REVPRA-A

Loans and Receivables Part 1

Discussion Problems

A.

The Morning Star Corporation includes in its trial balance for December 31 Trade Accounts
Receivable of P708,000. The balance consists of the following items:
Due from regular customers
P 523,000
Refund receivable on prior years income taxes (an established
claim
15,500
Loans to officers
22,000
Advances to creditors for goods ordered
45,500
Accounts receivable assigned as security for loans payable
75,000
Notes receivable past due plus interest on these notes
27,000
Total
P708,000
1.

B.

What should be the amount to be presented as Trade Accounts Receivable on the balance
sheet as of December 31?

From inception of operations to December 31, 2007 the Queen Jelly Company 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 yearend
adjustments to the allowance account were made. Queen Jellys usual credit terms are net 30
days.
The balance in the Allowance for Uncollectible Accounts was P154,000 at January 1, 2007. During
2007, credit sales totaled P9,000,000, interim provisions for doubtful accounts 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. Queen Jelly installed a computer facility in November 2007 and
an aging of accounts receivable was prepared for the first time as of December 31, 2007. A
summary of the aging is as follows:
Classification by Month of Sale
November December 2007
July October 2007
January June 2007
Prior to 1/1/2007

Balance in Each Category

P1,080,000
650,000
420,000
150,000

Estimated % Uncollectible
2%
10%
25%
70%

Based on the review of collectibility of the account balances in the prior to 1/1/2007 aging
category, additional receivables totaling P60,000 were written off as of December 31, 2007. The
70% uncollectible estimate applies to the remaining P90,000 in the category. Effective with the
year ended December 31, 2007, Queen Jelly adopted a new accounting method for estimating the
allowance for uncollectible accounts at the amount indicated by the year-end aging analysis of the
accounts receivable.
2.

How much additional uncollectible accounts expense should be provided at yearend?

3.

What is the total amount of uncollectible accounts expense for the year ended December
31, 2007?

4.

How much accounts receivable, net of the related allowance for uncollectible accounts
should be presented on the balance sheet as of December 31, 2007?

REVPRA-A
Loans and Receivables Part 1
C.

Quincy Company started operations on January 1, 2007. The following data are available as of
June 30, 2007:
Purchase of merchandise
Inventory, June 30, 2007
Goods were sold at 50% above cost; 75% of sales
were on account.
Estimated bad debts
Collections from charge customers
Allowance for Bad Debts, June 30, 2007, after
write-off of uncollectible accounts.
5.

D.

8,437.50
630,000.00
7,807.50

What is the total gross accounts receivable on June 30, 2007?

In your examination of the books and accounts of Edsel Corporation for the year 2007, you have
noted that the entire past due accounts of the company amounting to P400,000 should be set up
as allowance for uncollectible accounts. On these past due accounts, management with proper
recommendation from the companys legal counsel, has decided to write-off accounts with balance,
totaling P80,000. As of December 31, 2007, the balance of allowance for doubtful accounts was
P250,000.
6.

E.

P 900,000.00
150,000.00

How much additional uncollectible accounts expense should be provided at yearend?

The balance sheet of Kanlaon Company on December 31, 2007, prepared by its accountant,
showed current assets as follows:
Cash
P 86,870
Marketable Securities
24,500
Account receivable
283,000
Inventories
112,000
Total
P 506,370
========
Your audit of the accounts disclosed the following details:

Cash
Cash in banks
Cash on hand awaiting deposit
Petty Cash fund
Time deposit
Accounts receivable
Due from trade debtors
Notes receivable trade
Stock subscription receivable callable in six months
Sale price of goods consigned out, still unsold, at
150% of cost (not in inventory)
Allowance for bad debts

7.

What is the correct total current assets?

36,120
9,750
1,000
40,000
P 86,870
=======
P 192,800
20,000
50,000
30,000
( 9,800)
P 283,000
========

REVPRA-A
Loans and Receivables Part 1
F.

Among the notes receivable account as of December 31, 2007 of a company under your audit was
a 60-day note dated November 16, 2007, face value, P200,000 with interest at 12% p.a. The note
was signed by a stockholder in payment of his subscription to shares of the companys capital
stock.
8.

G.

Reviewing the accounts receivable of Kanlaon Company as at December 31, 2007, you obtained
the following information:
Kanlaon estimated the required allowance for uncollectible accounts using the year-end aging
of accounts receivable.
Allowance for doubtful accounts, January 1, 2007, P65,000
Provision made during the year 2007 for uncollectible accounts, P120,000
Uncollectible accounts written-off on October 31, 2007, P80,000
Estimated doubtful accounts per aging on December 31, 2007, P115,000.
9.

H.

