APIE 109-INTEGRATED COURSE ENHANCEMENT

HO#4

RECEIVABLES
- Contractual right to receive cash or another financial asset from another entity
Initial Measurement: Fair Value + Transaction Costs
Subsequent Measurement: Amortized Cost

CLASSIFICATION:
Trade-arising from the sale of goods and services in the ordinary course of business
Non-trade- arising from other sources.

ACCOUNTS RECEIVABLE
Beg. Balance xx Collections xx
Credit Sales xx Sales Discount xx
Sales Discount Forfeited xx Sales Return xx
Write-off xx
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1. Direct write-off Method
Percent of A/R (ADA)
2. Allowance Method
a. Balance Sheet Method
Aging Method (ADA)

b. Income Statement Method Percent of Credit Sales (DAE)

NOTES RECEIVABLE:
Short term Interest Bearing
Non-interest bearing Face value
Long term Interest Bearing (with Amortized Cost
reasonable interest rate)
Non-interest bearing Present Value
*Assuming discounting is immaterial; otherwise, it should be presented in present value.
* Notes with unreasonable rate bears an interest which is not equal to the market rate of interest.

LOANS RECEIVABLE:
- Financial asset arising from loan granted by a bank or other financial institution to a borrower
or a client.

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MEASUREMENT:
Initial Measurement Subsequent Measurement: Amortized Cost

Face Value xx
Add: Direct Origination Costs xx
Less: Origination Fee (xx)
Initial Carrying Value xx

Impairment of Loans:
How to compute?
Carrying amount of loan receivable xx
PV of recoverable amount xx
Impairment Loss xx

RECEIVABLE FINANCING:
Common forms of receivable Pledge Assignment
Formal? x √
financing
Transfer of rights? x √
 Pledge/Hypothecation Transfer of ownership? x x
 Assignment AR serve as security √ √
 Factoring General Specific
 Discounting

Proceed from assignment: Equity on assigned accounts:

Face value of loan xx CA of AR xx
Less: Commission and other charges xx Less: CA of loans payable xx
Net proceeds from assignment xx Equity on assigned accounts xx

Proceed from factoring: Gain or loss from factoring:

Face value of AR xx Selling Price xx

Less: Commission and other charges xx Less: CA of AR xx
Factor’s holdback xx Gain or loss on factoring xx
Net proceeds from factoring xx

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Forms of Discounting:
Without Recourse Basis
Conditional Sale
TYPES OF NEGOTIATION With Recourse Basis
Secured Borrowing

Proceed from factoring: Gain or loss on discounting:

Maturity Value xx Selling Price xx
Less: Discount xx Less: CA of NR xx
Net proceeds from discounting xx Gain or loss on discounting xx s

NOTES:
 Notes Receivable discounted is presented as contra-asset account (deduction from notes
receivable account)
 Gain or loss discounting is applicable only to without recourse basis and conditional sale
basis.
MULTIPLE CHOICE:
1. Accounts receivable usually appear in the balance sheet
a. As current assets, combined with cash and cash equivalents
b. As current assets, immediately after cash and cash equivalents
c. As either current assets or noncurrent assets, depending on whether the allowance
method or the direct write-off method is used to account for uncollectible accounts
d. Only if the balance sheet method of estimating uncollectible accounts is used

2. When the allowance method of recognizing bad debt expense is used, the entries at the
time of collection of an account previously written off would
a. Have no effect on net income
b. Increase net income
c. Decrease the allowance for doubtful accounts
d. Have no effect on the allowance for doubtful accounts

3. Trade receivables are classified as current assets if they are reasonably expected to be
collected
a. Within one year
b. Within the normal operating cycle
c. Within one year or within the operating cycle, whichever is shorter

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d. Within one year or within the operating cycle, whichever is longer

4. When individual customers’ accounts have credit balances of material amounts, these
amounts
a. May be shown as “credit balances of customers’ accounts” in the current assets section
b. May be deducted from the debit balance in other customers’ accounts in the assets
section
c. Must be reported separately in the liability section of the balance sheet
d. Should be omitted from the balance sheet

5. The balance in accounts receivable is not reduced in recording which of the following types
of financing arrangements?
a. Assignment of specific accounts receivable
b. General assignment (pledge) of accounts receivable
c. Factoring of accounts receivable
d. Transfer of accounts receivable without recourse

6. Which method of recording bad debt loss is consistent with accrual accounting
a. Allowance method
b. Direct write-off method
c. Percent of sales method
d. Percent of receivable method

7. Which of the following is not permitted in accounting for uncollectible accounts receivable?
a. Direct write-off method
b. Percentage of sales, allowance method
c. Percentage of accounts receivable, allowance method
d. All of the choices are acceptable under PFRS
8. Which accounting principle primarily supports the use of allowance for doubtful accounts?
a. Conservatism c. Full disclosure principle
b. Continuity principle d. Matching principle

9. Why is the allowance method preferred over the direct write-off method of accounting for
bad debts?
a. Estimates are used.
b. The allowance method is used for tax purposes.
c. Improved matching of bad debt expense with revenue is achieved.
d. Determining worthless accounts under direct write-off method is difficult to do

10. When the allowance method of recognizing bad debt expense is used, the journal entry to
record the write-off of a specific uncollectible account would decrease
a. Net income
b. Working capital

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c. Allowance for doubtful accounts

d. Net realizable value of accounts receivable

STRAIGHT PROBLEM:

1. 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?

