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Chapter 4
Accounts Receivable

PROBLEM 1: TRUE OR FALSE

1. FALSE – 1,000 x 70% = ₱700 invoice price
2. FALSE 105
3. FALSE April 2, 20x1
4. TRUE
5. TRUE
6. FALSE - 400
7. FALSE 25
8. FALSE 7
9. TRUE
10. TRUE (121 age – 30 days credit) = 91 days past due

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. D
2. D
3. D
4. D
5. B
6. A
7. D
8. A
9. B
10. A - Choice (a) is the best answer. Bad debts are computed on
credit sales (excluding cash sales).

Choice (d) is correct – PFRS 9 encourages a combination of

collective assessment (e.g., aging) and individual assessment (i.e.,
specific accounts).
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PROBLEM 3: EXERCISES
1. Solution:
Trade receivables:
160,00
Accounts receivable
0
Add back credit balance in customers' accounts 32,000
192,00
Adjusted accounts receivable
0
Notes receivable (trade) 16,000
208,00
Total trade receivables - Requirement (a)
0
Non-trade receivables currently collectible:
Notes receivable (current portion only) 16,000
Dividends receivable 3,200
Advances to suppliers (from debit balance in accounts payable) 19,200
Total current non-trade receivables 38,400
246,40
Trade and other receivables - Requirement (b) 0

2. Solutions:
Requirement (a):
Journal entry on date of sale:
Accounts receivable 7,084.80 a
Revenue 7,084.80 a
a
(10,000 x 80% x 90%) = 7,200 invoice price; [7,200 – (7,200 x 2% x 80%)] =
7,084.80

❖ Subsequent measurement
The adjustment is computed as follows:
Invoice amount (10,000 x 80% x 90%) 7,200
Multiply by: 2%
Total available discount 144
Multiply by: Revised estimate 40%
Discount expected to be taken (revised) 57.60
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Invoice amount 7,200

Less: Discount expected to be taken (revised) (57.60)
Transaction price (revised) 7,142.40
(7,084.80
Less: Transaction price (initial estimate) )
Adjustment – increase in transaction price 57.60

Year-end adjusting entry:

Accounts receivable 57.60
Revenue 57.60

Requirement (b):
The entity reports account receivable and net revenue of ₱7,142.40
in its year-end financial statements.

3. Solutions:
Requirement (a): Bad debt expense
Total sales 1,320,000
Cash sales (220,000)
Gross credit sales 1,100,000
Sales returns and discounts on credit sales (13,200 –
(11,000)
2,200)
Net credit sales 1,089,000
Multiply by: Percentage of net credit sales 2%
Bad debt expense 21,780

Requirement (b): Allowance for doubtful accounts on Dec. 31

Allowance for doubtful accounts
17,600 Jan. 1
Write-off 11,000 2,200 Recovery
21,780 Bad debts expense
Dec. 31 (squeeze) 30,580

Requirement (c): Carrying amount of accounts receivable

Accounts receivable, Dec. 31 – gross 330,000
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Allowance for doubtful accounts, Dec. 31 (30,580)

Accounts receivable, Dec. 31 – net 299,420

4. Solutions:
Requirement (a): Bad debt expense
Accounts receivable
Jan. 1 40,000 2,500 Write-off
Net credit sales 135,000 70,000 Collections, exclg. recovery
102,500 Dec. 31 (squeeze)

Accounts receivable, Dec. 31

102,500
Percentage of receivables 5%
Allowance for doubtful accounts - Dec. 31 5,125

Allowance for doubtful accounts

5,000 Jan. 1
Write-off 2,500 500 Recovery
2,125 Bad debts expense (squeeze)
Dec. 31 5,125

Requirement (b): Net realizable value of accounts receivable

Accounts receivable, Dec. 31 – gross 102,500
Allowance for doubtful accounts, Dec. 31 (5,125)
Accounts receivable, Dec. 31 – net 97,375

5. Solution:
(Total Write-offs from 20x1 to 20x3) less (Total
Percentage
Recoveries from 20x1 to 20x3)
(Jan. 1, 20x4) =
Total Net credit sales from 20x1 to 20x3
= [(21K + 30K + 45K) – (3K + 9K + 15K)] ÷ (300K + 480K + 600K)
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= (96,000 – 27,000) ÷ 1,380,000

Percentage (Jan. 1, 20x4) = (69,000 ÷ 1,380,000) = 5%

(Total Write-offs from 20x1 to 20x4) less (Total

Percentage
Recoveries from 20x1 to 20x4)
(Dec. 31, 20x4) =
Total Net credit sales from 20x1 to 20x4
= (180,000 – 33,000) ÷ 2,100,000
Percentage (Dec. 31, 20x4) = (147,000 ÷ 2,100,000) = 7%

Allowance for doubtful accounts

15,000 Jan. 1, 20x4 (5% x 300,000)
20x4 write-offs 84,000 6,000 20x4 recoveries
105,000 Bad debts expense (squeeze)
Dec. 31, 20x4 (7% x 200,000) 42,000

6. Solution:
Receivable % Required
Days past due balances Uncollectible allowance
(a) (b) (a) x (b)
● Not due - 0 to 15 days of age 350,000 None -
● Not due - 16 to 30 days of age 210,000 None -
● 1 - 30 days past due 175,000 3% 5,250
● 31 - 60 days past due 140,000 10% 14,000
● 61 - 90 days past due 105,000 15% 15,750
● 91 - 120 days past due 70,000 35% 24,500
Totals 1,050,000 59,500

Allowance for doubtful accounts

28,000 Beg. bal.
Write-offs 6,000 2,000 Recoveries
35,500 Bad debts expense (squeeze)
End. Bal. 59,500

7. Solutions:
Requirement (a): Unadjusted bad debt expense
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Net credit sales

4,200,000
Percentage of credit sales 2%
Unadjusted bad debts expense 84,000

Requirement (b): Allowance for doubtful accounts – Jan. 1, 20x1

Allowance for doubtful accounts
12,600 Jan. 1, 20x1 (squeeze)
Write-offs 79,800 18,900 Recoveries
84,000 Unadjusted bad debts
Dec. 31 unadjusted bal. 35,700

Requirement (c): Required ending balance of the allowance

Receivable % Required
Days outstanding balances uncollectible allowance
(a) (b) (c) = (a) x (b)
● 0 – 60 252,000 1% 2,520
● 61 - 120 (189K – 42K) 147,000 2% 2,940
● Segregated account 42,000 5% 2,100
● Over 120 (210K - 21K) 189,000 6% 11,340
Totals 630,000 18,900

Requirement (d): Adjusted bad debt expense for the year

Allowance for doubtful accounts
12,600 Jan. 1, 20x1 [see req’mt. (b)]
100,80
18,900
Write-offs (79.8K + 21K) 0 Recoveries
88,200 Adjusted bad debts (squeeze)
Dec. 31, 20x1 bal. 18,900

Requirement (e): Year-end recoverable historical cost

Gross accounts receivable, Dec. 31 before adjustments 651,000
Additional write-off at year-end (21,000)
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Gross accounts receivable, Dec. 31 after adjustments 630,000

Allowance for doubtful accounts, Dec. 31 (adjusted) (18,900)
Accounts receivable - net, Dec. 31 611,100

Requirement (f): Year-end adjusting entries

Dec. 31, Allowance for doubtful accounts 21,000
20x1
Accounts receivable 21,000
to record the additional write-off
Dec. 31, Bad debts expense 4,200
20x1
Allowance for doubtful accounts 4,200
to record the additional bad debts

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. B Solution:
⮚ 300,000 x 80% = 240,000 invoice price;
⮚ 240,000 x 5% x 80% = 9,600 discount;
⮚ 240,000 – 9,600 = 230,400

2. A - 100,000 x 90% x 97%* = 87,300

*If the customer fully settles the account within 10 days, the
customer cannot take anymore the 1% discount that is available if
he pays within the 11th day and 15th day.

3. B – 250,000 sale price + 20,000 reimbursement of freight =

270,000

4. A (100,000 x 50% x 2%) = 1,000

5. A
Solution:
Allowance for bad debts
10,800 Jan. 1
Write-offs 18,000 13,500 Bad debts expense (450K x 3%)
Dec. 31 6,300
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6. D (1,000,000 x 3%) = 30,000

7. A
Solution:
Days Estimated %
Allowance
outstanding Amount uncollectible
0 - 60 120,000 1% 1,200
61 - 120 90,000 2% 1,800
Over 120 100,000 6% 6,000
9,000

8. C Solution:
Accounts receivable
beg. 150,000
Credit sales 600,000 410,000 Collections, excld. recoveries
9,000 Write-off
331,000 end.

Allowance for bad debts

12,000 beg.
Write-off 9,000 15,000 Bad debts
2,000 Recovery
end. 20,000

Carrying amount = 331,000 – 20,000 = 311,000

9. A Solution:

Accounts receivable
beg. 80,000
150,00
Credit sales 0 120,000 Collections, excldg. recoveries
10,000 Write-off
100,000 end.

10. B
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PROBLEM 5: CLASSROOM ACTIVITIES

ACTIVITY #1: TOTAL CURRENT RECEIVABLES

Solutions:

Requirement (a): Adjusted accounts receivable

Unadjusted accounts receivable 10,537,089

Credit balance (DEF Co.) 341,236
Sales Order #21022394 20,000
Adjusted accounts receivable 10,898,325

Requirement (b): Total current receivables

Adjusted accounts receivable 10,898,325

Notes receivable (3-month) 35,000
Dividends receivable (10,000 sh. x ₱5) 50,000
Total Current receivables 10,983,325

Requirement (c): Adjusting entries

Accounts receivable 341,236
Advances from customers 341,236
To eliminate the credit balance in DEF Co.’s account

Accounts receivable 20,000

Sales 20,000
To record the unrecorded sales

Notes receivable 35,000

Cash 35,000
To record the loan given to Mr. Wilson

Dividends receivable 50,000

Dividend income 50,000
To accrue the dividends
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ACTIVITY #2: JOURNAL ENTRIES

Solutions:
Requirement (a): Journal entries

1) Accounts receivable 20,000

Sales 20,000
To record SI#001101

2)
a. Accounts receivable 3,000
Allowance for bad debts 3,000
To reverse the previous write-off

Cash 3,000
Accounts receivable 3,000
To record the collection of accounts receivable

b. Cash 25,000
Accounts receivable 25,000
To record the collection of accounts receivable

c. Accounts receivable 19,000

Cash 19,000
To record the NSF check

3) Bad debts expense 22,414.88*

Allowance for bad debts 22,414.88
To accrue bad debts for the year

*Unadjusted credit sales 2,221,488

Add: SI#001101 20,000
Adjusted credit sales 2,241,488
Multiply by: 1%
Bad debts expense - 20x1 22,414.88
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4) Allowance for bad debts (7K + 2K) 9,000

Accounts receivable 9,000
To record the write-off of accounts

Requirement (b): Adjusted balances of A/R & Allowance

Accounts receivable
Unadjusted 480,000
(1) 20,000
(2a) 3,000 3,000
25,000 (2b)
(2c) 19,000 9,000 (4)
485,000 Adjusted

Allowance for bad debts

12,000 Unadjusted
3,000 (2a)
22,414.88 (3)
(4) 9,000

Adjusted 28,414.88

Requirement (c): Carrying amount of accounts receivable

Accounts receivable 485,000

(28,414.88
Allowance for bad debts )
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Carrying amount 456,585.12

ACTIVITY #3: DEBTS EXPENSE

Solutions:

Requirement (a):
BDE - 20x2: (9,824,000 x 80% x 2.5%) = 196,480
BDE - 20x1: (2,670,000 x 80% x 2.5%) = 53,400

Requirement (b):

Allowance for bad debts

41,800 12.31.x1 (836K x 5%)
115,00 BDE - 20x2
Write-offs 0 196,000 (squeeze)
12.31.x2 (2.456M x 122,80
5%) 0

Allowance for bad debts

- 3.7.x1
BDE - 20x1
Write-offs 12,000 53,800 (squeeze)
12.31.x1 (836K x
5%) 41,800
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ACTIVITY #4: AGING (PROVISION MATRIX)

Dear Sir / Ma’am:

The answer is already indicated in the activity (*Hints). The student will
be graded based on his/her creativity and extra effort in making the
report look professional. Suggested criteria:
1. Heading for the report (e.g., Aging Report or Provision
Matrix)
2. All headings, including the cut-off date, are in bold letters
3. Totals are double-ruled
4. The required balance of the allowance is labeled as such
5. The percentages are formatted as percentages (i.e., x%)
6. etc….. (end of thinking capacity ☺✌)

Sincerely,

Zeus Vernon B. Millan

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PROBLEM 6: FOR CLASSROOM DISCUSSION

1. Solution:
Accounts receivable (158K + 15K) 173,000

Allowance for uncollectible accounts

(8,000)
Total trade receivables 165,000

Claim for tax refund 12,000

Dividends receivable 220,000
Advances to officers (due in 6 months) 180,000
Total non-trade receivables 412,000
Total current receivables 577,000

Notes receivable (non-trade) 180,000

Advances to affiliates 900,000
Security deposit on a long-term lease 30,000
Total noncurrent receivables 1,110,000

TOTAL RECEIVABLES 1,687,000

2. Solutions:
a. FOB shipping point, freight collect
Dec. 27, -
20x1 No entry
Dec. 31, Accounts receivable 1,600
20x1
Sales 1,600
to record sale on account
Jan. 2, -
20x2 No entry
Jan. 5, Cash 1,600
20x2
Accounts receivable 1,600
to record settlement of accounts receivable

b. FOB destination, freight prepaid

Dec. 27,
20x1
No entry
-
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Dec. 31, Prepaid freight 50

20x1
Cash 50
to record prepayment of freight to the carrier
Jan. 2, Accounts receivable 1,600
20x2
Sales 1,600
to record sale on account
Jan. 2, Freight-out 50
20x2
Prepaid freight 50
to charge the prepaid freight to expense
Jan. 5, Cash 1,600
20x2
Accounts receivable 1,600
to record settlement of accounts receivable

c. FOB shipping point, freight prepaid

Dec. 27,
20x1
No entry
-

Dec. 31, Accounts receivable 1,650

20x1
Sales 1,600
Cash 50
to record sale on account and freight paid on
behalf of the buyer
Jan. 2, -
20x2 No entry
-
Jan. 5, Cash 1,650
20x2
Accounts receivable 1,650
to record collection of account receivable inclusive
of reimbursement for the freight paid

d. FOB destination, freight collect

Dec. 27,
20x1
No entry
-

Dec. 31, -
20x1 No entry
-
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Jan. 2, Accounts receivable 1,550

20x2
Freight-out 50
Sales 1,600
to record sale on account and freight
accommodated by the buyer
Jan. 5, Cash 1,550
20x2
Accounts receivable 1,550
to record collection of account receivable net of
reimbursement for the freight

3. Solutions:

Requirement (a): Traditional GAAP

Gross method Net method

1. Sale on account
Accounts receivable 90,000 Accounts receivable 87,300
Sales 90,000 Sales 87,300

(₱100,000 x 90%) (₱100,000 x 90% x 97%)

2. Collection is made within the discount period

Cash 87,300 Cash 87,300
Sales discounts (90K x 3%) 2,700 Accounts receivable 87,300
Accounts receivable 90,000

