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ANSWER KEY

1. Under the allowance method of recognizing bad debts on trade accounts receivable, the effect of writing
off an account to an entity's working capital is
a. increase
b. decrease
c. either a or b depending on the current level of the entity's working capital
d. no effect

2. JG Company had an accounts receivable balance of ₱40,000 on December 31, 2001, and ₱65,000 on
December 31, 2002. The company wrote off ₱10,000 of accounts receivable during 2002, and collected
₱2,000 on an account written off in 2000. Sales for the year 2002 totaled ₱520,000. All sales were on
account. The amount collected from customers on accounts receivable during 2002 was
________________________.

Solution:
Accounts receivable
beg. 40,000 2,000 Recoveries
Sales on account 520,000 485,000 Collections
Recoveries 2,000 10,000 Write-offs
65,000 end.

3. RGI Company had an accounts receivable balance of ₱45,000 on December 31, 2001, and ₱60,000 on
December 31, 2002. The company wrote off ₱12,000 of accounts receivable during 2002, and collected
₱2,500 on an account written off in 2000. Sales for the year 2002 totaled ₱550,000. All sales were on
account. The total collections from customers in 2002 were ______________________

Solution:
Accounts receivable
beg. 45,000 2,500 Recoveries
Sales on account 550,000 523,000 Collections
Recoveries 2,500 12,000 Write-offs
60,000 end.

4. At the close of its first year of operations, December 31, 2004, Linn Company had accounts receivable of
₱490,000, after deducting the related allowance for doubtful accounts. During 2004, the company had
charges to bad debt expense of ₱90,000 and wrote off, as uncollectible, accounts receivable of ₱40,000.
What should the company report on its balance sheet at December 31, 2004 as accounts receivable before
the allowance for doubtful accounts?
_________________________

Solution:
Allowance for doubtful accounts
- beg.
Write-offs 40,000 90,000 Bad debts expense
- Recoveries
end. 50,000
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490,000 + 50,000 = 540,000

5. Before year-end adjusting entries, Bass Company's account balances at December 31, 2004 for accounts
receivable and the related allowance for uncollectible accounts were ₱700,000 and ₱45,000, respectively.
An aging of accounts receivable indicated that ₱62,500 of the December 31 receivables are expected to be
uncollectible. The net realizable value of accounts receivable after adjustment is
_____________________.

Solution: (700,000 – 62,500) = 637,500

6. During the year, Jantz Company made an entry to write off a ₱4,000 uncollectible account. Before this
entry was made, the balance in accounts receivable was ₱80,000 and the balance in the allowance account
was ₱4,500. The net realizable value of accounts receivable after the write-off entry was
_________________________.

Solution: [(80,000 – 4,000) - (4,500 – 4,000)] = (76,000 – 500) = 75,500

7. The following information is available for Reagan Company:

Allowance for doubtful accounts at December 31, 2003 ₱ 8,000
Credit sales during 2004 400,000
Accounts receivable deemed worthless and written
off during 2004 9,000

It has been determined that an allowance for doubtful accounts of ₱9,500 is needed at December 31, 2004.
What amount should Reagan record as "bad debt expense" for the year ended December 31, 2004?
___________________________

Solution: (9,500 + 9,000 – 8,000) = 10,500

Use the following information for the next two questions:

A trial balance before adjustments included the following:
Debit Credit
Sales ₱425,000
Sales returns and allowance ₱14,000
Accounts receivable 53,000
Allowance for doubtful accounts 760

8. If the estimate of uncollectibles is made by taking 1% of net sales, the amount of the adjustment is
____________________.

Solution: (425,000 – 14,000) = 4,110

9. If the estimate of uncollectibles is made by taking 10% of gross account receivables, the amount of the
adjustment is __________________

Solution: (53,000 x 10%) – 760 = 4,540

10. For the month of December, the records of Balin Corporation show the following information:
Cash received on accounts receivable ₱ 70,000
Cash sales 60,000
Accounts Receivable, December 1 160,000
Accounts Receivable, December 31 148,000
Accounts Receivable written off as uncollectible 2,000
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The corporation uses the direct write-off method in accounting for uncollectible accounts receivable.

What are the gross sales for the month of December? _____________________

Solution: (148,000 + 70,000 + 60,000 + 2,000 – 160,000) = 120,000

11. An analysis and aging of accounts receivable of the Lucille Company at December 31, 2002, showed the
following:

Accounts Receivable .................................. ₱840,000

Allowance for Doubtful Accounts
(before adjustment) ................................ 36,000 (cr)
Accounts estimated to be uncollectible ............... 76,800

Compute for the net realizable value of the accounts receivable of Lucille Company at December 31, 2002.
____________________
Solution: [840,000 – (36,000 + 76,800)] = 727,200

12. Spongebob Squarepants lent ₱2,000 to Squidward for one year at 10% interest, all due at maturity. He
insisted the terms of the transaction be formalized in promissory note. In this situation
a. the maturity value of the note is ₱2,000.
b. Spongebob Squarepants is considered the maker of the note and records the note as an asset in his
accounting records.
c. Spongebob Squarepants is considered the maker of the note and records the note as a liability in his
accounting records.
d. Squidward is considered the maker of the note and records the note as a liability in his accounting
records.
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Your are examining the FS of ABC Company for the year ended December 31, 2023. Your audit of the accounts
receivable and other related accounts disclosed the following information:

1. The December 31, 2023, balance in the Accounts Receivable (AR) control account is P788,000.
2. The only entries in the Doubtful accounts expense account were:
a. A credit for P1,296 on December 1, 2023, because customer A remitted in full for the account charged off
October 31, 2023.
b. A debit on December 31 for the amount of the credit to Allowance for doubtful accounts.
3. The Allowance for doubtful accounts is presented below:

January 1 Balance---- P15,250

October 31 Uncollectible:
Customer A- 1,296
Customer B- 3,280
Customer C- 2,256 6,032 (Debit) 9,218
December 31 -3% of P788,000 23,640 (Credit) 32,858
4. An aging schedule of AR as of December 31, 2023, and decisions are shown in the table below:

Amount to which the allowance is to be adjusted after

AGE Net Debit Balance
adjustments and corrections have been made
0-1 month 372,960 1%
1-3 months 307,280 2%
3-6 months 88,720 3%
Over 6 months 24,000 4,000 Definitely uncollectible,
8,000 is considered to be 50% uncollectible, and the
remainder is estimated to be 80% collectible
Total 792,960

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

6. The AR control account is not in agreement with the subsidiary ledger. The differences cannot be located and the
company’s accountant decides to adjust the control to the sum of the subsidiaries after corrections are made.

Requirement:

1. The adjustment to correct the entry made on December 1, 2023 is?

2. The required allowance balance (per aging) on December 31, 2023 is?
3. The net realizable value of ABC’s AR on December 31, 2023 is?
4. ABC should report doubtful accounts expense for 2023 of?

Answers may be here but you need a solution to prove your answers:

779,902

1,296

29,354

774,142

19,058
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793,200

788,664

19,858

32,858

22,344

13,800

13,344

10,296

33,936
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