FINACC 1: RECEIVABLES PRACTICE PROBLEMS

Problem 1: ABC Co. has been recognizing bad debts expenses based on the direct write-off
method. In 20x4, ABC Co. decided to change to the allowance method and that doubtful
accounts shall be estimated using the percentage of receivable method. The percentage is
to be computed based on all available historical data up to a maximum of four years.
Information for four years is shown below:

Year Write-offs Recoveries Net credit sale

20x1 7,000 1,000 100,000

20x2 10,000 3,000 160,000

20x3 15,000 5,000 200,000

20x4 28,000 2,000 240,000

60,000 11,000 70,000

The balances of accounts receivables on January 1, 20x4 and December 31, 20x4 are
P100,000 and P200,000 respectively.

Requirement: Compute for the doubtful accounts expense to be recognized in 20x4.

Problem 2: ABC Co. has the following information

Days outstanding Receivable balances % uncollectible

0 - 60 120,000 1%

61 - 120 90,000 2%

Over 120 100,000 6%

Total Accounts Receivable 310,000

During the year, ABC Co. wrote off P7,000 receivables and recovered P4,000 that had been
written-off in prior years. The allowance for doubtful accounts has a beginning balance of
P2,000.

Requirements: Compute for (a) doubtful accounts expense for the year and (b) net
realizable value of accounts receivable.

1|Page Mathew Lester F. Mendoza CPA

Problem 3: ABC Co. has the following information on December 31, 20x1 before any year-
end adjustments.
Net Credit Sales 2,000,000
Accounts receivable, December 31 310,000
Allowance for doubtful accounts, Dec. 31 (before any
necessary year-end adjustments) 17,000
Percentage credit sales 2%

Days outstanding Receivable balances % uncollectible

0 - 60 120,000 1%

61 - 120 90,000 2%

Over 120 100,000 6%

Total Accounts Receivable 310,000

Additional information:
 ABC Co. uses percentage of credit sales in determining bad debts in monthly
financial reports and the aging of receivable for its annual financial statements.
 Accounts written-off during the year amounted to P38,000 and accounts recovered
amounted to P9,000.
 As of December 31, ABC Co. determined that P20,000 accounts receivable from a
certain customer included in the “61-120 days outstanding” group is 95% collectible
and a P10,000 account included in the “Over 120 days outstanding” group is
worthless and needs to be written-off.

Requirements: Compute for the following:

a. Unadjusted bad debt expense charged during the year.
b. Balance of the allowance for doubtful accounts as of January 1, 20x1.
c. Required balance of the allowance for doubtful accounts on December 31, 20x1.
d. Adjusted bad debt expense to be reported in the year-end financial statements.
e. Year-end recoverable historical cost of accounts receivable.
f. Provide necessary year-end adjusting entry.

2|Page Mathew Lester F. Mendoza CPA

Problem 4: Presented below are unrelated situations. Answer the questions relating to
each situation.
1. The following information is from GUMAMELA CORP.’s first year of operations:
1. Merchandise purchased P450,000
2. Ending merchandise inventory 123,000
3. Collections from customers 150,000
4. All sales are on account and goods sell at
30% above cost
What is the accounts receivable balance at the end of the company’s first year of
operations?

2. BANABA CO. reported the following information at the end of its first year of
operations, December 31, 2016:

Bad debt expense for 2016 P271,000

Uncollectible accounts written of during 2016 35,400
Net realizable value of accounts receivable 895,000

What is the accounts receivable balance at December 31, 2016?

3. SUNFLOWER COMPANY sells a variety of imported goods. By selling on credit,

Sunflower cannot expect to collect 100% of its accounts receivable. At December 31,
2015, Sunflower reported the following in its statement of financial position:

Accounts receivable P2,197,500

Less: Allowance for bad debts (133,500)
Accounts receivable, net P2,064,000

During the year ended December 31, 2016, Sunflower earned sales revenue of
P537,702,500 and collected cash of P528,070,500 from customers. Assume bad debt
expense for the year was 1% of sales revenue and that Sunflower wrote off
uncollectible accounts receivable totaling P5,439,500.

A. What is the accounts receivable balance at December 31, 2016?

B. What is the December 31, 2016 balance of the Allowance for Bad Debts
accounts?

3|Page Mathew Lester F. Mendoza CPA

 4. The following information pertains to ACACIA, INC. for the year ended December 31,
2016:

Credit sales during 2016 P4,450,000

Collection of accounts written off in prior periods 170,000
Worthless accounts written off in 2016 191,000
Allowance for doubtful accounts, Jan. 1, 2016 155,000

Acacia Inc. provides for doubtful accounts based on 1 ½% of credit sales.

What is the balance of the allowance for doubtful accounts on December 31, 2016?

5. MAHOGANY COMPANY’s analysis and aging of its accounts receivables at December

31, 2016, disclosed the following:

Accounts receivable P460,000

Accounts estimated to be uncollectible (per aging) 95,000
Allowance for bad debts (per books) 103,000

What is the net realizable value of Mahogany’s receivables at December 31, 2016?

6. The policy of ILANG-ILANG, INC. is to debit bad debt expense for 3% of all new sales.
The following are the company’s sales and allowance for bad debts for the past four
years.

Allowance for Bad Debts

Year Sales Year-End Balance

2013 P 3,000,000 P45,000

2014 2,950,000 56,000

2015 3,120,000 60,000

2016 2,420,000 75,000

What are the amounts of accounts written off in 2014, 2015, and 2016?

Problem 6: Presented below are unrelated situations. Answer the questions relating to
each situation.
4|Page Mathew Lester F. Mendoza CPA
 1. ORCHIDS COMPANY’s accounts receivable at December 31, 2016, had a balance of
P1,200,000. The allowance for bad debts account had a credit balance of P40,000.
Net sales in 2016 were P6,704,000 (net of sales discounts of P56,000). An aging
schedule shows that P150,000 of the outstanding accounts receivable are doubtful.

What is the adjusting entry for estimated bad debt expense?

2. The following selected transactions occurred during the year ended December 31,
2016:

Gross sales (cash and credit) P750,000

Collections from credit customers, net of 2% cash discount 245,000

Cash sales 150,000

Uncollectible accounts written off 16,000

Credit memos issued to credit customers for sales returns

and 8,400
allowances

Cash refunds given to cash customers for sales returns and

allowances 12,640

Recoveries on accounts receivable written off in prior years

(not included in cash received stated above) 5,421

At year-end, the company provides for the estimated bad debt losses by crediting
the Allowance for Bad Debts account for 2% of its net credit sales for the year.
a. What is the company’s net credit sales in 2016?
b. What is the bad debt expense for 2016?

3. COCONUT CO. estimates its bad debt expense to be 3% of net sales. The company’s
unadjusted trial balance at December 31, 2016, included the following accounts:

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 Debit Credit

Allowance for bad debts P8,000

Sales 2,600,000

Sales returns and allowances P45,000

What is the company’s bad debt expense for 2016?

4. BANAWE, INC. estimates its uncollectible accounts to be 3% of the accounts

receivable balance. The following information was taken from the company’s
statement of financial position at December 31, 2016:

Debit Credit

Net sales (including cash sales of P825,000)

Allowance for bad debts P69,000 3,460,000

Accounts receivable 2,460,000

What is the bad debt expense to be reported for 2016?

6|Page Mathew Lester F. Mendoza CPA