An adjustment should be made on December 31, 2007 to take up accrued interest income
of P______________.______

After year-end adjustment, the doubtful accounts expense of Kanlaon for the year 2007
should be P________________.

Presented below are unadjusted balances of selected accounts of Harrison Company as of

December 31, 2007:
Unaudited Balances, 12.31.0
Selected Accounts
Debit
Credit
Cash
P 500,000
Accounts receivable
1,300,000
Allowance for doubtful accounts
8,000
Net sales
P6,750,000
Additional information are as follows:
v Goods amounting to P50,000 were invoiced for the accounts of Variety Store & Co.,
recorded on January 2, 2008 with terms of net, 60 days, FOB shipping point. The goods
were shipped to Variety Store on December 30, 2007.
v The bank returned on December 29, 2007, a customers check for P5,000 marked No
Sufficient Funds, but no entry was made.
v Harrison estimates that allowance for uncollectible accounts should be one and one-half
percent (1 %) of the accounts receivable balance as of year end. No provision has yet
been made for 2007.
10.

What is the adjusted balance of Accounts Receivable on December 31, 2007?

11.

What is the adjusted balance of Allowance for Doubtful Accounts on December 31?

12.

What is the adjusted amount of 2007 Bad Debts Expense?

REVPRA-A
Loans and Receivables Part 1
I.

The financial statements of Red Bulls Corporation included the following:

December 31, 2006
December 31, 2007
Accounts receivable
P 735,000
Allowance for doubtful accounts
16,200
Sales on account
P 4,500,000
Cash collected from customers
4,200,000
Among the cash collections was the full recovery of a P16,000 receivable from Robert De Leon, a
customer whose account had been written off as worthless late in 2006.
During 2007, it was necessary to write off uncollectible customers accounts totaling P20,200.
On December 1, 2007, a customer settled his account by issuing to Red Bulls Corporation a 6%,
six-month note for P260,000.
At December 31, 2007, the accounts receivable included P100,800 past due accounts. After careful
study of all past-due accounts, the management estimated that the probable loss contained therein
was 10%. In addition, 2% of the current accounts receivable might prove uncollectible.
13.

What is the balance of Accounts Receivable as of Dec. 31, 2007?

14.

What is the amount of the current accounts receivable that might prove to be uncollectible?

15.

What is the balance of the allowance for uncollectible accounts before adjustments on
December 31, 2007?

16.

How much increase in the allowance for uncollectible accounts is required on December 31,
2007?

17.

What is the balance of the allowance for uncollectible accounts after all the necessary
adjusting entries on December 31, 2007?

REVPRA-A
Loans and Receivables Part 1
J.

Jardine Paints produces paints and related products for sale to the construction industry
throughout the country.
While sales have remained relatively stable despite a decline in the
amount of new construction, there has been a noticeable change in the timeliness with which
Jardines customers are paying their bills.
Jardine sells its products on payment terms of 2/10, n/30. In the past, over 75% of the credit
customers have taken advantage of the discount by paying within 10 days of the invoice date.
During the fiscal year ended November 30, 2007, the number of customers taking the full 30 days
to pay has increased. Current indications are that less than 60% of the customers are now taking
the discount. Uncollectible accounts as a percentage of total credit sales have risen from the 1.5%
provided in past years to 4.0% in the current year.
Jardines controller has prepared the following report:
Jardine Paints
Accounts Receivable Collections
November 30, 2007

The fact that some accounts will prove uncollectible is normal, and annual bad debt write-offs had
been 1.5% of total credit sales for many years. However, during the 2006-2007 fiscal year, this
percentage increased to 4.0%. The current accounts receivable balance is P1,500,000, and the
condition of this balance in terms of age and probability of collection is shown below:
Proportion of Total
Age Categories
Probability of Collection
64.0%
1 to 10 days
99.0%
18.0
11 to 30 days
97.5%
8.0
Past due 31 to 60 days
95.0%
5.0
Past due 61 to 120 days
80.0%
3.0
Past due 121 to 180 days
65.0%
2.0
Past due over 180 days
20.0%
At the beginning of the fiscal year, December 1, 2006, the Allowance for Uncollectible Accounts
had a credit balance of P27,300. Jardine has provided for a monthly doubtful accounts expense
accrual during the fiscal year just ended based on the assumption that 4% of total credit sales will
be uncollectible. Total credit sales for the 2006 2007 fiscal year amounted to P8,000,000, and
write-offs of uncollectible accounts during the year totaled P292,500.
18.

What is the net realizable value of accounts receivable?

19.

What is the amount of the yearend adjustment necessary to bring Jardines Allowance for
Doubtful Accounts to the balance indicated by the aging analysis?

20.

What is the amount of Uncollectible Accounts Expense that should be reported on the
income statement for the year ended November 30, 2007?