
statements are false
statement I is true
statement I is false
3.
What is an example of TRADE receivables?
a. Claims in litigation
b. Loans to employees
c. Amounts due from customers
d. Receivables from affiliates
4.
The normal operating cycle
a. Cannot exceed a period of one year
b. Refers to the seasonal variations experienced by business entities
c. Should be used to classify asset and liabilities as current if the cycle is less than one year
d. Measures the time elapsed between cash disbursements for inventory and cash collection
sales price
5. A credit balance in accounts receivable resulting from overpayments, advanced payments and
returns should be classified as (customers’ credit balance)
a.
b.
c.
d.
6.
A
A
A
A
current liability
long-term liability
contra asset
note disclosure
Uncollectible accounts expense
a. Represents the loss in accounts receivable that eventually turn out to be uncollectible
b. Is the amount an entity must pay whenever a customer fails to pay his or her account
c. Should not occur if a company properly investigates customers based on credit history
d. Is the amount an entity must pay to a collection agent to recover amounts on overdue acco
7. A method of estimating uncollectible accounts that emphasize asset valuation rather than inco
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9.
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The advantage of relating bad debt experience to accounts receivable is that this approach
a. Does not require knowledge of the balance in the allowance for doubtful accounts
b. Gives a reasonably correct amount of receivables in the balance sheet
c. Does not require estimates of uncollectible accounts
d. Relates bad debt expense to the period of sale
Which method of recording bad debt loss is consistent with accrual accounting?
a. Allowance method
b. Direct write-off method
c. Percent of sales method
d. Percent of accounts receivable method
10. Under the direct write-off method, uncollectible accounts expense is recognized
a. As a percentage of net sales during the period
b. As a percentage of net credit sales during the period
c. As specific accounts receivable are determined to be worthless
d. As indicated by aging the accounts receivable at the end of the period
11. Under the allowance method, the entry to recognize bad debt expense
a. Increases net income
b. Decreases current assets
c. Has no effect on current assets
d. Has no effect on net income
12. Under the allowance method, the allowance for doubtful accounts would decrease when
a. Specific account receivable is collected
b. Account previously written off is collected
c. Specific uncollectible account is written off
d. Account previously written off becomes uncollectible
13. Under the allowance method, the entry to record the write-off of a specific account would
a. Decrease both accounts receivable and net income
b. Increase the allowance for uncollectible accounts and decrease net income
c. Decrease both accounts receivable and the allowance for uncollectible accounts
d. Decrease accounts receivable and increase the allowance for uncollectible accounts
14. Under the allowance method, entries at the time of collection of an account previously written
would
a.
b.
c.
d.
Increase net income
Have no effect on net income
Decrease the allowance for doubtful accounts
Have no effect on the allowance for doubtful accounts
15. Which of the following is NOT a means of using receivables to obtain immediate cash?
a. Pledge and assignment of receivables
b. Factoring of accounts receivable
c. Discounting of notes receivable
d. Aging of accounts receivable
16. The amount of receivables that are hypothecated or pledged against borrowings should be
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17. A financing arrangement whereby one party formally transfers its rights to accounts receivabl
another party in consideration for a loan.
a.
b.
c.
d.
Pledge
Assignment
Factoring
Discounting
18. The amount of accounts receivable is included in total receivables with appropriate disclosure
a. Pledged (Yes); Assigned (Yes); Factored (Yes)
b. Pledged (Yes); Assigned (Yes); Factored (No)
c. Pledged (Yes); Assigned (No); Factored (No)
d. Pledged (No); Assigned (No); Factored (No)
19. The assignor’s equity in assigned accounts that is required to be disclosed in the notes to the fi
statements is equal to the
a. Bank loan balance
b. Assigned accounts receivable
c. Bank loan balance minus the assigned accounts receivable
d. Assigned accounts receivable minus the bank loan balance
20. When the accounts receivable of a company are sold outright to company that normally buys
accounts receivable are said to have been
a.
b.
c.
d.
Pledged
Assigned
Factored
Collaterized
21. It is a predetermined amount withheld by a factor as a protection against customer returns, allo
and other special adjustments
a.
b.
c.
d.
