ACCOUNTS RECEIVABLE

Classifying Accounts Receivable

On December 31, 2023, Honduras Company revealed a balance of P8,200,000 in the accounts receivable control
account. An analysis of the accounts receivable showed the following:

Accounts known to be worthless 100,000

Advance payments to creditors on purchase orders 400,000
Advances to affiliated companies 1,000,000
Customers' accounts reporting credit balances arising from sales returns (600,000)
Interest receivable on bonds 400,000
Trade accounts receivable - unassigned 2,000,000
Subscription receivable due in 30 days ' 2,200,000
Trade accounts receivable - assigned (Finance
Company's equity in assigned accounts is P500,000) 1,500,000
Trade installments receivable due 1-18 months,
including unearned finance charge of P50,000 850,000
Trade accounts receivable from officers, due currently 150,000
Total 8,000,000
What amount should be reported as trade accounts receivable on December 31,2023?

Aging Method
Tara Company provided the following information pertaining to accounts receivable on December 31, 2023:

Days Estimated Estimated

outstanding Amount uncollectible
0- 60 1,200,000 1%
61 - 120 900,000 2%
Over 120 1,000,000 60,000
3,100,000

During 2023, the entity wrote off P70,000 in accounts receivable and recovered P40,000 that had been
written off in prior years. On January 1, 2023, the allowance for uncollectible accounts was P100,000.
Under the aging method, what amount of allowance for uncollectible accounts should be reported on
December 31, 2023?

Percent of accounts receivable method

Manchester Company provided the following accounts abstracted from the unadjusted trial balance on
December 31, 2023:
Debit Credit
Accounts receivable 5,000,000
Allowance for doubtful accounts 40,000
Net credit sales 20,000,000
The entity estimated that 3% of the gross accounts receivable will become uncollectible. What amount
should be recognized as doubtful accounts expense for 2023?

Percent of sales method

At year-end, Barr Company reported net sales of P7,100,000 and allowance for doubtful accounts with debit
balance of P16,000 before adjustment. The entity estimated the uncollectible accounts receivable at 2% of net
sales. What is the allowance for doubtful accounts at year-end?
ENGAGING ACTIVITY

A. Classification of Receivable
When examining the accounts of Brute Company, it is ascertained that balances relating to both receivables
and payables are included in a single controlling account called "receivables control" that has a debit balance
of P4,850,000. An analysis of the make-up of this account revealed the following:

Debit Credit
Accounts receivable - customers 7,800,000
Accounts receivable - officers 500,000
Debit balances - creditors 300,000
Postdated checks from customers 400,000
Subscriptions receivable 800,000
Accounts payable for merchandise 4,500,000
Credit balances in customers' accounts 200,000
Cash received in advance from customers
for goods not yet shipped 100,000
Expected bad debts 150,000

After further analysis of the aged accounts receivable, it is determined that the allowance for doubtful accounts
should be P200,000.

What amount should be reported as "trade and other receivables" under current assets?

B. Preparation of Aging of Receivables

Sigma Company began operations on January 1, 2013. On December 31,2013, the entity provided for
uncollectible accounts based on 1% of annual credit sales.

On January 1,2014, the entity changed the method of determining the allowance for uncollectible accounts by
applying certain percentages to the accounts receivable aging as follows:

Days past invoice date Percent uncollectible

0- 30 1
31 - 90 5
91 - 180 20
Over 180 80

In addition, the entity wrote off all accounts receivable that were over 1 year old. The following additional
information related to the years ended December 31,2014 and 2013:
2014 2013
Credit sales 3,000,000 2,800,000
Collections, including recovery 2,915,000 2,400,000
Accounts written off 27,000 none
Recovery of accounts previously written off 7,000 none

Days past invoice date at December 31

0- 30 300,000 250,000
31 - 90 80,000 90,000
91 - 180 60,000 45,000
Over 180 25,000 15,000

What is the amount of uncollectible accounts expense for 2014?

