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Classification of receivables

Your audit disclosed that on December 31, 2010, the accounts receivable control account
of Alilem Company had a balance of P 2,865,000. An analysis of the account showed the
following:
Accounts known to be worthless
Advance payments to creditors on purchase orders
Advance to affiliated companies
Customers account reporting credit balances arising
from sales return
Interest receivable on bonds
Other trade accounts receivable unassigned
Subscriptions receivable due in 30 days
Trade accounts receivable assigned (Alilem companys
equity in assigned accounts is P 150,000)
Trade instalment receivable due 1-18 months,
including unearned finance charges of P 30,000
Trade receivables from officers due currently
Trade accounts on which post-dated checks are held ( no
entries were made on receipts of checks)

P 37,500
150,000
375,000
(225,000)
150,000
750,000
825,000
375,000
330,000
22,500
75,000
P 2,865,000

Questions:
1. The trade accounts receivable as of December 31, 2010 is
2. The net current trade and other receivables as of December 31, 2010 is
3. How much is the forgoing will be presented under noncurrent assets as of
December 31, 2010?

Computation of adjusted trade receivables, allowance for doubtful accounts and


doubtful accounts expense

Your audit of Banayoyo Corporation for the year ended December 31, 2010 revealed that
the Accounts Receivable account consists of the following:
Trade accounts receivable (current)
Past due trade accounts
Uncollectible accounts
Credit balances in customers accounts
Notes receivable dishonoured
Consignment shipments at cost
The consignee sold goods costing P 96,000 for
P 160,000. A 10% commission was charged by the
consignee and remitted the balance to Banayoyo.
The cash was received in January, 2011.
Total

P 3,440,000
640,000
128,000
(80,000)
240,000

320,000
P 4,688,000

The balance of the allowance for doubtful accounts before audit adjustment is a credit of
P 80,000. It is estimated than 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 2010 bad debt expense.
Questions:
1. The trade accounts receivable
2. Allowance for doubtful accounts
3. Doubtful accounts expense

Audit of bad debt reporting


Presented below are a series of unrelated situations. Answer the following questions
relating to each of the independent situations as requested.
1. Bantay Companys unadjusted trial balance at December 31, 2010, included the

Following accounts:
Debit
Credit
Accounts receivable
P 1,000,000
Allowance for doubtful accounts
40,000
Sales
P 15,000,000
Sales return and allowance
700,000
Bantay Company estimate its bad debt expense to be 1 % of net sales. Determine
its bad debt expense
2. An analysis and aging of Burgos Corp. accounts receivable at December 31, 2010,
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
What is the net realizable value of Burgos receivables at December 31, 2010?
3. Cabugao Company provides for doubtful accounts based 3% of credit sales. The
following data are available for 2010.
Credit sales during 2010
P 21,000,000
Allowance for doubtful accounts 1/1/10
170,000
Collection of accounts written off in prior years
(Customer credit was re-established)
80,000
Customer accounts written off as uncollectible \
During 2010
300,000
What is the balance in allowance for doubtful accounts at December 31, 2010?
4. At the end of its first year of operations, December 31, 2010, Caoayan, Inc. reported
the following information:
Accounts receivable, net of allowance for
doubtful accounts
Customer accounts written off as uncollectible
during 2010
Bad debts expense for 2010

P 9,500,000
240,000
840,000

What should be the balance in accounts receivable at December 31, 2010, before
subtracting the allowance for doubtful accounts?
5. The following accounts were taken from Cervantes Inc.s statement of financial
position at December 31, 2010.
Debit
Credit
Accounts receivable
P 4,100,000
Allowance for doubtful accounts
100,000
Net credit sales
P 7,500,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense
to be reported for 2010.

Analysis of accounts receivable and related accounts


The adjusted trial balance of Galimutod Company as of December 31, 2009 shows the
following:
Debit
Credit
Accounts receivable
P 1,000,000
Allowance for bad debts
P 40,000
Additional information:
Cash sales of the company represents 10% of gross sales.
90% of the credit ssales customers do not take advantage of the 2/10, n/30 terms.
It is expected that cash discount of P 6,000 will be taken on accounts receivable
outstanding at December 31, 2010.