Equity in assigned accounts
Service charge
Factor’s holdback
Loss on factoring
22. When accounts receivable are factored,
a. Payable to factor is credited
b. Accounts receivable should be credited
c. A contingent liability is ordinarily created
d. It should be accounted for as a borrowing
23. Which of the following accounts is considered as a form of receivable?
a. Accrued income
b. Accrued expense
c. Prepaid expense
d. Unearned income
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II. P R O B L E M S O L V I N G
Problem 1
In the course of your audit of DKNY Company’s “Receivables” account as of December 31, 201
found out that the account comprised the following items:
Trade accounts receivable
Trade accounts receivable, assigned (proceeds from assignment
amounted to P650,000)
Trade accounts receivable, factored (proceeds from factoring done on
a without-recourse basis amounted to P250,000)
12% Trade notes receivable
20% Trade notes receivable, discounted at 40% upon receipt
of the 180-day note on a without recourse basis
Trade receivable rendered worthless
Installment receivable, normally due 1 year or two years
Customers’ accounts reporting credit balances
arising from sales returns
Advance payments for purchase of merchandise
Customers’ accounts reporting credit balances arising
from advance payments
Cash advances to subsidiary
Claim from insurance company
Subscription receivable due in 60 days
Accrued interest receivable
Deposit on contract bids
Advances to stockholders (collectible in 2020)
1. How much is the total trade receivables?
a. 3,650,000
b. 3,100,000
c.3,000,000
P1,550,000
750,000
300,000
200,000
300,000
50,000
600,000
60,000
300,000
40,000
800,000
30,000
600,000
20,000
500,000
2,000,0000
d. 2,950,000
2. How much is the amount to be presented as “trade and other receivables” under current as
a. 7,350,000
b. 5,350,000
c. 4,850,000
d. 4,050,000
Problem 2
Your audit disclosed that on December 31, 2017, the accounts receivable control account of Alile
Company had a balance of P2,865,000. An analysis of the accounts receivable account showed the
following:
Accounts known to be worthless
Advance payments to creditors on purchase orders
Advances to affiliated companies
Customers’ accounts reporting credit balances arising from sales return
Interest receivable on bonds
Other trade accounts receivable – unassigned
Subscriptions receivable for common stock due in 30 days
Trade accounts receivable - assigned (Finance company’s equity in assigned
accounts is P150,000)
Trade installment receivable due 1 – 18 months, including unearned finance
charges of P30,000
Trade receivables from officers due currently
Trade accounts on which post-dated checks are held (no entries were made on
P 37,500
150,000
375,000
(225,000)
150,000
750,000
825,000
375,000
330,000
22,500
75,000
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Questions: Based on the above and the result of your audit, determine the adjusted balance of follo
3.
4.
The trade accounts receivable as of December 31, 2017 is
a. P1,147,500
b. P1,522,500
c. P1,485,000
d. P1,447,500
The current trade and other receivables net as of December 31, 2017 is
a. P2,647,500
b. P2,610,000
c. P2,272,500
d. P1,822,500
5. How much of the foregoing will be presented under noncurrent assets as of December 31,
a. P1,200,000
b. P 375,000
c. P525,000
d. P 0
Problem 3
Your audit of Banayoyo Corporation for the year ended December 31, 2017 revealed that the Acc
Receivable account consists of the following:
Trade accounts receivable (current)
Past due trade accounts
Uncollectible accounts
Credit balances in customers’ accounts
Notes receivable dishonored
Consignment shipments – at cost
The consignee sold goods costing P96,000 for P160,000. A 10%
commission was charged by the consignee and remitted the balance to
Banayoyo. The cash was received in January, 2018.
Total
P3,440,000
640,000
128,000
(80,000)
240,000
320,000
P4,688,000
The balance of the allowance for doubtful accounts before audit adjustment is a credit of P80,000.
estimated that an allowance should be maintained to equal 5% of trade receivables, net of amount
from the consignee who is bonded. The company has not provided yet for the 2017 bad debt expe
Questions: Based on the above and the result of your audit, determine the adjusted balance of follo
6.
7.
8.
