ILLUSTRATION ON DEPRECIATION:

Last August 1, 2014, Sassy Trading acquired a computer for a list price of P100,000, less 10.
Terms: 20% down payment, the balance on terms 2/10, n/30. Sassy paid the account in full on
August 25, 2014. The computer has a useful life of 5 years, with an estimated residual value of
P4,000.

Requirements:

1. Compute for the acquisition cost of the equipment

Invoice Price (P100,000 x 0.9) P 90,000.00
Down payment (20% x 90,000) (18,000.00)
Accounts Payable P 72,000.00
Cash Discount ( 2 % x 45,000) (1,440.00)
Net Accounts Payable P 70,560.00
Down payment 18,000.00
Cost of Equipment P 88,560.00

2. Compute for the depreciation expense to be recorded on December 31, 2014.

Cost P 88,560.00
Salvage Value (4,000.00)
Depreciable Cost P 84,560.00
Useful Life 5.00
Annual Depreciation P 16,912.00
Months used 5/12
Depreciation Expense-2014 P 7,046.67

3. Compute for the Accumulated Depreciation as of December 31, 2015

Depreciation Expense- 2014 P 7,046.67
Depreciation Expense- 2015 16,912.00
Accumulated Depreciation, 12/31/15 P 23,958.67
4. Compute for the carrying value of the computer on December 31, 2015.
Cost P 88,560.00
Accumulated Depreciation, 12/31/15 (23,958.67)
Carrying Value, 12/31/15 P 64,601.33

ILLUSTRATION: PERCENTAGE OF SALES

For the calendar year 2015, AXM Trading used the percentage of sales method in estimating its
doubtful accounts expense, which was estimated to be 2% of Net Credit Sales. Credit sales for
the period amounted to P895,000 while returns and allowances granted to credit sales totaled
P40,000, with discounts granted amounting to P25,000.

• Doubtful Accounts Expense:

 Net Credit Sales P830,000
Percentage of Doubtful Accounts x 0.02
Doubtful Accounts Expense P16,600

Adjusting Entry:
Doubtful Accounts Expense 16,600
Allowance for Doubtful Accounts 16,600
To record doubtful accounts expense

ILLUSTRATION: PERCENTAGE OF RECEIVABLES

Aimee Trading started 2016 with total Accounts Receivable amounting to P425,000. During the
year, total sales amounted to P842,500, 60% of which were on account. Collections made
during the year were as follows:

COLLECTIONS MADE AMOUNT

On previous year’s accounts P110,000
Collections received on current year credit sales, beyond the discount 146,600
period
Collections received on current year credit sales, within the discount 401,800
period (Terms: 2/10)

Compute for the ending balance of Accounts Receivable:

Accounts Receivable, Beginning 425,000.00
Credit Sales (60% x 842,500) 505,500.00
Collections during the year:
From previous year's accounts 110,000.00
From current year's credit sales within the discount period 410,000.00
From current year's credit salesbeyond the discount period 146,600.00 (666,600.00)
Accounts Receivable, Ending 263,900.00
CASE A: It was estimated that 10% of the outstanding accounts receivable balance is
uncollectible. The Allowance for Bad Debts had a credit balance of P10,390 before any
adjustment
Accounts Receivable, Ending 263,900.00
Percentage Uncollectible 0.10
Required Allowance for Bad Debts 26,390.00
Allowance for Bad Debts, Beginning (10,390.00)
Bad Debts Expense 16,000.00

Adjusting Entry:
Bad Debts Expense 16,000
Allowance for Bad Debts 16,000
To record bad debts expense
CASE B: It was estimated that 10% of the outstanding accounts receivable balance is
uncollectible. The Allowance for Bad Debts had a debit balance of P10,390 before any
adjustment
Accounts Receivable, Ending 263,900.00
Percentage Uncollectible 0.10
Required Allowance for Bad Debts 26,390.00
Allowance for Bad Debts, Beginning 10,390.00
Bad Debts Expense 36,780.00

Adjusting Entry:
Bad Debts Expense 36,780
Allowance for Bad Debts 36,780
To record bad debts expense

Under both cases:

Accounts Receivable, December 31 263,900.00

Allowance for Bad Debts (26,390.00)
Net Realizable Value 237,510.00

ILLUSTRATION: WRITE-OFF AND RECOVERY

On January 1, 2015, AMD Trading had Accounts Receivable amounting to P186,500 and an
Allowance for Bad Debts amounting to P25,430. During the year, total sales amounted to
P650,000, forty percent of which were on cash basis. Of the sales on account for the year,
twenty-five percent remained uncollected as of year end. During the year, accounts receivable
amounting to P14,250 were written off. In the same year, recoveries of accounts previously
written off totaled P8,500. It is a company policy that Allowance for Bad Debts is maintained at
10% of the ending receivable balance.

1. Compute for the ending balance of Accounts Receivable

Accounts Receivable, 1/1 186,500

Credit Sales (650,000 x 0.6) 390,000
Collections on Credit Sales
(0.75 x 390,000) (292,500)
Wite-off (14,250)
Accounts Receivable, 12/31 269,750

2. Entry to record write-off and recovery

Write-off:
Allowance for Bad Debts 14,250
Accounts Receivable 14,250
To record write-off of receivable
 Recovery:
Cash 8,500
Miscellaneous Income 8,500
To record recovery of account written-off.

3. Compute for Bad Debts Expense during the year.

Required Allowance 26,975
(10% x 269,750)
Allowance before adjustment (11,180)
(25,430-14,250)
Bad Debts Expense 15,795

Adjusting Entry:
Bad Debts Expense 15,795
Allowance for Bad Debts 15,795
To record bad debts expense

4. Compute for the net realizable value of the accounts receivable.

Accounts Receivable, 12/31 269,750
Allowance for Bad Debts, 12/31 (26,975)
Net Realizable Value 242,775