RECEIVABLES PROBLEMS

1. MM Company provided some information on their financial records on Dec. 31, 2021 u.102
AR Jan. 1 1,920,000
Collections of AR 6,240,000
Bad debts 200,000
Inventory, Jan. 1 2,880,000
Inventory, December 31 2,640,000
AP, Jan. 1 1,000,000
AP, Dec. 31 1,500,000
Cash sales 1,200,000
Purchases 4,800,000
GP on Sales 2,160,000
Balance of AR on Dec. 31, 2021 ____________________________________

2. The balances of selected accounts taken from Dec. 31, 2020 of MM Co. are shown below: u.110
AR 674,000
Allowance for doubtful accounts 24,000
The ff. transactions (in summary) affecting AR occurred the year ended Dec. 31, 2021:
Sales (all on account, terms 2/10, 1/15, n/60) 3,000,000
Cash received from customers 3,200,000
Cash received includes the ff.:
Customers paying w/in 10-day discount period 1,764,000
Customers paying w/in 15-day discount period 990,000
Recovery of accounts written off 6,000
Customers paying beyond discount period ?
AR written off as worthless 22,000
Credit memo for sales return 12,000
It’s the company’s policy to provide for uncollectible accounts equal to 1% of sales. How much is the carrying value of
the AR as of Dec. 31, 2021? ________________________________________

3. Megabank granted an 8%, 3-year 6,000,000 loan to MM Company on Jan. 1, 2020. The interest of the loan is payable
every Dec. 31. Megabank incurred 520,600 direct origination cost but an origination fee of 200,000 was charged against
MM Company. The effective rate on the loan as a result of the origination cost and fee is now 6%.
Carrying amount of the loan on Jan. 1, 2020 ________
Carrying amount of the loan on Dec. 31, 2020 ___________________
Carrying amount of the loan on Dec. 31, 2021 ___________________ u.139

4. MM granted a 10%, 2-year 5,000,000 loan to DD Company on Jan. 1, 2020. The interest is payable every Dec. 31 for
each year during the term of the contract. MM incurred an origination cost of 328,326 but charged DD Company
150,000 as origination fee. The effective rate is now 8% after considering the origination costs and fees. Due to financial
difficulty, DD was unable to pay the interest on Dec. 31, 2020, MM has now considered that the loan to DD is now
impaired. Reliable estimates show that the projected cash flows from the loan are as follows: 2,000,000 on Dec. 31,
2021 and 3,000,000 on Dec. 31, 2022. What amount of impairment loss on the loan should MM recognize on Dec. 31,
2020? _____________________________________

4. The adjusted trail balance of MM Co. as of Dec. 31, 2019 shows the ff.:
Debit Credit
AR 1,000,000
Allowance for bad debts 40,000
Additional info:
- Cash sales of the company represent 10% of gross sales
- 90% of the credit sales customers did not take advantage of 2/10, n/30 terms.
- It is expected that cash discount of 6,000 will be taken on AR outstanding at Dec. 31, 2020
- Sales return in 2020 amounted to 400,000. All returns were from charge sales
- During 2020, accounts totaling 44,000 were written-off as uncollectible, bad debts recoveries during the year
amounted to 3,000.
- The allowance for bad debts is adjusted so that it represents certain percentage at year end. The required percentage
at Dec. 31, 2020 is 150% of the rate used on Dec. 31, 2019.
Based on above and result of your audit, answer the ff.: o.87
AR as of Dec. 31, 2020 ___________________
ADA as of Dec. 31, 2020 ____________________
NRV of AR as of Dec. 31, 2020 __________________
Doubtful account expense for the year 2020 ____________________________

5. Your audit client, Bograt Corporation, provided for uncollectible AR under allowance method since the start of its
operation on Dec. 31, 2020. Provisions were made monthly at 2% of credit sales, bad debts written off were charge
against allowance account; recoveries of bad debts previously written off were credited to the allowance account; and
no year adjustments to the allowance account were made. Bograt usual credit terms are net 30 days.
The credit balance in the allowance for doubtful accounts was 260,000 at Jan. 1, 2020. During 2020, credit sales totaled
18,000,00, interim provisions for doubtful accounts were made at 2% of credit sales, 180,000 of bad debts were written
off, and recoveries of accounts previously written off amounted to 30,000. Bograt installed a computer system in Nov.
2020 and an aging of accounts receivable was prepared for the first time as of Dec. 31, 2020. A summary of the aging is
as follows:
Classification by month of sale Balance in each category Est. % of uncollectible
Nov. – Dec. 2020 2,280,000 2%
July – Oct. 2020 1,200,000 15%
Jan. – June 2020 800,000 25%
Prior to Jan. 1, 2020 260,000 80%

Based on the review of collectivity of the account balances in the “prior to Jan. 1, 2020” aging category, additional
receivables totaling 120,000 were written off as of Dec. 31, 2020. Bograt adopted a new accounting method for the
allowance of doubtful accounts at the amount indicated by the year-end aging analysis of AR.

Based on the above and the result of your audit, answer the ff.:
Adjusted balance of the ADA as of Dec. 31, 2020 _______________________
Doubtful accounts expense for the year 2020 ______________________

6. MM Bank granted a loan to a borrower in the amount of 5,000,000 on Jan. 1, 2020. The interest rate on the loan is
10% payable annually starting Dec. 31, 2020. The loan matures in 5 years on Dec. 31, 2024. MM incurs 39,400 of direct
loan origination cost and 10,000 of indirect loan origination cost. In addition, MM charges the borrower an 8-point
nonrefundable loan origination fee. The effective interest rate is 12%.
Based on the above information, answer the ff.
CA of the loan as of Jan. 1, 2020 ___________________
Discount/Premium amortization on 2022 ______________________
CA amount of the loan on Dec. 31, 2023 ______________________

7. On Dec. 31, 2018, MT signed a 2,000,000 note to L Bank. The market interest rate at that time was 12%. The stated
rate on the note was 10%, payable annually. The note matures in five years. Unfortunately, because of lower sales, MT
financial condition worsened. On Dec. 31, 2020 ,L Bank determined that it was probable that MT would pay back only
1,200,000 of the principal at maturity. However, it was also considered likely that interest would continue to be paid
based on 2,000,000 loan. The prevailing interest rate for similar type of note as of Dec. 31, 2020 is 14%.

Amount of cash MT received from loan on Dec. 31, 2018 ______________________________________

Interest income in 2020 _____________________________
Loan impairment loss in 2020 ______________________
Interest income in 2021 ______________________________ o.121
AR and RELATED ACCOUNTS

1. The information is from GG Corp.’s first year of operation:

Merchandise purchased 450,000
Merchandise inventory – end 123,000
Collections from customers 150,000
All sales are on account and goods sell at 30% above cost.
AR balance at the end of first year ______________________

2. BB Co. reported the ff. information at the end of its first year of operations, Dec. 31, 2022:
Bad debt expense for 2022 271,000
Accounts written off during 2022 35,400
NRV of AR 895,000
Balance of AR at Dec. 31, 2022 ________________________

3. The policy of MM is to debit bad debt expense for 3% of all new sales. The ff. are the company’s sales and allowance
for the past 4 years:
Year Sales Allowance for bad debts (year-end balance)
2019 3,000,000 45,000
2020 2,950,000 56,000
2021 3,120,000 60,000
2022 2,420,000 75,000
What are the amounts of accounts written off in 2020, 2021, and 2022.