 NOTES RECEIVABLE

Annuity Due
On January 1, 2014, Ott Company sold goods to Fox Company. Fox signed a noninterest-bearing note requiring
payment of P600,000 annually for seven years. The first payment was made on January 1, 2014. The prevailing
rate of interest for this type of note at date of issuance was 10%. Information on present value factors is as
follows:
Present value Present value of
Period of 1 at 10% ordinary annuity of 1 at 10%
6 .56 4.36
7 .51 4.87

Ordinary annuity
On December 31, 2014, Park Company sold merchandise and received a noninterest-bearing note requiring
payment of P500,000 annually for ten years. The first payment is due December 31, 2015 and the prevailing
rate of interest for this type of note at date of issuance is 12%. The present value of an ordinary annuity of 1 at
12% for 10 periods is 5.65.

LOAN RECEIVABLE
Sample Problem:
Appari Bank granted a loan to a borrower on January 1, 2014. The interest rate on the loan is 10% payable
annually starting December 31, 2014. The loan matures in five years on December 31, 2018. The data related
to the loan are:

Principal amount 4,000,000

Origination fee received from borrower 350,000
Direct origination cost incurred 61,500

The effective rate on the loan after considering the direct origination cost incurred and origination fee received
is 12%.

Impairment of Loan

Beach Bank loaned Boracay Company P7,500,000 on January 1, 2012. The terms of the loan were payment in
full on January 1, 2016 plus annual interest payment at 11%. The interest payment was made as scheduled on
January 1, 2013. However, due to financial setbacks, Boracay Company was unable to make the 2014 interest
payment. Beach Bank considered the loan impaired and projected the cash flows from the loan on December
31, 2014. The bank accrued the interest on December 31, 2013, but did not continue to accrue interest for 2014
due to the impairment of the loan. The projected cash flows are:

Date of cash flow Amount projected on December 31, 2014

December 31, 2015 500,000
December 31, 2016 1,000,000
December 31, 2017 2,000,000
December 31, 2018 4,000,000

The PV of 1 at 11% is 0.90 for one period, 0.81 for two periods, 0.73 for three periods, and 0.66 for four periods.

RECEIVABLE FINANCING

Assignment of Accounts Receivable

On December 1, 2014, Bamboo Company assigned specific accounts receivable totaling P2,000,000 as
collateral on a P1,500,000,12% note from a certain bank. The entity will continue to collect the assigned
accounts receivable. In addition to the interest on the note, the bank also charged a 5% finance fee deducted
in advance on the P1,500,000 value of the note. The December collections of assigned accounts receivable
amounted to P1,000,000 less cash discounts of P50,000. On December 31, 2014, the entity remitted the
collections to the bank in payment for the interest accrued on December 31, 2014 and the note payable.

Factoring of Accounts Receivable

Daisy Company sold accounts receivable without recourse with face amount of P6,000,000. The factor charged
15% commission on all accounts receivable factored and withheld 10% of the accounts factored as protection
against customer returns and other adjustments. The entity had previously established an allowance for
doubtful accounts of P200,000 for these accounts. By year-end, the entity had collected the factor's holdback
there being no customer returns and other adjustments.

Discounting on Notes Receivable

Without Recourse
On July 1, 2014, Kay Company sold equipment to Mando Company for P1,000,000. Kay accepted a 10% note
receivable for the entire sales price. This note is payable in two equal installments of P500,000 plus accrued.
interest on December 31, 2014 and December 31, 2015. On July 1, 2015, the entity discounted the note at a
bank at an interest rate of 12%. What is the amount received from the discounting of note receivable?

Secured borrowings
On August 31, 2014, Sunflower Company discounted with recourse a note at the bank at discount rate of 15%.
The note was received from the customer on August 1, 2014, is for 90 days, has a face value of P5,000,000, and
carries an interest rate of 12%. The customer paid the note to the bank on October 30, 2013, the date of
maturity.

If the discounting is accounted for as a secured borrowing, what is the interest expense to be recognized on
August 31, 2014?