Sales returns in 2010 amounted to P 400,000. All returns were from charges sales
During 2010, accounts totalling to 44,000 were written off as uncollectible; bad debt
recoveries during the year amounted to P 3,000.
The allowance for bad debts is adjusted sso that it represents certain percentage of the
outstanding accounts receivable at year end. The required percentage at December
31, 2010 is 150% of the rate used on December 31, 2009.
Questions:
Based on the above and the result of your audit, answer the following:
1.
2.
3.
4.

The accounts receivable as of December 31, 2010 is


The allowance for doubtful accounts as of December 31, 2010 is
The net realizable value of accounts receivable as of December 31, 2010 is
The doubtful account expense for the year 2010 is

Analysis of accounts receivable and related accounts


In your audit of Lidlidda Plastic Products Co., you noted that the companys statement of
financial position shows the accounts receivable balance ar December 31, 1009 a follows:
Accounts receivable
Allowance for doubtful accounts

P 3,600,000
72,000
P 3,528,000

During 2010, transactions relating to the accounts were as follows:


Sales on account P 38,400,000.
Cash received from collection of current receivable totalled P 31,360,000, after
discount of P 640,000 were allowed for prompt payment.
Customers accounts of P 160,000 were ascertained to be worthless and written off.

Bad accounts previously written off prior to 2010 amounting to P 40,000 were
recovered.
The company decided to provide P 184,000 for doubtful accounts by journal entry at
the end of the year.
Accounts receivable of P 5,600,000 has been pledged to a local bank on a loan of P
3,200,000. Collections of P 1,200,000 were made on these receivables ( not included
in the collection previously given) and applied as partial payment to the loan.
Questions:
Based on the above and the result of your audit, answer the following:
1.
2.
3.
4.

The accounts receivable as of December 31, 2010 is


The allowance for doubtful accounts as of December 31, 2010 is
The net realizable value of accounts receivable as of December 31, 2010 is
If receivable are hypothecated against borrowings, the amount of receivables
involved should be

Analysis of accounts receivable and related accounts


Cardis Corp. the following data relating to accounts receivable for the year ended
December 31, 2010:
Accounts receivable, January 1, 2010
Allowance for doubtful accounts, January 1, 2010
Sales during the year, all on account, terms 2/10,
1/15, n/60
Cash received from customers during the year
Accounts written off during the year

P 480,000
19,200
2,400,000
2,560,000
17,600

An analysis of cash received from customers during the year revealed that P 1,411,200
was received from customers availing the 10-day discount period, P 792,000 from
customers availing 15-day discount period, P 4,800 represented recovery of accounts
written-off, and the balance was received from customers paying beyond the discount
period.
The allowance for doubtful accounts is adjusted so that it represents certain percentage of
the outstanding accounts receivable at year end. The required percentage at December 31,
2010 is 125% of the rate used on December 31, 2009.

Questions:
Based on the above and the result of your audit, answer the following:
1. The accounts receivable at December 31, 2010 is
2. The allowance for doubtful accounts at December 31, 2010 is
3. The doubtful account expense for the year ended December 31, 2010

Analysis of notes receivable; Notes receivable discounting


Vontar company has the following transactions in 2010 involving notes receivable:
May 1
1
Jul.30
Aug. 1
Sep. 1
the note
28
Oct. 1
Nov. 1
bank
Dec. 30
31
Questions:

Received a P 1,000,000, 90-day, 12% interest bearing note from A


company on settlement of account.
Received a P 1,500,000, six-month, 12% interest bearing note from B
Company in settlement of account.
A Company defaulted on the P 1,000,000 note
Discounted the B Company note at a bank at 15%
Received a one-year noninterest bearing note from C Company in
settlement of a P 600,000 accounts receivable. The face value of
was P660,000.
Collected the defaulted A company note plus accrued interest at 12% per
annum on the total amount due.
Received a P 2,500,000, 90-day note from D Company. The note is for
the payment goods purchased and bears interest at 12%
B Company defaulted on the P 1.500,000 note. Vintar Company paid the
bank the total amount due plus P 60,000 for protest fee and other
charges.
Collected D Company note in full.
Collected from B Company in full including interest on the total amount
due at 12% since default date.

