CHAPTER 5

ESTIMATION OF DOUBTFUL ACCOUNTS

TECHNICAL KNOWLEDGE
To identify the methods of estimating doubtful accounts expense.

To understand the argument for and against the aging of accounts receivable method.

To understand the argument for and against the percentage of accounts receivable
method.

To understand the argument for and against the percentage of sales method.

To determine the doubtful accounts expense and the allowance for doubtful accounts
expense and the allowance for doubtful accounts under aging, percentage of accounts
receivable and percentage of sales method.

Methods of estimating doubtful accounts

There are three methods of estimating doubtful accounts, namely:

1. Aging the accounts receivable or “statement of financial position approach”

2. Percent of accounts receivable or also statement of financial position approach
3. Percent of sales or “income statement approach”

Aging of accounts receivable

The aging of accounts receivable involves an analysis where the accounts are classified
into not due or past due.

a. Not due e. 91 to 120 days past due

b. 1 to 3 days past due f. 121 to 180 days past due
c. 31 to 60 days past due g. 181 to 365 days past due
d. 61 to 90 days past due h. More than 1 year past due

The allowance is then determined by multiplying the total of each classification by the
rate or percent of loss experienced by the entity for each category.

The major argument for the use of this method is the more accurate and scientific
computation of the allowance for doubtful accounts.
This method has the advantage of presenting fairly the accounts receivable in the
statement of financial position at net realizable value.

The objection to the aging method is that it violates the matching process.

Moreover, this method could become prohibitively time consuming if a large number of
accounts are involved.

Illustration

The following data are summarized in aging the accounts receivable at the end of the
period:

(a) (b) (a x b)
Experience Required
Balance rate allowance
Not due 500,000 1% 5,000
1-30 days past due 300,000 2% 6,000
31-60 days past due 200,000 4% 8,000
61-90 days past due 100,000 7% 7,000
91-180 days past due 50,000 10% 5,000
181-365 days past due 30,000 30% 9,000
More than one year 20,000 50% 10,000
1,200,000 50,000

The amount computed by aging of accounts receivable represents the required

allowance for doubtful accounts at the end of the period.

Thus, if the allowance for doubtful accounts has a credit balance of P10,000 before
adjustment, the doubtful accounts expense is determined as follows:

Required allowance 50,000

Less: Allowance balance before adjustment 10,000

Doubtful accounts expense 40,000

The journal entry to record the doubtful accounts expense is:

Doubtful accounts 40,000

Allowance for doubtful accounts 40,00

When is an account past due?

The credit terms will determine whether an account is past due. For example, if the
credit terms were 2/10, n/30, and the account is 45 days old, it is considered to be 15
days past due.
Therefore, the phrase “past due” refers to the period beyond the maximum credit term.
In the example, the credit term of credit period is 30 days.

Percent of accounts receivable

A certain rate is multiplied by the open accounts at the end of the period in order to
get the required allowance balance.

The rate used is usually determined from past experience of the entity.

This procedure has the advantage of presenting the accounts receivable at estimated
net realizable value. The approach is also simple to apply.

However, the application of this approach violates the principle of matching bad debt
loss against the sales revenue.

Moreover, the loss experience rate may be difficult to obtain and may not be reliable.

Illustration

The balance of accounts receivable is P2,000,000 and he credit balance in the

allowance for doubtful accounts is P10,000. Doubtful accounts are estimated at 3% of
accounts receivable.

Journal entry

Doubtful accounts 50,000

Allowance for doubtful accounts 50,000

Required allowance (3% x 2,000,000) 60,000

Less: Credit balance in allowance 10,000

Doubtful accounts expense 50,000

Percent of sales

The amount of sales for the year is multiplied by a certain rate to get the doubtful
accounts expense. The rate may be applied on credit sales or total sales.

Theoretically, the rate to be sued is computed by dividing the bad debt losses in prior
years by the charge sales of prior years.

The rate thus obtained is multiplied by the current year’s charge sales to arrive at the
doubtful accounts expense.

Practically, however, there is no substantial difference if in the computation of the

rate, the basis is total sales of the prior periods.
In such a case, the rate thus obtained is multiplied by the current year’s total sales to
get the doubtful accounts expense.

