ACCOUNTING 102

ACCOUNTS RECEIVABLE
FIRST QUIZ

I. THEORIES.

1. Which of the following is classified as a financial asset?

a. Ordinary shares of the issuer
b. Loans payable
c. Accounts receivable
d. Inventory

2. Statement I: Trade receivables are classified as current assets if they are to be collected within one
year or within the normal operating cycle, whichever is shorter.

Statement II: Non-trade receivables are classified as current assets if they are to be collected within
one year or within the normal operating cycle, whichever is longer.

a. Both statements are true

b. Both statements are false
c. Only statement I is true
d. Only statement I is false

3. What is an example of TRADE receivables?

a. Claims in litigation
b. Loans to employees
c. Amounts due from customers
d. Receivables from affiliates

4. The normal operating cycle

a. Cannot exceed a period of one year
b. Refers to the seasonal variations experienced by business entities
c. Should be used to classify asset and liabilities as current if the cycle is less than one year
d. Measures the time elapsed between cash disbursements for inventory and cash collection of the
sales price

5. A credit balance in accounts receivable resulting from overpayments, advanced payments and sales
returns should be classified as (customers’ credit balance)
a. A current liability
b. A long-term liability
c. A contra asset
d. A note disclosure

6. Uncollectible accounts expense

a. Represents the loss in accounts receivable that eventually turn out to be uncollectible
b. Is the amount an entity must pay whenever a customer fails to pay his or her account
c. Should not occur if a company properly investigates customers based on credit history
d. Is the amount an entity must pay to a collection agent to recover amounts on overdue accounts

7. A method of estimating uncollectible accounts that emphasize asset valuation rather than income
measurement is the allowance method based on
a. Aging of receivables
b. Direct write-off
c. Percent of sales method
d. Percent of accounts receivable method

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8. The advantage of relating bad debt experience to accounts receivable is that this approach
a. Does not require knowledge of the balance in the allowance for doubtful accounts
b. Gives a reasonably correct amount of receivables in the balance sheet
c. Does not require estimates of uncollectible accounts
d. Relates bad debt expense to the period of sale
9. 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 accounts receivable method

10. Under the direct write-off method, uncollectible accounts expense is recognized
a. As a percentage of net sales during the period
b. As a percentage of net credit sales during the period
c. As specific accounts receivable are determined to be worthless
d. As indicated by aging the accounts receivable at the end of the period

11. Under the allowance method, the entry to recognize bad debt expense
a. Increases net income
b. Decreases current assets
c. Has no effect on current assets
d. Has no effect on net income

12. Under the allowance method, the allowance for doubtful accounts would decrease when
a. Specific account receivable is collected
b. Account previously written off is collected
c. Specific uncollectible account is written off
d. Account previously written off becomes uncollectible

13. Under the allowance method, the entry to record the write-off of a specific account would
a. Decrease both accounts receivable and net income
b. Increase the allowance for uncollectible accounts and decrease net income
c. Decrease both accounts receivable and the allowance for uncollectible accounts
d. Decrease accounts receivable and increase the allowance for uncollectible accounts

14. Under the allowance method, entries at the time of collection of an account previously written off
would
a. Increase net income
b. Have no effect on net income
c. Decrease the allowance for doubtful accounts
d. Have no effect on the allowance for doubtful accounts

15. Which of the following is NOT a means of using receivables to obtain immediate cash?
a. Pledge and assignment of receivables
b. Factoring of accounts receivable
c. Discounting of notes receivable
d. Aging of accounts receivable

16. The amount of receivables that are hypothecated or pledged against borrowings should be
a. Included in total receivables with disclosure
b. Included in total receivables without disclosure
c. Excluded from total receivables with disclosure
d. Excluded from total receivables without disclosure

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17. A financing arrangement whereby one party formally transfers its rights to accounts receivable to
another party in consideration for a loan.
a. Pledge
b. Assignment
c. Factoring
d. Discounting

18. The amount of accounts receivable is included in total receivables with appropriate disclosures when
a. Pledged (Yes); Assigned (Yes); Factored (Yes)
b. Pledged (Yes); Assigned (Yes); Factored (No)
c. Pledged (Yes); Assigned (No); Factored (No)
d. Pledged (No); Assigned (No); Factored (No)

19. The assignor’s equity in assigned accounts that is required to be disclosed in the notes to the financial
statements is equal to the
a. Bank loan balance
b. Assigned accounts receivable
c. Bank loan balance minus the assigned accounts receivable
d. Assigned accounts receivable minus the bank loan balance

20. When the accounts receivable of a company are sold outright to company that normally buys AR, the
accounts receivable are said to have been
a. Pledged
b. Assigned
c. Factored
d. Collaterized

