Exercise 1

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.
 a. Credit Sales (75% x 5,000,000) = 3,750,000

Doubtful Accounts (2% x 3,750,000) = 75,000

Entry : Doubtful Accounts (2% x 3,750,000) 75,000

Allowance for Doubtful Accounts 75,000

b. Doubtful Accounts (1% x 5,000,000) 50,000

Allowance for Doubtful Accounts 50,000

c. Required Allowance 80,000

Less: Credit Balance of Allowance -20,000
Doubtful Accounts Expense 60,000

Entry : Doubtful Accounts 60,000

Allowance for Doubtful Accounts 60,000

d. Required Allowance (10% x 500,000) 50,000

Less: Credit Balance of Allowance 20,000
Doubtful Accounts Expense 30,000

Entry : Doubtful Accounts 30,000

Allowance for Doubtful Accounts 30,000
Exercise 2

At the beginning of current year, Template Company showed the following account balances:
1.)
Accounts receivable 1,000,000
Allowance for doubtful accounts 40,000
2.)
The following summary transactions occurred during the current year:
1. Sales on account, 2 / 30, n / 30
period 7,000,000
period 2,450,000
3,900,000 3.)
4. Accounts receivable written off as worthless 30,000

not included in the above collections 10,000 4.)

6. Credit memo for sales return 70,000

Required: 5.)
a. Prepare journal entries pertaining to accounts receivable.
b. Prepare the adjustment for doubtful accounts at year-end if the entity
uses the percentage of accounts receivable method consistently.
c. What is the net realizable value of accounts receivable at year-end?

6.)
 JOURNAL ENTRIES
Account Titles Debit
Accounts Receivable 7,000,000
Sales

Cash 2,450,000
Sales discount 50,000
Accounts Receivable (2,450,000/98%)

Cash 3,900,000
Accounts Receivable

Allowance for Doubtful Accounts 30,000

Accounts Receivable

Accounts Receivable 10,000

Allowance for Doubtful Accounts

Cash 10,000
Accounts Receivable

Sales Return 70,000

Accounts Receivable
 b. Adjustment for doubtful accounts at year-end if the entity
Credit
Doubtful Accounts 40,000
7,000,000 Allowance for Doubtful Accounts

(Rate = 40,000 / 1,000,000 = 4%)

2,500,000 Allowance for Doubtful Accounts - December 31 (4% x 1,500,000)

Less: Allowance before adjustment
Doubtful Accounts Expense
3,900,000
c. Net realizable value of accounts receivable at year-end

30,000 Accounts Receivable - December 31

Allowance for Doubtful Accounts
Net Realizable Value
10,000

10,000

70,000
 40,000

60,000
20,000
40,000

1,500,000
-60,000
1,440,000
Exercise 3

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?
 Amounts % of uncollectible Required Allowance
1. Not yet Due 1,700,000 - -
1-30 days past due 1,200,000 5% 60,000
31-60 days past due 100,000 25% 25,000
61-90 days past due 150,000 50% 75,000
Over 90 days past due 120,000 100% 120,000
3,270,000 280,000

Allowance - January 1 170,000

Recoveries 30,000
Doubtful Accounts Expense (SQUEEZE) 345,000
Total: 545,000
Less: Writeoff (235,000 + 30,000) -265,000
Required Allowance - December 31 280,000

Doubtful Accounts Expense 345,000

Allowance for Doubtful Accounts 345,000

Accounts Receivable 3,270,000

Less: Allowance for Doubtful Accounts 280,000
Net Realizable Value 2,990,000