This procedure of determining the rate has the advantage of eliminating the extra work
of making a record of cash sales and credit sales.

However, this approach may prove unsatisfactory when there is a considerable

fluctuation in the proportion of cash and credit sales periodically.

Argument for percent of sales method

When the “percent of sales” method is used in computing doubtful accounts, proper
matching of cost against revenue is achieved.

This is so because the bad debt loss is directly related to sales and reported in the year
of sale.

Thus, this method is an income statement approach because it favors the income
statement.

Argument against percent of sales method

The main argument against this method is that the accounts receivable may not be
shown at estimated realizable value because the allowance for doubtful accounts may
prove excessive or inadequate.

Thus, it becomes necessary that from time to time the accounts should be “aged” to
ascertain the probable loss.

As a consequence, the rate applied on sales should be revised.

Illustration

The following accounts are gathered from the ledger:

Accounts receivable 1,000,000

Sales 5,050,000
Sales return 50,000
Allowance for doubtful accounts 20,000

If doubtful accounts are estimated at 1% of net sales, the doubtful accounts expense
is P50,000 (1% x P5,000,000)and recorded as follows:

Doubtful accounts 50,000

Allowance for doubtful accounts 50,000
If this method is used, the resulting amount of the computation is already the amount
of the doubtful accounts expense and not the required allowance, in contradistinction
with the aging method and the percent of accounts receivable method.

The allowance balance before adjustment is ignored in determining the doubtful

accounts expense to be recorded.

However, the allowance for doubtful accounts should have an adjusted balance of
P70,000, the beginning allowance of P20,000 plus the adjustment of P50,000.

Correction in allowance for doubtful accounts

As pointed out earlier, the percent of sales method of estimating doubtful accounts
has the disadvantage of the allowance for doubtful accounts has the disadvantage of
the allowance for doubtful accounts being inadequate or excessive.

Aging the accounts is then necessary to test the reasonableness of the allowance.

Where the allowance is inadequate or excessive, a question arises as to the proper

treatment of the discrepancy, whether to consider it as an error or component of profit
or loss.

The correction is to be reported in the income statement either as an addition to or

subtraction from doubtful accounts expense.

The reason is that the correction is the natural result of a change in estimate.
Changes in estimate are treated currently and prospectively, if necessary.

Accordingly, an inadequate allowance is adjusted as follows:

Doubtful accounts xx
Allowance for doubtful accounts xx

An excessive allowance is recorded as follows:

Allowance for doubtful accounts xx

Doubtful accounts xx

When the allowance is excessive, there is a corollary problem when the discrepancy is
more than the debit balance in the doubtful account expense account.

For example, if the amount of correction due to excessive allowance is P30,000 and
the doubtful accounts expense account has a debit balance of P20,000, following the
above procedure will result to a credit balance in the doubtful accounts expense
account of P10,000. Such balance is obviously abnormal.
It is believed that in such a case, the P10,000 difference shall not be treated as a prior
period error but included in the determination of the income of the current period.

Journal entry

Allowance for doubtful accounts 30,000

Doubtful accounts 20,000
Miscellaneous income 10,000

Debit balance in allowance account

Is the possible? How? What does it indicate?

The allowance for doubtful accounts normally has a credit balance.

However, in certain instances, it may have a debit balance because it may be the
policy of the entity to adjust the allowance at the end of the period and record
accounts written off during the year.

For example, on January 1, the allowance account before adjustment has a credit
balance of P30,000 and during the year an account of P50,000 is written off and
recorded as follows:

Allowance for doubtful accounts 50,000

Accounts receivable 50,000

Thus, on December 31, the allowance account has debit balance of P20,000 before
adjustment.

The debit balance does not indicate that the allowance is inadequate because the
accounts written off during the year and charged to the allowance may have arisen
from current year sales.

Thus, the charge to the allowance account simply predates the recording of doubtful
accounts.

At the end of the period when adjustments are made, the debit balance should be
considered.

To continue the example – if on December 31, the required allowance is P40,000, the
adjustment should be:

Doubtful accounts 60,000

Allowance for doubtful accounts 60,000

Required allowance 40,000

Add: Debit balance in allowance 20,000

Doubtful accounts expense 60,000

Note that after the adjustment for the doubtful accounts, the allowance account has
credit of P40,000, which is the required allowance.