21. It is a predetermined amount withheld by a factor as a protection against customer returns, allowances
and other special adjustments
a. Equity in assigned accounts
b. Service charge
c. Factor’s holdback
d. Loss on factoring

22. When accounts receivable are factored,

a. Payable to factor is credited
b. Accounts receivable should be credited
c. A contingent liability is ordinarily created
d. It should be accounted for as a borrowing

23. Which of the following accounts is considered as a form of receivable?

a. Accrued income
b. Accrued expense
c. Prepaid expense
d. Unearned income

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II. PROBLEM SOLVING

Problem 1

In the course of your audit of DKNY Company’s “Receivables” account as of December 31, 2017, you
found out that the account comprised the following items:

Trade accounts receivable P1,550,000

Trade accounts receivable, assigned (proceeds from assignment 750,000
amounted to P650,000)
Trade accounts receivable, factored (proceeds from factoring done on 300,000
a without-recourse basis amounted to P250,000)
12% Trade notes receivable 200,000
20% Trade notes receivable, discounted at 40% upon receipt 300,000
of the 180-day note on a without recourse basis
Trade receivable rendered worthless 50,000
Installment receivable, normally due 1 year or two years 600,000
Customers’ accounts reporting credit balances 60,000
arising from sales returns
Advance payments for purchase of merchandise 300,000
Customers’ accounts reporting credit balances arising 40,000
from advance payments
Cash advances to subsidiary 800,000
Claim from insurance company 30,000
Subscription receivable due in 60 days 600,000
Accrued interest receivable 20,000
Deposit on contract bids 500,000
Advances to stockholders (collectible in 2020) 2,000,0000

1. How much is the total trade receivables?

a. 3,650,000 b. 3,100,000 c.3,000,000 d. 2,950,000

2. How much is the amount to be presented as “trade and other receivables” under current assets?
a. 7,350,000 b. 5,350,000 c. 4,850,000 d. 4,050,000

Problem 2

Your audit disclosed that on December 31, 2017, the accounts receivable control account of Alilem
Company had a balance of P2,865,000. An analysis of the accounts receivable account showed the
following:

Accounts known to be worthless P 37,500

Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies 375,000
Customers’ accounts reporting credit balances arising from sales return (225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable – unassigned 750,000
Subscriptions receivable for common stock due in 30 days 825,000
Trade accounts receivable - assigned (Finance company’s equity in assigned 375,000
accounts is P150,000)
Trade installment receivable due 1 – 18 months, including unearned finance 330,000
charges of P30,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held (no entries were made on 75,000
receipts of checks)
P2,865,000

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Questions: Based on the above and the result of your audit, determine the adjusted balance of following:

3. The trade accounts receivable as of December 31, 2017 is

a. P1,147,500 b. P1,522,500 c. P1,485,000 d. P1,447,500

4. The current trade and other receivables net as of December 31, 2017 is
a. P2,647,500 b. P2,610,000 c. P2,272,500 d. P1,822,500

5. How much of the foregoing will be presented under noncurrent assets as of December 31, 2017?
a. P1,200,000 b. P 375,000 c. P525,000 d. P 0

Problem 3

Your audit of Banayoyo Corporation for the year ended December 31, 2017 revealed that the Accounts
Receivable account consists of the following:

Trade accounts receivable (current) P3,440,000

Past due trade accounts 640,000
Uncollectible accounts 128,000
Credit balances in customers’ accounts (80,000)
Notes receivable dishonored 240,000
Consignment shipments – at cost 320,000
The consignee sold goods costing P96,000 for P160,000. A 10%
commission was charged by the consignee and remitted the balance to
Banayoyo. The cash was received in January, 2018.
Total P4,688,000

The balance of the allowance for doubtful accounts before audit adjustment is a credit of P80,000. It is
estimated that an allowance should be maintained to equal 5% of trade receivables, net of amount due
from the consignee who is bonded. The company has not provided yet for the 2017 bad debt expense.

Questions: Based on the above and the result of your audit, determine the adjusted balance of following:

6. Trade accounts receivable

a. P4,080,000 b. P3,440,000 c. P4,464,000 d. P3,584,000

7. Allowance for doubtful accounts

a. P204,000 b. P216,000 c. P172,000 d. P179,200

8. Doubtful accounts expense

a. P264,000 b. P220,000 c. P252,000 d. P227,200

Problem 4

Bantay Company’s unadjusted trial balance at December 31, 2017, included the following accounts:

Debit Credit
Accounts receivable P1,000,000
Allowance for doubtful accounts 40,000
Sales P15,000,000
Sales returns and allowances 700,000

Bantay Company estimates its bad debt expense to be 1 1/2% of net sales.