3. Collection is made beyond the discount period.

Cash 90,000 Cash 90,000
Accounts receivable 90,000 Sales discount forfeited 2,700
Accounts receivable 87,300

Requirement (b.1): PFRS 15

Invoice amount (100,000 x 90%) 90,000
Multiply by: 3%
Total available discount 2,700
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Multiply by: 80%

Discount expected to be taken 2,160

Invoice amount 90,000

Less: Discount expected to be taken (2,160)
Transaction price 87,840

1. Sale on account
Accounts receivable 87,840
Revenue 87,840

2. Portion collected within the discount period

Cash (90,000 x 80% x 97%) 69,840
Accounts receivable 69,840

3. Portion collected beyond the discount period

Cash (90,000 x 20%) or (87,840 – 69,840) 18,000
Accounts receivable 18,000

Requirement (b.2): PFRS 15

1. Sale on account
Accounts receivable (100K x 90%) 90,000
Revenue 90,000
Sales discount 2,160
Allowance for sales discount 2,160

2. Portion collected within the discount period

Cash on hand (90,000 x 80% x 97%) 69,840
Allowance for sales discount 2,160
Accounts receivable (90,000 x 80%) 72,000

3. Portion collected beyond the discount period

Cash on hand [(90K x 20%) or remaining balance] 18,000
Accounts receivable 18,000
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4. Solution:
Requirement (a):
(a)
Accounts receivable 250,000
Sales 250,000

(b)
Cash 220,000
Accounts receivable 220,000

(c)
Bad debt expense 30,000
Allowance for doubtful accounts 30,000

(d)
Allowance for doubtful accounts 15,000
Accounts receivable 15,000

(e)
Accounts receivable 8,000
Allowance for doubtful accounts 8,000

Cash 8,000
Accounts receivable 8,000

Requirement (b):

Accounts
receivable
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beg. 120,000
Sales on Collections, excluding
account 250,000 220,000 recoveries
15,000 Write-offs
Recovery 8,000 8,000 Collection on recovery
135,000 end.

Allowance for bad debts

9,000 beg.
Write-off 15,000 30,000 Bad debts
8,000 Recovery
end. 32,000

Requirement (c):
Accounts receivable, end. 135,000
Allowance for bad debts, end. (32,000)
Carrying amount, end. 103,000

5. Solutions:
(a) Percentage of net credit sales
Allowance for bad debts
12,600 beg.
Write-offs 15,800 2,600 Recoveries
16,200 (1) Bad debts [900K – 90K) x 2%]
(2) end. 15,600

Accounts receivable
beg. 180,000
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Net credit
Write-offs
sales 810,000 15,800
Collections, excldg.
781,000 recoveries
193,200 end.

Accounts receivable, Dec. 31 193,200

Allowance for bad debts, Dec. 31 (15,600)
(3) Carrying amount, Dec. 31 177,600

(b) Percentage of ending receivable

Allowance for bad debts
12,600 beg.
Write-offs 15,800 2,600 Recoveries
(1) Bad debts
16,056 (squeeze)
(2) end. (193.2K x
15,456
8%)

Accounts receivable, Dec. 31 193,200

Allowance for bad debts, Dec. 31 (15,456)
(3) Carrying amount, Dec. 31 177,744

6. Solution:
Amoun % Required
Days outstanding
t uncollectible allowance

0 – 60 190,000 1%
1,900

61 – 90 240,000 3%
7,200

91 - 120 30,000 7%
2,100

Over 120 10,000 10%

1,000
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Totals 470,000 12,200

Allowance for bad debts

10,100 beg.

Write-offs Recoveries
4,600 200
(1) Bad debts
6,500 (squeeze)

(2) end.
12,200

Accounts receivable, Dec. 31 470,000

Allowance for bad debts, Dec. 31 (12,200)
(3) Carrying amount, Dec. 31 457,800