QUESTIONS

1. What are the three methods of estimating doubtful accounts?

2. Explain the aging method of estimating doubtful accounts.
3. Explain the percentage of accounts receivable method of estimating doubtful
accounts.
4. Explain why the aging method and percentage of accounts receivable are known as
“statement of financial approach”.
5. Explain the percentage of sales method of estimating doubtful accounts.
6. Explain why the percentage of sales method is known as “income statement
approach”.
7. When is an account past due?
8. Explain the treatment of an inadequate or excessive allowance for doubtful
accounts.
9. Is a debit balance in the allowance for doubtful accounts possible?
10. What does a debit balance in the allowance for doubtful accounts indicate?

PROBLEMS

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:
a. Past experience indicates that 75% of all sales are credit sales and that an average
2% of credit sales may prove uncollectible.
b. One percent of gross sales may prove uncollectible.
c. An analysis of the aging of trade receivables indicates that accounts receivable in
the amount of P80,000 may prove uncollectible.
d. The policy is to maintain an allowance for doubtful accounts equal to 10% of the
outstanding accounts receivable.

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:

1. Sales on account, 2/30, n/30 7,000,000

2. Collections from customers within the discount period 2,450,000
3. Collections from customers beyond the discount period 3,900,000
4. Accounts receivable written off as worthless 30,000
5. Recovery of accounts previously written off not included in
the above collections 10,000
6. Credit memo for sales return 70,000

Required:

a. Prepare journal entries pertaining to accounts receivable.

b. Prepare the adjustment for doubtful accounts at year-end of the entity uses the
percentage of accounts receivable method consistently.
c. What is the net realizable value of accounts receivable at year-end?

Problem 5-3 (IAA)

At the beginning of 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. Cash sales of the entity amount to P800,000 and represent 10% of gross sales.
2. Ninety percent of the credit sales customers do not take advantage of the 5/10,
n/30 terms.
3. Customers who did not take advantage of the discount paid P5,940,000.
4. 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?

Problem 5-4 (IAA)

At the beginning of the current year, Relentless Company reported the following
balances:

Accounts receivable 600,000

Allowance for doubtful accounts 25,000

The following transactions took place in the current year:

1. Sales – cash and credit 3,070,000

2. Cash received from credit customers 2,455,000
3. Cash received from credit customers who took advantage
of the 3/10, n/30 credit terms (included in No. 2) 1,455,000
4. Accounts receivable written off as worthless 20,000
5. Cash received from cash customers 470,000
6. Credit memo for sales return and allowance issued to
credit customers 55,000
7. Cash refunds to cash customers 10,000
8. Recoveries of accounts written off, not included in above
collections 5,000

Required:

a. Prepare journal entries to record the transactions.

b. Prepare the adjustment for doubtful accounts if the entity provides for doubtful
accounts equal to 2% of net credit sales.
c. Determine the net realizable value of accounts receivable at year-end?
Problem 5-5 (IAA)

At the beginning of current year, Nostalgia Company reported the following

information:

Accounts receivable 1,500,000

Allowance for doubtful accounts 60,000

The following summary transactions affecting accounts receivable occurred during the
current year:

Sales – all on account 2/10, 1/15, n/60 7,935,000

Cash received from customers 8,000,000

The cash received from customers included the following:

Customers paying within the 10-day discount period 4,410,000

Customers paying within the 15-day discount period 2,475,000
Recovery of accounts written off 15,000
Customers paying beyond the discount period ?

Accounts receivable written off as worthless 55,000

Credit memoranda for sales return 30,000

Required:

a. Prepare journal entries to record the transactions.

b. Prepare the adjustment for doubtful accounts if the entity follows the percentage of
accounts receivable consistently.
c. Determine the net realizable value of accounts receivable at year-end?

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 receivables.

The following schedule was prepared.

 Percent
uncollectible
Not yet due 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:

1. What is the required allowance for doubtful accounts at year-end?

2. How much would be the doubtful accounts expense for the current year?
3. What is the adjusting entry for the doubtful accounts expense for the current year?
4. What is the net realizable value of accounts receivable at year-end?

Problem 5-7 (AICPA Adapted)

From inception of operations, Savvy Company carried no allowance for doubtful

accounts.