9. Determine its bad debt expense for 2017.

a. P225,000 b. P254,500 c. P214,500 d. P 55,000

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Problem 5

An analysis and aging of Burgos Corp. accounts receivable at December 31, 2017, disclosed the
following:

Amounts estimated to be uncollectible P 1,800,000

Accounts receivable 17,500,000
Allowance for doubtful accounts (per books) 1,250,000

10. What is the net realizable value of Burgos’ receivables at December 31, 2017?
a. P15,700,000 b. P17,500,000 c. P16,250,000 d. P14,450,000

Problem 6

Cabugao Company provides for doubtful accounts based 3% of credit sales. The following data are
available for 2017.

Credit sales during 2017 P21,000,000

Allowance for doubtful accounts 1/1/17 170,000
Collection of accounts written off in prior years (Customer credit was 80,000
reestablished)
Customer accounts written off as uncollectible during 2017 300,000

11. What is the balance in allowance for doubtful accounts at December 31, 2017?
a. P630,000 b. P420,000 c. P500,000 d. P580,000

Problem 7

At the end of its first year of operations, December 31, 2017, Caoayan, Inc. reported the following
information:

Accounts receivable, net of allowance for doubtful accounts P9,500,000

Customer accounts written off as uncollectible during 2017 240,000
Bad debts expense for 2017 840,000

12. What should be the balance in accounts receivable at December 31, 2017, before subtracting the
allowance for doubtful accounts?
a. P10,100,000 b. P10,340,000 c. P 9,740,000 d. P10,580,000

Problem 8

The following accounts were taken from Cervantes Inc.’s balance sheet at December 31, 2017.

Debit Credit
Accounts receivable P4,100,000
Allowance for doubtful accounts 100,000
Net credit sales P7,500,000

13. If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported
for 2017.
a. P123,000 b. P 23,000 c. P223,000 d. P225,000

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Problem 9

In relation to your audit of Inuyasha Inc.’s accounts receivable you ascertained the following information:

a. The general ledger balances of the client’s receivable and related accounts were:

Accounts receivable P3,225,300

Allowance for bad debts (169,000)
Amortized cost P3,056,300

b. Inuyasha Inc. estimates its bad debt losses by aging its accounts receivable, the aging schedule of
accounts receivable at December 31, 2017, is presented below:
Age of accounts Amount
Current P1,686,400
1 to 30 days past due 922,000
31 to 60 days past due 384,800
61 to 90 days past due 153,300
Over 90 days past due 78,800

c. The company normally sells n/30.

d. Furthermore, the company’s uncollectible accounts experience for the past 5 years are
summarized in the schedule that follows:
Year Current 1-30 31-60 61-90 More
days PD days PD days PD than 90
days PD
2016 1% 6% 9% 23% 55%
2015 2% 8% 10% 18% 60%
2014 1% 4% 11% 16% 45%
2013 3% 5% 12% 22% 45%
2012 3% 2% 8% 21% 45%

Requirements:

14. What are the corresponding percentages to be used per age category in computing for the client’s
required allowance for bad debts?
Current 1-30 31-60 61-90 >90
a. 1% 3% 10% 20% 45%
b. 1.5% 5% 10% 25% 50%
c. 2% 5% 10% 20% 50%
d. 2% 3% 10% 25% 45%

15. The required allowance for bad debt is

a. 173,653 b. 185,415 c. 188,368 d. 220,842

16. The net realizable value of the company’s accounts receivable on December 31, 2017, should be
a. 3,036,932 b. 3,004,458 c. 2,986,345 d. 2,976,540

Problem 10

During your examination of the 2017 financial statements of the Yesterday Company you find that the
company does not provide allowance for doubtful accounts ever since it started operations in 2013. The
company’s practice is to directly write-off as expense doubtful accounts and credit recoveries to income.
The company’s contracts are generally for two years.

