College of Business Administration Checker:

Accounting 213

Practice Problem - Estimation of Doubtful Accounts Mrs. Lucia A. Suello, CPA, MBA

Name:_________________________________Course/Yr:_________Sched:______________Date:________

Problem:

The following data are available at year-end for Naïve Company

Sales P 8,000,000
Sales returns 60,000
Sales discount 40,000
Accounts receivable, Dec. 31 2,000,000
Allowance for doubtful accounts, Jan. 1 100,000
Accounts written off 130,000
Recovery of accounts previously written off 20,000

Required:
1. Compute the amount of doubtful account expense, allowance for doubtful accounts after the adjustment
and the net realizable value under each of the following independent assumptions:

Method I – An analysis of the aging of trade receivables indicates that account receivable in the amount of
P200,000 may prove uncollectible.

Method II - Five percent of net sales may prove uncollectible.

Method III - The company policy is to maintain an allowance for doubtful accounts equal to 8% of the
outstanding accounts receivable.

Doubtful Account Allowance for

Methods Net Realizable Value
Expense Doubtful Accounts
I 210,000 200,000 1,800,000
II 395,000 385,000 1,615,000
III 170,000 160,000 18,40,000

2. Adjusting journal entry at year end.

METHOD 1: AGING OF ACCOUNTS RECEIVABLE

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Write-offs 130,000 Beg. balance 100,000

Ending Balance 200,000 Recoveries 20,000
___ DAE ?? 210,000

Total 330,000 Total 330,000

METHOD 2: PERCENT OF SALES

DAE = P7,900,000 X 5%
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 = P395,000

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Write-offs 130,000 Beg. balance 100,000

Ending Balance ?? 385,000 Recoveries 20,000
___ DAE 395,000

Total 515,000 Total 515,000

METHOD 3: PERCENT OF ACCOUNTS RECEIVABLE

Ending Allowance = P2,000,000 x 8%

= P160,000

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Write-offs 130,000 Beg. balance 100,000

Ending Balance 160,000 Recoveries 20,000
___ DAE ?? 170,000

Total 290,000 Total 290,000

NET REALIZABLE VALUE:

Method 1 Method 2 Method 3

Accounts rec., End P2,000,000 P2,000,000 P2,000,000
Allo. for D/A, End 200,000 385,000 160,000
NRV 1,800,000 1,615,000 1,840,000

REQUIRED 2: ADJUSTING JOURNAL ENTRY

Method 1 Method 2 Method 3

Adjusting Entry: Adjusting Entry: Adjusting Entry:

Doubtful accounts expense 210,000 Doubtful accounts expense 395,000 Doubtful accounts expense 170,000
Allo. dor doubtful accounts 210,000 Allo. dor doubtful accounts 395,000 Allo. dor doubtful accounts 170,000

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