Trade accounts receivable
a. P4,080,000
b. P3,440,000
c. P4,464,000
d. P3,584,000
Allowance for doubtful accounts
a. P204,000
b. P216,000
c. P172,000
d. P179,200
Doubtful accounts expense
a. P264,000
b. P220,000
c. P252,000
d. P227,200
Problem 4
Bantay Company’s unadjusted trial balance at December 31, 2017, included the following accoun
Accounts receivable
Allowance for doubtful accounts
Sales
Sales returns and allowances
Debit
P1,000,000
40,000
Credit
P15,000,000
700,000
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Problem 5
An analysis and aging of Burgos Corp. accounts receivable at December 31, 2017, disclosed the
following:
Amounts estimated to be uncollectible
Accounts receivable
Allowance for doubtful accounts (per books)
P 1,800,000
17,500,000
1,250,000
10. What is the net realizable value of Burgos’ receivables at December 31, 2017?
a. P15,700,000
b. P17,500,000
c. P16,250,000
d. P14,450,000
Problem 6
Cabugao Company provides for doubtful accounts based 3% of credit sales. The following data ar
available for 2017.
Credit sales during 2017
Allowance for doubtful accounts 1/1/17
Collection of accounts written off in prior years (Customer credit was
reestablished)
Customer accounts written off as uncollectible during 2017
P21,000,000
170,000
80,000
300,000
11. What is the balance in allowance for doubtful accounts at December 31, 2017?
a. P630,000
b. P420,000
c. P500,000
d. P580,000
Problem 7
At the end of its first year of operations, December 31, 2017, Caoayan, Inc. reported the following
information:
Accounts receivable, net of allowance for doubtful accounts
Customer accounts written off as uncollectible during 2017
Bad debts expense for 2017
P9,500,000
240,000
840,000
12. What should be the balance in accounts receivable at December 31, 2017, before subtracti
allowance for doubtful accounts?
a. P10,100,000
b. P10,340,000
c. P 9,740,000
d. P10,580,000
Problem 8
The following accounts were taken from Cervantes Inc.’s ba lance sheet at December 31, 2017.
Accounts receivable
Allowance for doubtful accounts
Net credit sales
Debit
P4,100,000
100,000
Credit
P7,500,000
13. If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be
for 2017.
a. P123,000
b. P 23,000
c. P223,000
d. P225,000
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Problem 9
In relation to your audit of Inuyasha Inc.’s accounts receivable you ascertained the following info
a.
The general ledger balances of the client’s receivable and related accounts were:
Accounts receivable
Allowance for bad debts
Amortized cost
b.
Inuyasha Inc. estimates its bad debt losses by aging its accounts receivable, the aging sche
accounts receivable at December 31, 2017, is presented below:
Age of accounts
Current
1 to 30 days past due
31 to 60 days past due
61 to 90 days past due
Over 90 days past due
c.
d.
P3,225,300
(169,000)
P3,056,300
Amount
P1,686,400
922,000
384,800
153,300
78,800
The company normally sells n/30.
Furthermore, the company’s uncollectible accounts experience for the past 5 years are
summarized in the schedule that follows:
Year
Current
1-30
31-60
61-90
More
days PD
days PD
days PD
than 90
days PD
2016
1%
6%
9%
23%
55%
2015
2%
8%
10%
18%
60%
2014
1%
4%
11%
16%
45%
2013
3%
5%
12%
22%
45%
2012
3%
2%
8%
21%
45%
Requirements:
14. What are the corresponding percentages to be used per age category in computing for the
required allowance for bad debts?
Current
1-30
31-60
61-90
>90
a. 1%
3%
10%
20%
45%
b. 1.5%
5%
10%
25%
50%
c. 2%
5%
10%
20%
50%
d. 2%
3%
10%
25%
45%
15. The required allowance for bad debt is
a. 173,653
b. 185,415
c. 188,368
d. 220,842
16. The net realizable value of the company’s accounts rec eivable on December 31, 2017, sh
a. 3,036,932
b. 3,004,458
c. 2,986,345
d. 2,976,540
P r o b l e m 10
During your examination of the 2017 financial statements of the Yesterday Company you find tha
company does not provide allowance for doubtful accounts ever since it started operations in 2013
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Year of Sale
Charge Sales
2013
P600,000
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2014
P1,500,000
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2015
P1,800,000
2016
P1,950,000
201
P1,650
7,800
27,000
16,200
9,000
30,000
8
Accounts Written off &
Year of Sale
2013
3,300
2014
9,000
6,000
2015
3,000
24,000
2016
7,200
2017
Recoveries & Year of Sale
2013
2014
600
2015
2,400
2016
2017
Accounts receivable at December 31, 2017 were as follows:
From 2016 sales
From 2017 sales
Total
Problems 4 Receivables.pdf
3,000
3,600
P90,000
810,000
P900,000
REQUIRED: Based on the above and the result of your audit, you are to provide the answers to th
following:
17. The average percentage of net doubtful accounts to charge sales that should be used in set
the 2017 allowance is
a. 2.50%
b. 1.90%
c. 2.05%
d. 1.77%
18. How much is the doubtful accounts expense for 2017?
a. P32,850
b. P54,600
c. P43,800
d. P41,250
19. The doubtful accounts expense for 2017 is over(under) stated by
a. P13,350
b. P 55,950
c. (P32,850)
d. (P41,250)
20. The net realizable value of accounts receivable as of December 31, 2017 balance sheet is
a. P831,600
b. P853,800
c. P868,650
d. P810,000
21. The adjusting journal entry necessary to set up the allowance for doubtful accounts as of
December 31, 2017 will include a debit to Retained Earnings of
a. P223,800
b. P184,800
c. P165,000
d. P 0
P r o b l e m 11
Your audit client, Help Corporation, provided for uncollectible accounts receivable under the allo
method since the start of its operations to December 31, 2017. Provisions were made monthly at 2
of credit sales; bad debts written off were charged to the allowance account; recoveries of bad deb
previously written off were credited to the allowance account; and no year-end adjustments to the
allowance account were made. Help's usual credit terms are net 30 days.
The credit balance in the allowance for doubtful accounts was P260,000 at January 1, 2017. Durin
credit sales totaled P18,000,000, interim provisions for doubtful accounts were made at 2 percent
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Classifications by Month of Sale
November-December 2017
July-October 2017
January-June 2017
Prior to January 1, 2017
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Balance in Each Category
P2,280,000
1,200,000
800,000
260,000
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Estimated % Uncollectible
2%
15%
25%
80%
Based on the review of collectability of the account balances in the "prior to January 1, 2017" agin
category, additional receivables totaling P120,000 were written off as of December 31, 2017. Effe
with the year ended December 31, 2017, Help adopted a new accounting method for estimating th
allowance for doubtful accounts at the amount indicated by the year-end aging analysis of account
receivable.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
22. How much is the adjusted balance of the allowance for doubtful accounts as of December
2017?
a. P537,600
b. P350,000
c. P633,600
d. P753,600
23. How much is the doubtful accounts expense for the year 2017?
a. P427,600
b. P577,600
c. P547,600
d. P457,600
24. The recorded allowance for doubtful accounts should be increased by
a. P283,600
b. P187,600
c. P67,600
d. P0
P r o b l e m 12
The John Corporation started its business on January 1, 2017.
After considering the collections experience of other companies in the industry, John Corporation
established an allowance for bad debts estimated to be 5% of credit sales. Outstanding receivables
recorded in the books of accounts on December 31, 2017 totaled P575,000, while the allowance fo
debts account had a credit balance of P62,500 after recording estimated doubtful account expense
December and after writing off P12,500 of uncollectible accounts.
Further analysis of the company’s accounts showed that merchandise purchased in 2017 amounte
P2,250,000 and ending merchandise inventory was P375,000. Goods were sold at 40% above cost
80% of total sales were on account. Total collections from customers, on the other hand, excludin
proceeds from cash sales, amounted to P1,500,000.
QUESTIONS: Based on the above and the result of your audit, answer the following:
25. The recorded accounts receivable as of December 31, 2017 is understated by
a. P12,500
b. P412,500
c. P537,500
d. P0
26. The doubtful accounts expense for the year ended December 31, 2017 should be
a. P105,000
b. P75,000
c. P131,250
d. P125,000
27. The recorded allowance for doubtful accounts receivable as of December 31, 2017 is und
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P r o b l e m 13
The adjusted trial balance of Galimuyod Company as of December 31, 2017 shows the following:
Accounts receivable
Allowance for bad debts
Debit
P1,000,000
Credit
P40,000
Additional information:
•
•
•
•
•
•
Cash sales of the company represents 10% of gross sales.
90% of the credit sales customers do not take advantage of the 2/10, n/30 terms.
It is expected that cash discount of P6,000 will be taken on accounts receivable outstandin
December 31, 2017.