2. Roanne Company used the allowance method of accounting for uncollectible accounts.
During 2020, the entity had charged P800, 000 to bad debt expense, and wrote off
accounts receivable of P900, 000 as uncollectible. What was the decrease in working
capital?
3. Seiko Company reported the following balances after adjustment at year-end:
2020 2019
Accounts receivable 5,250,000 4,800,000
Net realizable value 5,100,000 4,725,000

During 2020, the entity wrote off accounts totaling P160, 000 and collected P40, 000 on accounts
written off in previous year. What amount should be recognized as doubtful accounts expense for
the year ended December 31, 2020?
4. Tara Company provided the following information pertaining to accounts receivable on
December 31, 2020:
Days Estimated Estimated
outstanding Amount uncollectible
0- 60 1,200,000 1%
61 - 120 900,000 2%
Over 120 1,000,000 60,000

During 2020, the entity wrote off P70,000 in accounts receivable and recovered P40,000 that
had been written off in prior years. On January 1, 2020, the allowance for uncollectible accounts
was P 100,000. Under the aging method, what amount of allowance for uncollectible accounts
should be reported on December 31,2020?

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5. Financial Accounting &

Reporting
6.
7.

8. 12 | P a g e
9.
10.19. What is the balance
of accounts receivable on
December 31, 2020?
11.A. 1,220,000 C.
1,300,000
12.B. 1,280,000 D.
1,426,000
13.

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14.20. What is the

balance of allowance for
doubtful accounts on
December 31,2020?
15.A. 120,000 C. 200,000
16.B. 170,000 D. 250,0
17.
MULTIPLE CHOICE PROBLEM SOLVING:
Easy Company sells directly to retail customers. On January 1, 2020, the balance of the
accounts receivable was P2,070,000 while the allowance for doubtful accounts was a
credit of P78,000. The following data are gathered:
Credit sales Write-offs Recoveries
2017 11,100,000 260,000 22,000
2018 12,250,000 295,000 37,000
2019 14,650,000 300,000 36,000
2020 15,000,000 310,000 42,000
Doubtful accounts are provided for as a percentage of credit sales. The entity calculated the
percentage annually by using the experience of the three years prior to the current year.
1. What is the percentage of credit sales to be used in computing doubtful accounts expense for
2020?
A. Two percent C. Six percent
B. Four percent D. Eight
2. What amount should be reported as doubtful accounts expense for 2020?
A. 222,000 C. 310,000
B. 300,000 D. 378,000
3. What amount should be reported as allowance for doubtful accounts on December 31, 2020?
A. 110,000 C. 378,000
B. 300,000 D. 478,000

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4. On July 1, 2018, Wang Company sold goods in exchange for P2,000,000, 8-month, noninterest-
bearing note receivable for time of the sale, the note's market rate of interest was 12 %. At the
amount did Lee receive when it discounted the note at 10% on September 1, 2018?
a. 1,940,000
b. 1,938,000
c. 1,900,000
d. 1,880,000
Hao Company accepted from a customer P 1,000,000 face amount, 6-month, and 8% note dated
April 15, 2018. On the same date Apex discounted the note without recourse at Inter Bank at a
10% discount rate.
5. What amount of cash was received by Apex from the discounting?
a. 1,040,000 b. 990,000
c. 988, 000 d. 972,000
6. What is the loss on note receivable discounting?
a. 50,000 b. 40,000
c. 52,000 d. 12,000

Dixie Corp. factored P6, 000,000 of accounts receivable to a finance entity at the end of current
year. Control was surrendered by Dixie Corp. The factored assessed a fee of 3% and retained a
holdback equal to 5% of the accounts receivable. Moreover, the factor charged 15% interest
computed on a weighted average time to maturity of the accounts receivable of 60 days

7. What is the amount of cash initially received from the factoring?

a. 5,372,055 b. 5,382,055
c. 5,373,055 d. 5,374,05
ERWAN Corp. factored P6, 000,000 of accounts receivable to a finance entity at the end of current
year. Control was surrendered by Dixie Corp. The factored assessed a fee of 3% and retained a
holdback equal to 5% of the accounts receivable. Moreover, the factor charged 15% interest
computed on a weighted average time to maturity of the accounts receivable of 90 days.
8. If all accounts are collected, what is the cost of factoring the accounts receivable?

a. 400,917 b. 401,917
c. 410,917 d. 411, 917

The entity received P2, 500,000 less a 2% finance charge. None of the assigned accounts had
been collected by the end of the year.
Allowance for bad debts before adjustment, 12/31/2019 100,000
Estimated uncollectible, 12/31/2019 10% of AR
Accounts receivable not including factored and
assigned accounts, 12/31/2019 1,000,000
Accounts receivable- assigned 5,000,000
Accounts receivable-factored 1,500,000

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9. What is the total amount of cash received from the financing of accounts receivable during
the year?
a. 3,840,000
b. 1,590,000
c. 2,670,900
d. 2,456,890

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