Uncollectible receivable were expensed as written off and recoveries were credited to
income as collected.

During the current year, management recognized that the accounting policy with
respect to doubtful accounts was not correct, and determined that an allowance for
doubtful accounts was necessary.

A policy was established to maintain an allowance for doubtful accounts based on

historical bad debt loss percentage applied to year-end accounts receivable.

The historical bad debt loss percentage is to be recomputed each year based on all
available past years up to a maximum of five years.

Accounts
Year Credit sales written off Recoveries

2015 1,500,000 15,000 0

2016 2,200,000 40,000 2,000
2017 3,000,000 50,000 3,000
2018 3,300,000 65,000 5,000
2019 4,000,000 88,000 10,000

Accounts receivable balances were P1,250,000 and P2,000,000 on January 1, 2019

and December 31, 2019, respectively.
Required:

1. Prepare journal entry to set up the allowance for doubtful accounts on January 1,
2019.
2. Compute the doubtful accounts expense for the current year.
3. Determine the net realizable value of accounts receivable on December 31, 2019.

Problem 6-8 (AICPA Adapted)

From inception of operations, Paramount Company provided for uncollectible accounts

receivable under the allowance method using the percentage of sales method.

The balance in the allowance for doubtful accounts was P500,000 on January 1, 2019.

During the current year, credit sales totaled P20,000,000, interim provisions for
doubtful accounts were made at 2% of credit sales, P300,000 of bad debts were
written off, and recoveries of accounts previously written off amounted to P50,000.

The aging of accounts receivable showed the following summary:

Classification Balance Collectible

November to December 5,000,000 95%
July to October 2,000,000 90%
January to June 1,000,000 75%
Prior to January 1, 2019 500,000 25%

Based on the review of collectability of the account balances in “prior to January 1,

2019” aging category, additional accounts totaling P100,000 are to be written off on
December 31, 2019.

Effective with the year ended December 31, 2019, the entity adopted a new accounting
method for estimating the allowance for doubtful accounts at the amount indicated by
the year-end aging of accounts receivable.

Required:

1. Determine the allowance for doubtful accounts before adjustment.

2. Determine the required allowance for doubtful accounts on December 31, 2019.
3. Prepare adjusting entry to record the doubtful accounts expense for 2019.

Problem 5-9 (AICPA Adapted)

Scion Company began operations on January 1, 2018. On December 31, 2018 and
2019, the entity provided for uncollectible accounts expense based on 1% of annual
credit sales.
On January 1, 2019, the entity changed the method of determining the allowance for
uncollectible accounts by applying certain percentages to the aging of accounts
receivable.

Days past invoice date Percent uncollectible

0 – 30 1
31 – 90 5
91 – 180 20
Over 180 80

In addition, the entity wrote of all accounts receivable that were over 1 year old.

The following additional information related to the years ended December 31, 2019
and 2018:

2019 2018
Credit sales 3,000,000 2,800,000
Collections, including recovery 2,915,000 2,400,000
Accounts written off 27,000 none
Recovery of accounts previously written off 7,000 none

Days past invoice date

0 – 30 300,000 250,000
31 – 90 80,000 90,000
91 – 180 60,000 45,000
Over 180 25,000 15,000

Required:

1. Determine the allowance for doubtful accounts on January 1, 2019.

2. Determine the allowance for doubtful accounts on December 31, 2019 before
adjustment.
3. Determine the required allowance on December 31, 2019.
4. Prepare the adjustment to record the doubtful accounts expense for the current
year.

Problem 5-10 (IAA)

Gruesome Company provided the following information for the current year:

Allowance for doubtful accounts on January 1 200,000

Credit sales 5,000,000
Accounts receivable deemed worthless and written off 300,000
As a result of a review and aging of accounts receivable, it has been determined that
an allowance for doubtful accounts of P400,000 is needed on December 31.

What amount should be recorded as doubtful accounts expense for the current year?

a. 400,000
b. 300,000
c. 500,000
d. 700,000

Problem 5-11 (AICPA Adapted)

Tantrum Company provided the following information for the current year:

Days Estimated
outstanding Amount % Uncollectible
0 – 60 1,200,000 1%
61 – 120 900,000 2%
Over 120 1,000,000 6%

3,100,000

During the current year, the entity wrote off P70,000 in accounts receivable and
recovered P20,000 that had been written off in prior years.