Upon your recommendation, the company agreed to change its accounts for 2017 to give effect to
doubtful treatment on the allowance basis. The allowance is to be based on a percentage of sales which is
derived from the experience of prior years. Statistics for 2013 to 2017 are shown as follows:

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Year of Sale 2013 2014 2015 2016 2017
Charge Sales P600,000 P1,500,000 P1,800,000 P1,950,000 P1,650,000

Accounts Written off &

Year of Sale
2013 3,300
2014 9,000 6,000
2015 3,000 24,000 7,800
2016 7,200 27,000 9,000
2017 16,200 30,000 8,400
Recoveries & Year of Sale
2013
2014 600
2015 2,400
2016 3,000
2017 3,600
Accounts receivable at December 31, 2017 were as follows:

From 2016 sales P90,000

From 2017 sales 810,000
Total P900,000

REQUIRED: Based on the above and the result of your audit, you are to provide the answers to the
following:

17. The average percentage of net doubtful accounts to charge sales that should be used in setting up
the 2017 allowance is
a. 2.50% b. 1.90% c. 2.05% d. 1.77%

18. How much is the doubtful accounts expense for 2017?

a. P32,850 b. P54,600 c. P43,800 d. P41,250

19. The doubtful accounts expense for 2017 is over(under) stated by

a. P13,350 b. P 55,950 c. (P32,850) d. (P41,250)

20. The net realizable value of accounts receivable as of December 31, 2017 balance sheet is
a. P831,600 b. P853,800 c. P868,650 d. P810,000

21. The adjusting journal entry necessary to set up the allowance for doubtful accounts as of
December 31, 2017 will include a debit to Retained Earnings of
a. P223,800 b. P184,800 c. P165,000 d. P 0

Problem 11

Your audit client, Help Corporation, provided for uncollectible accounts receivable under the allowance
method since the start of its operations to December 31, 2017. Provisions were made monthly at 2 percent
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 year-end adjustments to the
allowance account were made. Help's usual credit terms are net 30 days.

The credit balance in the allowance for doubtful accounts was P260,000 at January 1, 2017. During 2017,
credit sales totaled P18,000,000, interim provisions for doubtful accounts were made at 2 percent of credit
sales, P180,000 of bad debts were written off, and recoveries of accounts previously written off amounted
to P30,000. Help installed a computer system in November 2017 and an aging of accounts receivable was
prepared for the first time as of December 31, 2017. A summary of the aging is as follows:

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 Classifications by Month of Sale Balance in Each Category Estimated % Uncollectible
November-December 2017 P2,280,000 2%
July-October 2017 1,200,000 15%
January-June 2017 800,000 25%
Prior to January 1, 2017 260,000 80%

Based on the review of collectability of the account balances in the "prior to January 1, 2017" aging
category, additional receivables totaling P120,000 were written off as of December 31, 2017. Effective
with the year ended December 31, 2017, Help adopted a new accounting method for estimating the
allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts
receivable.

QUESTIONS:

Based on the above and the result of your audit, answer the following:

22. How much is the adjusted balance of the allowance for doubtful accounts as of December 31,
2017?
a. P537,600 b. P350,000 c. P633,600 d. P753,600

23. How much is the doubtful accounts expense for the year 2017?
a. P427,600 b. P577,600 c. P547,600 d. P457,600

24. The recorded allowance for doubtful accounts should be increased by

a. P283,600 b. P187,600 c. P67,600 d. P0

Problem 12

The John Corporation started its business on January 1, 2017.

After considering the collections experience of other companies in the industry, John Corporation
established an allowance for bad debts estimated to be 5% of credit sales. Outstanding receivables
recorded in the books of accounts on December 31, 2017 totaled P575,000, while the allowance for bad
debts account had a credit balance of P62,500 after recording estimated doubtful account expense for
December and after writing off P12,500 of uncollectible accounts.

Further analysis of the company’s accounts showed that merchandise purchased in 2017 amounted to
P2,250,000 and ending merchandise inventory was P375,000. Goods were sold at 40% above cost.

80% of total sales were on account. Total collections from customers, on the other hand, excluding
proceeds from cash sales, amounted to P1,500,000.

QUESTIONS: Based on the above and the result of your audit, answer the following:

25. The recorded accounts receivable as of December 31, 2017 is understated by

a. P12,500 b. P412,500 c. P537,500 d. P0

26. The doubtful accounts expense for the year ended December 31, 2017 should be
a. P105,000 b. P75,000 c. P131,250 d. P125,000

27. The recorded allowance for doubtful accounts receivable as of December 31, 2017 is understated
by
a. P50,000 b. P30,000 c. P56,250 d. P0

28. The net realizable value of accounts receivable as of December 31, 2017 is
a. P495,000 b. P512,500 c. P993,750 d. P875,000

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Problem 13

The adjusted trial balance of Galimuyod Company as of December 31, 2017 shows the following:

Debit Credit
Accounts receivable P1,000,000
Allowance for bad debts P40,000

Additional information:

 Cash sales of the company represents 10% of gross sales.

