ACCOUNTS RECEIVABLE

TEST II. MULTIPLCE CHOICE PROBLEMS

What is the net realizable value of accounts receivable on December 31, 2013?
2 points

a. 605,000
b. 890,000
c. 825,000
d. 670,000

On December 31, 2013, what total amount should be reported as trade and other
receivables under current assets?
2 points

a. 940,000
b. 1,200,000
c. 1,240,000
d. 1,500,000

What is the balance of accounts receivable on December 31?

2 points

a. 8,200,000
b. 6,200,000
c. 2,000,000
d. 4,200,000

The cash collections included a recovery of P10,000 from a customer whose account
had been written off as worthless in 2012. During 2013, it was necessary to recognize
doubtful accounts expense of P100,000 and write off worthless customer’s accounts of
P30,000. On December 1, 2013, a customer settled an account by issuing a 12%, six-
month note for P400,000. What is the net realizable value of accounts receivable on
December 31, 2013?
2 points

a. 1,600,000
b. 1,670,000
c. 1,780,000
d. 1,630,000
SOLUTION:
1,640,000 right answer
1,200,000 +8,000,000 =9200
Less: 7,000,000 =2200
Less: 60,000+10,000+100,000-30,0000= 140
1,640,000 THE RIGHT ANSWER

5. Germany Company started business on January 1, 2013. After considering the

collection experience of other entities in the industry, the entity established an
allowance for doubtful accounts estimated at 5% of credit sales. Outstanding accounts
receivable recorded on December 31, 2013 totaled P460,000, while the allowance for
doubtful accounts had a crt balance of P50,000 after recording estimated doubtful
accounts expense for December and after writing off P10,000 of uncollectible
accounts. Further analysis showed that merchandise inventory was P300,000. Goods
were sold at 40% above cost. The total sales comprised 80% sales on account and
20% cash sales. Total collections from costumer, excluding cash sales, amounted to
P1,200,000. What is the effect of the transactions on the accounts receivable and
allowance for doubtful accounts, respectively?
2 points

a. 10,000 understated 24,000 understated

b. 20,000 understated 34,000 understated
c. 330,000 understated 40,000 understated
d. 330,000 understated 50,400 understated

SOLUTION
A
Cost of sales (1,800,000 – 300,000) 1,500,000

Sales (1,500,000 x 140%) 2,100,000

Cash sales (2,100,000 x 20%) ( 420,000)
Collections (1,200,000)
Accounts written off ( 10,000)

Accounts receivable – December 31 470,000

Accounts receivable per book 460,000

Understated 10,000

Provision for doubtful accounts ( 1,680,000 x 5%) 84,000

Accounts written off ( 10,000)
Allowance for doubtful accounts – December 31 74,000
Allowance balance per book 50,000

Understated 24,000

Credit sales ( 2,100,000 x 80% ) 1,680,000

During 2013, the entity wrote off accounts totaling P160,000 and collected P40,000 on
accounts written off in previous years. What amount should be recognized as doubtful
accounts expense for the year ended December 31, 2013?
2 points

a. 195,000
b. 150,000
c. 120,000
d. 150,000
SOLUTION:
DA allowance beginning – 75,000 (4,800,000-4725,000)
Recovery 40,000
Doubtful account expense: 195,000
Total : 310,0000
W-off 2013 – 160,000
DA allowance ending – 150,000 (5,250,000 – 5,100,000)

150,000 +160,000 = total DA allowance beginning = 310,000

310,000 – 40,000 – 75,000 = doubtful expenses =
The entity based its estimate of doubtful accounts on the aging of accounts receivable.
What amount should be recognized as doubtful accounts expense for the current
year?
2 points

a. 470,000
b. 480,000
c. 500,000
d. 520,000
SOLUTION:
5,000,000 x 2% = 100,000
2,000,000 x 10% = 200,000
1,000,000 x 20% = 200,000
Allowance – dec 31 = 500,000

Allowance – jan 1 = 450,0000

Add: DA expense = 480,000 (500,000 – 20,000)
Total: = 930,000
Less:
Allowance – dec 31 = 500,000
-------------------------------------
SOLUTION
D
0 – 30 days (5,000,000 x 2%) 100,000
31 – 60 days (2,000,000 x 10%) 200,000
Over 60 days (1,000,000 x 20%) 200,000

Required allowance – December 31 500,000

Add: debit balance in allowance 20,000

Doubtful accounts expense 520,000

The entity estimated that 3% of the gross accounts receivable will become
uncollectible. What amount should be recognized as doubtful accounts expense for
2013?
2 points

a. 110,000
b. 150,000
c. 190,000
d. 600,000
SOLUTION:
5,000,000 x 3% = 150,000 + 40,000 = 190,000

The entity provided for doubtful accounts expense at the rate of 3% of net sales. What
is the allowance for doubtful accounts at year-end?
2 points
a. 435,000
b. 265,000
c. 235,000
d. 241,000
SOLUTION:
9,500,000 – 800,000 – 200,000 = 255,000
180,000 + 255,000 = 435,000
435,000 – 200,000 = 235,000

The entity reported accounts receivables of P1,250,000 and P2,000,000 on December

31,2012 and December 31, 2013, respectively. What amount should be reported as
doubtful accounts expense for 2013?
2 points

a. 97,000
b. 78,000
c. 83,000
d. 92,000
11. On June 1, 2013, Yola Company loaned Dale P500,000 on a 12% note, payable in
five annual installments of P100,000 beginning January 1, 2014. In connection with
this loan, Dale was required to deposit P5,000 in a noninterest-bearing escrow
account. The amount held in escrow is to be returned to dale after all principal and
interest payments have been made.Interest on the note is payable on the first day of
each month beginning July 1, 2013. Dale made timely payments through November 1,
2013. On January 1, 2014, Yola received payment of the first principal interest due.
On December 31, 2013, what is the accrued interest receivable on the loan?
2 points

a. 0
b. 5,000
c. 10,000
d. 15,000

What amount should be recorded as sales revenue in January 2013?

2 points

a. 3,216,000
b. 2,922,000
c. 2,616,000
d. 2,142,000
SOLUTION:
600,000 x 4.36 = 2,616,000
2,616,000 + 600,000 = 3216,000

REFER TO THE FOLLOWING PROBLEM FOR ITEMS 13-15:

13. On December 31, 2013, what is the carrying amount of the note receivable?
2 points

a. 2,500,000
b. 1,995,000
c. 1,700,000
d. 1,495,000
SOLUTION:

Present value of note receivable (500,000 x 3.99) 1,995,000

14. What interest income should be reported for 2014?
2 points

a. 505,000
b. 101,000
c. 159,600
d. 119,600
SOLUTION:
500,000 x 3.99 = 1,995,000
1,995,000 x 8% = 159,600

15. What is the carrying amount of the note receivable on December 31, 2014?
2 points

a. 1,654,600
b. 2,000,000
c. 2,154,600
d. 1,495,000
SOLUTION:
500,000 – 159,600 = 340,400
1,995,000 – 340,400 = 1,654,000