At the beginning of current year, the allowance for uncollectible accounts was
P60,000.

Under the aging method, what amount of uncollectible accounts expese should be
reported for the current year?

a. 90,000
b. 80,000
c. 70,000
d. 60,000

Problem 5-12 (AICPA Adapted)

Delta Company sold goods to wholesalers on terms 2/15, net 30. The entity had no
cash sales but 50% of the customers took advantage of the discount.

The entity used the gross method of recording sales and accounts receivable.

An analysis of the trade accounts receivable at year-end revealed the following:

 Age Amount Collectible
0 – 15 days 2,000,000 100%
16 – 30 days 1,400,000 95%
31 – 60 days 400,000 90%
Over 60 days 200,000 50%

4,000,000

1. What amount should be reported as allowance for sales discount at year-end?

a. 20,000
b. 32,400
c. 33,500
d. 40,000
2. What amount should be reported as allowance for doubtful accounts at year-end?
a. 230,000
b. 210,000
c. 190,000
d. 200,000
3. What is the net realizable value of accounts receivable at year-end?
a. 4,000,000
b. 3,750,000
c. 3,770,000
d. 3,790,000

Problem 5-13 (AICPA Adapted)

Namesake Company reported the following unadjusted balances at year-end:

Debit Credit
Accounts receivable 3,000,000
Allowance for doubtful accounts 10,000
Net credit sales 8,000,000

The entity estimated that 3% of the gross accounts receivable would become
uncollectible.

What amount should be reported as doubtful accounts expense for the current year?

a. 240,000
b. 100,000
c. 090,000
d. 080,000
Problem 5-14 (AICPA Adapted)

Bestial Company reported the following accounts at year-end before adjustments:

Debit Credit
Allowance for doubtful accounts 5,000
Sales 7,200,000
Sales return 200,000

The entity estimated uncollectible accounts receivable at 2% of net sales.

What amount of doubtful accounts expense should be reported for the current year?

a. 140,000
b. 145,000
c. 141,000
d. 144,000

Problem 5-15 (AICPA Adapted)

Castaway Company provided the following information for the current year:

Allowance for doubtful accounts – January 1 200,000

Sales – all on credit 9,500,000
Sales discount 1,000,000
Sales returns and allowances 500,000
Accounts written off as uncollectible 100,000
Recovery of accounts written off 50,000

The entity recorded doubtful accounts expense at the rate of 5% of net credit sales.

What amount should be reported as allowance for doubtful accounts on December 31?

a. 450,000
b. 625,000
c. 600,000
d. 550,000

Problem 5-16 (AICPA Adapted)

Effective with the current year, Fateful Company adopted a new accounting method
for estimating the allowance for doubtful accounts at the amount indicated by the
year-end aging of accounts receivable.

Allowance for doubtful accounts, January 1 250,000

Provision for doubtful accounts during the year (2% on credit
sales of P10,000,000) 200,000
Accounts written off during the year 205,000
Estimated uncollectible account per aging, December 31 220,000

What amount should be reported as doubtful accounts expense for the current year?

a. 220,000
b. 205,000
c. 200,000
d. 175,000

Problem 5-17 (AICPA Adapted)

From inception of operations, Comprehensive Company provided for uncollectible

accounts expense under the allowance method using the percentage of sales method.

No year-end adjustments to the allowance account were made.

The balance in the allowance for doubtful accounts was P1,000,000 on January 1,
2019.

During the current year, credit sales totaled P20,000,000, interim provisions for
doubtful accounts were made at 2% of credit sales, bad debts of P200,000 were
written off, and recoveries of accounts previously written off amounted to P50,000.

An aging of accounts receivable was made for the first time on December 31, 2019.

Aging Balance Uncollectible

0 – 60 6,000,000 10%
61 – 180 2,000,000 20%
181 – 360 1,500,000 30%
Over 360 500,000 50%

Based on the review of collectability of the account balances in the “over 360 days”
aging category, additional accounts totaling P100,000 are to be written off on
December 31, 2019.

