Review Assignment – Accounts Receivable and Estimation of Doubtful Accounts

Instructions: Provide what is being asked in each problem. Show your solutions and write your
answers in a one whole sheet of paper. Submit your answers on May 8, 2023 (Monday) during
our quiz.

1. On December 31, 2013, the accounts receivable control account of A Company had shown
the following elements:
Trade receivables from officers due currently
Trade accounts receivable from customer X
Other trade accounts receivable
Customer’s accounts reporting credit balances arising from sales return
Advance payments to creditors on purchase orders
Trade accounts on which post – dated checks are held
(no entries were made on receipts of checks)
Trade installment receivable due 1 – 18 months including
unearned finance charges of P55,000)
Subscriptions receivable due in 45 days
Interest receivable on bonds
Advances to affiliated companies
Accounts known to be worthless

The trade accounts receivable as of December 31, 2013 is

For problems 2 and 3

From inception of operations to June 30, 2015, Pascal Ltd provided for uncollectible accounts
receivable under the allowance method – provisions were made monthly at 2% of credit sales;
bad debts written off were charged to the allowance account; recoveries of bad debts
previously written off were credited to the allowance account; and no year-end adjustments to
the allowance account were made. Pascal’s usual credit terms are net 30 days.

The balance in the allowance for doubtful debts account was P154,000 at July 1, 2014. During
2014-15, credit sales totalled P9,000,000, interim provisions for doubtful debts were made at
2% of credit sales, P95,000 of bad debts were written off, and recoveries of accounts previously
written off amounted to P15,000. Pascal installed a computer in May 2015, and an aging of
accounts receivable was prepared for the first time as of June 30, 2015. The summary of aging is
as follows:
Classification Balance/ category Estimated doubtful
May – June 15 1,080,000 2%
Jan – April 15 650,000 10%
July – Dec 15 420,000 25%
Before July 2014 150,000 70%
Based on the review of collectability of the account balances in the “before July 2014” aging
category, additional receivables totalling P60,000 were written off as of June 30, 2015. The 70%
uncollectable estimate applies to the remaining P90,000 in the category. Effective with the year
ended June 30, 2015, Pascal adopted a new accounting method for estimating the allowance for
doubtful debts at the amount indicated by the year – end aging analysis of account receivable.

2. How much is the bad debts expense for 2015?

3. Determine the balance of the allowance account as of June 2015.

4. The financial statements of Katherine Company included the following information:

Dec 31, 2013 Dec 31, 2014
Account receivable 1,200,000
Allowance for doubtful accounts 20,000
Sales 8,000,000
Cash collected from customers 7,600,000

Among the cash collections was a recovery of P14,000 from a customer whose account had
been written off as worthless in 2013. During 2014, it was necessary to recognize doubtful
accounts expense of P50,000 and write off worthless customers’ accounts of P26,000. On
December 1, 2014, 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, 2014?

5. Based on its past collection experience, Ace Company provides for bad debts at the rate of 2
percent of net credit sales. On January 1, 2014, the allowance for doubtful accounts credit
balance was P10,000. During 2014, Ace wrote off P18,000 of uncollectible receivables and
recovered P5,000 on accounts written off in prior years.

If net credit sales for 2014 totaled P1,000,000, the doubtful accounts expense for 2014 should
be