DISCUSSION QUESTIONS – ACCOUNTS RECEIVABLE & DOUBTFUL ACCOUNTS
1. What is meant by normal operating cycle?
2. What are trade receivables?
3. Give the rule regarding the balance sheet classification of trade receivables.
4. What are non-trade receivables?
5. Give the rule regarding the balance sheet classification of non-trade receivables.
6. to 13. are based on the following:
Give the proper balance sheet classification for each number. Assume the balance sheet date is December 31,
2019 and the normal operating cycle of the business is two years. Choose from the following classifications:
TRADE AND OTHER RECEIVABLES
TRADE AND OTHER PAYABLES
OTHER NON-CURRENT ASSET
NEGATIVE SHAREHOLDERS’ EQUITY ITEM
LONG-TERM INVESTMENT
6. A P50,000 promissory note received from a customer for sale of merchandise. It is dated Dec. 1, 2019 and
is due Nov. 30, 2021.
7. A P100,000 promissory note received from the president of the company for cash advances given to him.
The note is dated Nov. 1, 2019 and is due on Oct. 31, 2021.
8. P1,000,000 advances to subsidiary which is due on Sept. 30, 2020.
9. Subscription Receivable which is due on March 31, 2021.
10. Advances to supplier. The merchandise will be delivered in April 2021.
11. Cash deposit for the purchase of equipment. The equipment will be delivered in January 2020.
12. A customer’s account in the accounts receivable ledger with a P20,000 credit balance on Dec. 31, 2019.
13. A supplier’s account in the accounts receivable ledger with a P15,000 debit balance on Dec. 31, 2019.
14. to 17.
What is the basis for the initial measurement of:
14. Accounts Receivable
16. Long-term interest bearing promissory note.
15. Short-term non-interest bearing promissory note.
17. Long-term non-interest bearing promissory note.
18 to 20.
What is the basis for subsequent measurement of:
18. Accounts Receivable
19. Long-term interest bearing promissory note.
20. Long-term non-interest bearing promissory note.
21. On Dec. 31, 2019, a customer purchased P100,000 merchandise, 2/10, n/30. On Dec. 31, 2019, it is
expected that the customer will pay within 10 days. Give the adjusting entry on Dec. 31, 2019.
22. Refer to no. 21. Give the journal entry upon payment of the customer within the 10-day discount period.
23. A customer purchases P1,000,000 merchandise, 2/10, n/30. The P20,000 freight related to the purchase is
paid by the customer. Give the journal entry to record the sale assuming the term of the sale is FOB Shipping
Point.
24. Refer to no. 23. Give the journal entry to record the collection within the discount period.
25. Refer to no. 23. Give the journal entry to record the sale assuming the term of the sale is FOB Destination.
26. Continuation of no. 25. Give the journal entry to record the collection within the discount period.
27. to 29. Using the net method of recording credit sales, give the journal entry to record:
27. Sale of merchandise, P100,000, 2/10, n/30.
28. Collection of accounts receivable within the discount period.
29. Collection of accounts receivable beyond the discount period.
30. to 32.
Assume the following account balances at year-end:
DR.
CR.
Accounts Receivable
P 400,000
Allowance for Doubtful Accounts (Unadjusted ending balance)
5,000
Sales
P2,000,000
Give the journal entry to recognize Doubtful Accounts Expense based on the following:
30. It is estimated that 5% of accounts receivable will prove to be uncollectible.
31. It is estimated that 2%of sales will prove to be uncollectible.
32. Estimated doubtful accounts per aging of account receivable is P12,000.
33. to 41.
ABC Co.’s adjusted trial balance on Dec. 31, 2019 showed the following:
Accounts Receivable
P 5,000,000
Allowance for Doubtful Accounts
300,000
Transactions for 2020 included the following:
-Total sales (including P10,000,000 credit sales)
P 20,000,000
-Collection of Accounts Receivable (net of 2% discount)
8,820,000
-Accounts Receivable written off during the year
100,000
-Recovery of accounts previously written off (not included in the P8,820,000 collection)
20,000
33. to 37. Give the journal entries to record the transactions for 2020.