Effective with the year ended December 31, 2019, the entity adopted a new accounting
method for estimating the allowance for doubtful accounts at the amount indicated by
the year-end aging of accounts receivable.
1. What is the balance of the allowance for doubtful accounts on December 31, 2019
before adjustment?
a. 700,000
b. 750,000
c. 850,000
d. 800,000
2. What is the required allowance for doubtful accounts on December 31, 2019?
a. 1,650,000
b. 1,950,000
c. 1,700,000
d. 1,450,000
3. What amount should be reported as doubtful accounts expense for the current
year?
a. 1,200,000
b. 1,650,000
c. 0,900,000
d. 0,950,000
4. What is the year-end adjustment to the allowance for doubtful accounts on
December 31, 2019?
a. 900,000 debit
b. 900,000 credit
c. 500,000 debit
d. 500,000 credit
5. What is the net realizable value of accounts receivable on December 31, 2019?
a. 9,900,000
b. 8,250,000
c. 8,350,000
d. 8,200,000

Problem 5-18 (PHILCPA Adapted)

On January 1, 2019. Easy Company reported accounts receivable P2,070,000 and

allowance for doubtful accounts P80,000.

Credit sales Write-offs Recoveries

2016 11,100,000 260,000 22,000
2017 12,250,000 295,000 37,000
2018 14,650,000 300,000 36,000
2019 15,000,000 310,000 40,000

The collections from customers during 2019 totaled P14,000,000 excluding recoveries.

Doubtful accounts are provided for as a percentage of credit sales.

The entity calculated the percentage annually by using the experience of the three
years prior to the current year.
1. What amount should be reported as doubtful accounts expense for 2019?
a. 310,000
b. 300,000
c. 222,000
d. 378,000
2. What amount should be reported as allowance for doubtful accounts on
December 31, 2019?
a. 110,000
b. 378,000
c. 300,000
d. 478,000
3. What is the net realizable value of accounts receivable on December 31, 2019?
a. 2,650,000
b. 2,690,000
c. 2,760,000
d. 2,800,000

Problem 5-19 (AICPA Adapted)

Flappable Company began operations on January 1, 2016. The entity provided for
doubtful accounts based on 5% of annual credit sales in prior years. On January 1,
2019, the entity changed the method of determining the allowance for doubtful
accounts using an aging schedule.

2019 2018 2017 2016

Credit sales 15,000,000 9,500,000 8,000,000 6,000,000
Collections excluding recovery 11,700,000 8,200,000 6,700,000 4,500,000
Accounts written off during year 200,000 120,000 80,000 None
Recovery of accounts written off 100,000 40,000 35,000 None

Days Account Outstanding Amount Probability of Collection

30 days or less 3,000,000 95%
Between 31 and 60 days 1,500,000 80%
Between 61 days and 180 days 1,200,000 75%
Between 181 and one year 1,200,000 50%
Over one year – to be written 100,000 0%
off

1. What amount should be reported as allowance for doubtful accounts on December

31, 2019?
a. 1,350,000
b. 1,450,000
c. 1,250,000
d. 1,000,000
2. What amount should be reported as doubtful accounts expense for the current
year?
a. 500,000
b. 600,000
c. 700,000
d. 400,000
3. What is the net realizable value of accounts receivable on December 31, 2019?
a. 6,900,000
b. 7,000,000
c. 5,550,000
d. 5,650,000

Problem 5-20 (AICPA Adapted)

Sky Company provided the following information at year-end:

2019 2018
Accounts receivable 880,000 800,000
Allowance for doubtful accounts (10,000) (15,000)
Allowance for sales returns (20,000) (25,000)

Net realizable value 850,000 760,000

The entity reported doubtful accounts expense in 2019 of P30,000 and had products
returned for credits totaling P15,000 at sale price. Gross sales for 2019 amounted to
P6,150,000.

1. What amount of accounts receivable was written during 2019?

a. 35,000
b. 30,000
c. 15,000
d. 10,000
2. What amount was collected from customers during 2019?
a. 6,035,000
b. 6,070,000
c. 6,020,000
d. 6,100,000
3. What amount was recorded as estimated sales returns during 2019?
a. 10,000
b. 15,000
c. 20,000
d. 05,000
4. What amount was reported as net sales for 2019?
a. 6,150,000
b. 6,140,000
c. 6,100,000
d. 6,135,000