Drills

General Direction: Place on a separate sheet of paper and show supporting solutions in good
form.

Drill 1 (15 marks)

In connection with you examination of the financial statements of Urek Mazino, Inc. for the year ended
December 31, 2021, you were able to obtain certain information during your audit of the accounts
receivable and related accounts.

The December 31, 2021 balance in the Accounts Receivable control accounts is P788,000. The only

entries in the Doubtful Accounts Expense account were:

 A credit for P1,296 on December 2, 2021 because Baam Company remitted in full for
the accounts charged off on October 31, 2021 and
 A debit on December 31 for the amount of the credit to the Allowance for Doubtful Accounts.

The Allowance for Doubtful Accounts schedule is presented below:

Debit Credit Balance
January 1, 2021 P14,632
October 31, 2021
Uncollectible accounts:
Baam Company - P1,296
Khun Company - P3,280
Rak Company - P2,256 P6,032 8,600
December 31, 2021 P39,400 P48,000

An aging schedule of the accounts receivable as of December 31, 2021 is shown below:
Amount to which the Allowance is to be adjusted
Net debit
Age after adjustments and corrections have
balance
been made
0 to 1 month P372,960 1 percent
1 to 3 months 307,280 2 percent
3 to 6 months 88,720 3 percent
Over 6 months 24,000 Definitely uncollectible, P4,000; P8,000 is
considered 50% uncollectible; the remainder is
estimated to be 80% collectible.

There is a credit balance in one account receivable (0 to 1 month) of P8,000; it represents an advance on a
sales contract. Also, there is a credit balance in one of the 1 to 3 months account receivable of P2,000 for
which merchandise will be accepted by the customer.

The ledger accounts have not been closed as of December 31, 2021. The Accounts Receivable control
account is not in agreement with the subsidiary ledger. The difference cannot be located, and you
decided to adjust the control account to the sum of the subsidiaries after corrections are made.

QUESTIONS:
Based on the above and the result of your audit, answer the following: (3 marks per item)
1. How much is the adjusted balance of Accounts Receivable as of December 31, 2021? A.
P794,000 B. P793,200 C. P798,960 D. P802,960

2. How much is the adjusted balance of the Allowance for Doubtful Accounts as of December 31,
2021?
A. P63,552 B. P23,057 C. P18,937 D. P19,057
 3. How much is the net adjustment to the Allowance for Doubtful Accounts?
A. P24,493 cr. B. 15,552 dr. C. P28,943 dr. D. P29,063 dr.

4. How much is the Doubtful Accounts Expense for the year 2021?
A. P13,961 B. P58,456 C. P18,411 D. P13,841

5. How much is the net adjustment to the Doubtful Accounts Expense account?
A. P20,352 dr. B. P24,263 cr. C. P24,143 cr. D. P19,693 cr.

Drill 2 (13 marks)

The Yuri Jahad Corp. sells direct to retail customers and also to wholesalers. Accounts receivable
and an allowance for bad debts are maintained separately for each division. On January 1, 2021 the
balance of the retail accounts receivable was P209,000 while the bad debts with respect to retail customers
was a credit of P7,600.
The following summary pertains only to retail sales since 2018:
Credit Sales Bad Debts Written Off Bad Debts
Recoveries
2018 P1,110,000 P26,000 P2,150
2019 1,225,000 29,500 3,750
2020 1,465,000 30,000 3,600
2021 1,500,000 31,000 4,200
Bad debts are provided for as percentage of credit sales. The accountant calculates the percentage
annually by using the experience of the three years prior to the current year. The formula is bad debts
written off less recoveries expressed as a percentage of the credit sales for the same method. Cash receipts
in 2021 from credit sales to retail customers was P1,380,200.

QUESTIONS:
Based on the above and the result of your audit, answer the following: (6-9: 3 marks each; 10: 1mark)
6. The percentage to be used to compute the allowance for bad debts on December 31, 2021 is
A. 1% B. 1.9% C. 2% D. 3%
7. For 2021, the provision for bad debts with respect to credit sales is
A. P28,802 B. P45,000 C. P30,000 D. P57,604
8. The ledger balance of the accounts receivable after necessary adjustments on December 31,
2021 Was a debit of
A. P275,396 B. P288,000 C. P303,000 D. P297,800
9. The ledger balance of the allowance for bad debts after necessary adjustments on December
31, 2021 Was a credit of
A. P10,800 B. P6,600 C. P25,800 D. P31,800
10. All of the following are examples of substantive tests to verify valuation of net accounts
receivable except the
A. Recomputation of the allowance for bad debts.
B. Inspection of the aging schedule and credit records of past due accounts.
C. Comparison of the allowance for bad debts with past records.
D. Inspection of accounts for current versus non-current status in the statement of
financial position.
Drill 3 (12 marks)
Jyu Viole Grace Company has the following transactions in 2021 involving notes receivable:
May 1 Received a P1,000,000, 90-day, 12% interest bearing note from A Company
in
settlement of account.
1 Received a P1,500,000, six-month, 12% interest bearing note from B Company in
settlement of account.
July 30 A Company defaulted on the P1,000,000 note.
Aug. 1 Discounted the B Company note at a bank at 15%.
SepT.1 Received a one-year noninterest bearing note from C Company in settlement of
a
P600,000 account receivable. The face value of the note was P660,000.
28 Collected the defaulted A Company note plus accrued interest at 12% per annum on
the total amount due.
Oct. 1 Received a P2,500,000, 90-day note from D Company. The note is for the payment
goods purchased and bears interest at 12%.
Nov. 1 B Company defaulted on the P1,500,000 note. Jyu Viole Grace Company paid the
bank the total amount due plus P60,000 for protest fee and other bank charges.
Dec. 30 Collected D Company note in full.
31 Collected from B Company in full including interest on the total amount due at 12%
since default date.

Required: Prepare all the necessary journal entries to record 2021 transactions of Jyu Viole Grace Company.

Solution: