Receivables

I. The 2016 audit of the financial statements of KITTEN Company discloses the
following information:

2015 2016

Accounts receivable, ending P558,000 P561,300

Allowance for doubtful accounts, ending 22,200 21,000
Allowance for sales returns
and allowances, ending 14,100 11,748
Gross sales returns and allowances (estimated) 14,700 15,600
Estimated bad debts for the year 21,600 22,500
Sales discount not taken at end of year 0 1,200
Credit sales during the year
(terms, 2/10, n/60) 1,125,000 1,140,000
Cash collected on Accounts receivable 1,056,000 1,102,500

1. Accounts written off for the year is

a. P21,300
b. P23,700
c. P22,200
d. P24,600

Answer: b

Allowance, beg P22,200

Bad debt expense for 2016 22,500
Accounts written off (SQUEEZE) (23,700)
Allowance, ending P21,000

II. CALACHUCHI CORP.’s accounts receivable subsidiary ledger shows the following
information:
ACCOUNT BALANCE INVOICE
 CUSTOMER DEC. 31, 2016 DATE AMOUNT
Aruy Inc. P 35,180 12/06/16 P 14,000
11/29/16 21,180
Naku Co. 20,920 09/27/16 12,000
08/20/16 8,920
Syak Corp. 30,600 12/08/16 20,000
10/25/16 10,600
Trip Co. 45,140 11/17/16 23,140
10/09/16 22,000
Uy Co. 31,600 12/12/16 19,200
12/02/16 12,400
Xak Corp. 17,400 09/12/16 17,400

The estimated bad debt rates below are based on Calachuchi Corp.’s receivable
collection experience:

Age of Accounts Rate

0-30 days 1%
31-60 days 1.5%
61-90 days 3%
91-120 days 10%
Over 120 days 50%

1. The allowance for bad debts to be reported in the statement of financial position
at December 31, 2016, is
a. P9,699
b. P15,199
c. P4,199
d. P5,500

2. What is the net realizable value of accounts receivable at December 31, 2016?
a. P165,641
b. P171,141
c. P196,039
d. P186,340

Answer: a, b

1. Computation of Required Balance

0-30 days P65,600 x 1% = P 656
31-60 days 44,320 x 1.5%= 665
61-90 days 32,600 x 3% = 978
 91-120 days 29,400 x 10%= 2,940
Over 120 days 8,920 x 50%= 4,460
Total P9,699
2. Accounts receivable P180,840
Less: Allowance for bad debts 9,699
Net Realizable Value, Dec. 31, 2016 P171,141

III. During the audit of FOREVER COMPANY for the year ended December 31, 2016,
you find the following account.
Notes Receivable
Date Debit Credits
Sept. 1 Cornea, 20%, due in 3 months P80,000
Oct. 1 Hunk co., 24%, due in 2 months 300,000
1 Discounted Cornea note at 25% P80,000
Nov. 1 Valerie, 24%, due in 13 months 600,000
30 Cellular Co., no interest due in one year 500,000
30 Discounted Cellular note at 18% 500,000
Dec. 1 Tictic, 18%, due in 5 months 900,000
1 O. Reyes, President, 12%, due in 3 months
(for cash loan given to O. Reyes) 1,200,00

All notes are trade notes unless otherwise specified. The Cornea note was paid on
December 1 as per notification received from the bank. The Hunk Co. note was
dishonored on the due date but the legal department has assured management of its
full collectibility.

The company, with your occurrence, will treat the discounting as a conditional sale of
note receivable.

Based on the ledger account presented, what amount of interest income should be
accrued at December 31, 2016?
a. P55,500
b. P61,500
c. P49,500
d. P67,500
Answer: d

Hunk (P300,000 x 24% x 3/12) P18,000

Valerie (P600,000 x 24% x 2/12) 24,000
Tictic (P900,000 x 18% x 1/12) 13,500
o. Reyes (P1,200,000 x 12% x 1/12) 12,000
Total accrued interest receivable, Dec. 31, 2016 P67,500