38. What is the accounts receivable balance on Dec.31, 2020?
39. What is the allowance for doubtful accounts unadjusted balance on Dec. 31, 2020? Indicate whether it is a
debit or credit balance.
40. Give the adjusting entry to recognize doubtful accounts expense. Assume that ABC Co. recognized
doubtful accounts expense at 2% of gross sales.
41. On Dec. 31, 2020, assume that an aging of A/R revealed that the net realizable value of accounts
receivable is P5,700,000. Give the entry to correct the allowance for doubtful accounts.
PROBLEM No. 1 – ACCOUNTS RECEIVABLE
ABC Co. reported the following accounts in its Dec. 31, 2019 balance sheet:
Accounts Receivable
P 200,000
Allowance for Doubtful Accounts
10,000
Transactions for 2020:
A. Credit Sales (2/10, n/30)
B. Total cash collections from credit customers.
P
700,000
600,000
Note: Of the P600,000 collection, P490,000 was collected net of 2% discount. Make separate entries
for collections made within the discount period and collections made beyond the discount period.
C. Credit Memo for sales returns and allowances
40,000
D. Accounts written off
30,000
E. Recoveries of accounts previously written off.
15,000
Note: Not included in the B.
The company uses aging of accounts receivable in estimating doubtful accounts expense. At the end of 2020,
accounts receivable was classified as follows:
Age Group
Balance
Estimated Percentage Uncollectible
Not yet due
P
?
2%
1-30 days past due
74,000
3%
31-60 days past due
27,000
5%
61-90 days past due
21,000
10%
More than 90 days past due
15,000
20%
Required:
1. Give the journal entries for 2020 transactions.
2. What is the accounts receivable balance on Dec. 31, 2020?
3. What is the unadjusted allowance for doubtful accounts on Dec. 31, 2020? Indicate whether it is a debit or
credit balance. Ex: 12,300 CREDIT
4. Give the adjusting entry to record doubtful accounts expense for 2020.
5. What is the net realizable value of accounts receivable on Dec. 31, 2020.
PROBLEM No. 2 – ACCOUNTS RECEIVABLE (1 point each)
ABC Co. reported the following balances on Dec. 31, 2019:
Accounts Receivable
P 500,000
Allowance for Doubtful Accounts
25,000
Summary of Transactions for 2020:
1. Collections of accounts receivable from beginning balance:
Within the discount period (net of 2% discount)
Beyond the discount period
P 294,000
150,000
Make separate entries for collections made within the discount period and collections made beyond the discount period.
2. Accounts written off during the year, P50,000
3. Recoveries of accounts previously written off, P10,000
Note: This is already included in the P150,000 collection in No. 1)
4. Credit sales for 2020 (all on terms of 2/10, n/30):
Customer
Invoice Amount
Shipping Terms
D Co.
P400,000……. FOB destination, freight prepaid, P20,000
E Co.
200,000……. FOB shipping point, freight collect, P10,000
F Co.
600,000……. FOB shipping point, freight prepaid, P30,000
G Co.
800,000……. FOB destination, freight collect, P40,000
Note: Prepare one journal entry for each customer.
5. Collections of accounts receivable from 2020 credit sales:
Customer
Collections (within discount period)
D Co.
P350,000
E Co.
150,000
F Co.
430,000 (including freight of P30,000)
G Co.
200,000 (P10,000 related freight was offset against payments)
Note: Prepare one journal entry for each customer. Collections represent face value of accounts receivable.
Required:
1. Give the journal entries to record the 2020 transactions.
2. Give the adjusting entries on Dec. 31, 2020 to take up:
A. Doubtful accounts expense for 2020. ABC Co. uses the percentage of accounts receivable in
determining doubtful accounts expense.
B. 30% of the accounts receivable balance is expected to be collected within the discount period.
3. Compute the net realizable value of accounts receivable.