Sales returns in 2017 amounted to P400,000. All returns were from charge sales.
During 2017, accounts totaling to P44,000 were written off as uncollectible; bad debt reco
during the year amounted to P3,000.
The allowance for bad debts is adjusted so that it represents certain percentage of the outst
accounts receivable at year end. The required percentage at December 31, 2017 is 150% o
rate used on December 31, 2016.
Questions: Based on the above and the result of your audit, answer the following:
29. The accounts receivable as of December 31, 2017 is
a. P3,000,000
b. P 300,000
c. P 333,333
d. P2,444,000
30. The allowance for doubtful accounts as of December 31, 2017 is
a. P 20,000
b. P120,000
c. P180,000
d. P146,640
31. The net realizable value of accounts receivable as of December 31, 2017 is
a. P 307,340
b. P2,814,000
c. P2,874,000
d. P2,291,360
32. The doubtful account expense for the year 2017 is
a. P181,000
b. P121,000
c. P 21,000
d. P147,640
P r o b l e m 14
In your audit of Lidlidda Plastic Products Co., you noted that the company’s balance sheet shows
accounts receivable balance at December 31, 2016 as follows:
Accounts receivable
Allowance for doubtful accounts
P3,600,000
72,000
P3,528,000
During 2017, transactions relating to the accounts were as follows:
•
•
Sales on account, P38,400,000.
Cash received from collection of current receivable totaled P31,360,000, after discount of
P640,000 were allowed for prompt payment.
•
Customers’ accounts of P160,000 were ascertained to be worthless and were written off.
•
Bad accounts previously written off prior to 2016 amounting to P40,000 were recovered.
•
The company decided to provide P184,000 for doubtful accounts by journal entry at the e
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Questions: Based on the above and the result of your audit, answer the following:
33. The accounts receivable as of December 31, 2017 is
a. P8,680,000
b. P9,840,000
c. P4,240,000
d. P8,640,000
34. The allowance for doubtful accounts as of December 31, 2017 is
a. P 8,000
b. P136,000
c. P184,000
d. P176,000
35. The net realizable value of accounts receivable as of December 31, 2017 is
a. P8,544,000
b. P8,456,000
c. P8,504,000
d. P4,104,000
36. If receivables are hypothecated against borrowings, the amount of receivables involved sh
a. Disclosed in the statements or notes
b. Excluded from the total receivables, with disclosure
c. Excluded from the total receivables, with no disclosure
d. Excluded from the total receivables and a gain or loss is recognized between the face
and the amount of borrowings
P r o b l e m 15
Visage Corp. had the following receivable financing transactions during the year:
•
On March 1, 2017, Visage Corp. factored P500,000 of its accounts receivable to BPI. As
date of factoring, it was ascertained that P20,000 of the accounts receivable is doubtful of
collection. BPI advanced P350,000 cash to Visage Corp. and withheld P50,000 as factor’s
holdback (to cover future sales discount and sales returns and allowance). The company in
P10,000 direct transaction costs (legal fees and other professional fees) related to the fact
The factoring was done on a without-recourse basis, thus transferring all significant risks
rewards associated to the receivable to BPI.
•
On May 1, 2017, Visage Corp. assigned P800,000 of its outstanding accounts receivable t
consideration of a P500,000, 24% loan. BPI charged the company 2% of the accounts assi
service charge. By the end of May, Visage Corp. collected P200,000 cash from the assign
accounts net of a P5,000 sales discount. By the end of June, Visage Corp. collected anoth
P150,000 from the assigned accounts after P4,000 sales discount. The company accepted
merchandise originally invoiced at P30,000 as sales returns and wrote-off P20,000 of the
accounts as worthless. It was agreed between parties that monthly collections shall be rem
the bank as partial payment of the loan and interest.
37. How much should be reported as gain/loss in the income statement on the transfer of recei
on the factoring of receivable on March 1?
a. 90,000
b. 100,000
c. 80,000
d. none
38. How much should be reported as gain/loss in the income statement on the assignment of
receivables on May 1?
a. 16,000
b. 126,000
c. 316,000
d. none
39. What is the carrying value of the accounts receivable – assigned as of June 30?
a. 391,000
b. 400,000
c. 450,000
d. none
40. What is the carrying value of the loans payable related to the accounts receivable assigned