 90% of the credit sales customers do not take advantage of the 2/10, n/30 terms.
 It is expected that cash discount of P6,000 will be taken on accounts receivable outstanding at
December 31, 2017.
 Sales returns in 2017 amounted to P400,000. All returns were from charge sales.
 During 2017, accounts totaling to P44,000 were written off as uncollectible; bad debt recoveries
during the year amounted to P3,000.
 The allowance for bad debts is adjusted so that it represents certain percentage of the outstanding
accounts receivable at year end. The required percentage at December 31, 2017 is 150% of the
rate used on December 31, 2016.

Questions: Based on the above and the result of your audit, answer the following:

29. The accounts receivable as of December 31, 2017 is

a. P3,000,000 b. P 300,000 c. P 333,333 d. P2,444,000

30. The allowance for doubtful accounts as of December 31, 2017 is

a. P 20,000 b. P120,000 c. P180,000 d. P146,640

31. The net realizable value of accounts receivable as of December 31, 2017 is
a. P 307,340 b. P2,814,000 c. P2,874,000 d. P2,291,360

32. The doubtful account expense for the year 2017 is

a. P181,000 b. P121,000 c. P 21,000 d. P147,640

Problem 14

In your audit of Lidlidda Plastic Products Co., you noted that the company’s balance sheet shows the
accounts receivable balance at December 31, 2016 as follows:

Accounts receivable P3,600,000

Allowance for doubtful accounts 72,000
P3,528,000
During 2017, transactions relating to the accounts were as follows:

 Sales on account, P38,400,000.

 Cash received from collection of current receivable totaled P31,360,000, after discount of
P640,000 were allowed for prompt payment.
 Customers’ accounts of P160,000 were ascertained to be worthless and were written off.
 Bad accounts previously written off prior to 2016 amounting to P40,000 were recovered.
 The company decided to provide P184,000 for doubtful accounts by journal entry at the end of
the year.
 Accounts receivable of P5,600,000 have been pledged to a local bank on a loan of P3,200,000.
Collections of P1,200,000 were made on these receivables (not included in the collections
previously given) and applied as partial payment to the loan.

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Questions: Based on the above and the result of your audit, answer the following:

33. The accounts receivable as of December 31, 2017 is

a. P8,680,000 b. P9,840,000 c. P4,240,000 d. P8,640,000

34. The allowance for doubtful accounts as of December 31, 2017 is

a. P 8,000 b. P136,000 c. P184,000 d. P176,000

35. The net realizable value of accounts receivable as of December 31, 2017 is
a. P8,544,000 b. P8,456,000 c. P8,504,000 d. P4,104,000

36. If receivables are hypothecated against borrowings, the amount of receivables involved should be
a. Disclosed in the statements or notes
b. Excluded from the total receivables, with disclosure
c. Excluded from the total receivables, with no disclosure
d. Excluded from the total receivables and a gain or loss is recognized between the face value
and the amount of borrowings

Problem 15

Visage Corp. had the following receivable financing transactions during the year:
 On March 1, 2017, Visage Corp. factored P500,000 of its accounts receivable to BPI. As of the
date of factoring, it was ascertained that P20,000 of the accounts receivable is doubtful of
collection. BPI advanced P350,000 cash to Visage Corp. and withheld P50,000 as factor’s
holdback (to cover future sales discount and sales returns and allowance). The company incurred
P10,000 direct transaction costs (legal fees and other professional fees) related to the factoring.
The factoring was done on a without-recourse basis, thus transferring all significant risks and
rewards associated to the receivable to BPI.
 On May 1, 2017, Visage Corp. assigned P800,000 of its outstanding accounts receivable to BPI in
consideration of a P500,000, 24% loan. BPI charged the company 2% of the accounts assigned as
service charge. By the end of May, Visage Corp. collected P200,000 cash from the assigned
accounts net of a P5,000 sales discount. By the end of June, Visage Corp. collected another
P150,000 from the assigned accounts after P4,000 sales discount. The company accepted
merchandise originally invoiced at P30,000 as sales returns and wrote-off P20,000 of the assigned
accounts as worthless. It was agreed between parties that monthly collections shall be remitted to
the bank as partial payment of the loan and interest.

37. How much should be reported as gain/loss in the income statement on the transfer of receivables
on the factoring of receivable on March 1?
a. 90,000 b. 100,000 c. 80,000 d. none

38. How much should be reported as gain/loss in the income statement on the assignment of
receivables on May 1?
a. 16,000 b. 126,000 c. 316,000 d. none

39. What is the carrying value of the accounts receivable – assigned as of June 30?
a. 391,000 b. 400,000 c. 450,000 d. none

40. What is the carrying value of the loans payable related to the accounts receivable assigned as of
June 30?
a. 150,000 b. 166,200 c. 310,000 d. none

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