Based on the above and the result of your audit, answer the following:
1.
2.
3.
4.

The proceed from discount B Company note on August 1, 2010


The amount collected on September 28, 1010 on the defaulted A Company note is
The amount collected on December 31, 2010 on defaulted B Company note is
The interest income to be recognized in 2010 related to these transactions is

Receivable financing
Taguding Co. required additional cash for its operation and used accounts receivable to
raise such needed cash, as follows:

On December 1, 2010 Tagudin Company assigned on a nonnotification basis


accounts receivable of P 5,000,000 to a bank in consideration for a loan of 90% of
the receivables less a 5% service fee on the accounts assigned. Tagudin signed a
note for the bank loan. On December 31, 2010, Tagudin collected assigned accounts
of P 3,000,000 less discount of P 200,000. Tagudin remitted the collections to the
bank in partial payments for the loan. The bank applied first the collection to the
interest and the balance to the principal. The agreed interest is 1% per month on loan
balance.

Tagudin Co, sold P 1,550,000 of accounts receivable for P 1,340,000. The


receivables had a carrying amount of P 1,470,000 and were sold outright on a
nonrecourse basis.

Tagudin Co, received an advance of P 300,000 from Union Bank by pledging P


360,000 of accounts receivable.

On June 30, 1010, Tagudin Co. discounted at a bank a customers P 600,000, 6month, 10% note receivable dated April 30, 2010. The bank discounted the note at
12% on the same date.

Questions:
Based on the above and the result of your audit, answer the following:
1. In its December 31, 2010 statement of financial position, Tagudin should report
note payable as a current liability at

2. Tagudin companys equity in the assigned accounts receivable as of December


31, 2010 is
3. The entry to record the sale of accounts receivable would include
4. Accounts receivable pledged against borrowings, should be
5. The proceeds from the note receivable discounted on June 30, 2010 is

ACCOUNTS RECEIVABLES
Trade receivables
Accounts receivable-with promissory note
Customers trade debtors
Trade accounts receivable
Notes receivable-without promissory note
Nontrade receivables-claims from other sources other than
sale of merchandise
services in the ordinary course of business
Banks and other financial institution
LOANS TO CUSTOMERS
Note: Current assets (trade & nontrade) w/n normal OC or one year
Noncurrent assets collectible beyond one year

Nontrade receivables
1) Advances to or receivables from shareholders, directors, officers or
employees. (collectible w/n one year-current assets)
2) Advances to affiliates long term investment
3) Advances to supplier-current assets
4) Subscription receivables- (collectible w/n one year-current assets)
-deduction to subscribed share capital
5) Creditors account- debit balance when overpayment or returns and
allowances current assets-Not material
OFFSET
6) Special deposits- noncurrent assets* remain outstanding for long period
-(collectible w/n one year-current assets)
7) Accrued income- current assets

Dividends receivable
Accrued rent income
Accrued royalties income
Accrued interest on bond investment
8) Claims receivable; current assets
Claims against common carriers for loss or damages current assets
Claim for rebates and tax refunds current assets
Claim for insurance entities current assets
Note: Customers credit balances current liabilities
Initial measurement of receivables
PFRS 9,paragraph 5.1.1
Financial asset initially recognize @ FAIR VALUE+ transaction cost
Usually TRANSACTION PRICE-=FMV of consideration given
Short-term receivables=FACE VALUE or original invoice amount
Accounts receivable - initially FACE VALUE or original invoice amount
- Subsequently NET REALIZABLE VALUE(NRV)
Long term receivables that are interest bearing FAIR VALUE = FACE VALUE
Long term receivables -noninterest bearing FAIR VALUE = PRESENT VALUE
SALES DISCOUNT for prompt payment
Cash discount reduction from an invoice price
Also known as SALES discount SELLER ( debit)-(credit if forfeited)
PURCHASE discount BUYER
GROSS METHOD GROSS AMOUNT OF THE INVOICE
NET METHOD= INVOICE PRICE-CASH DISCOUNT
BAD DEBTS

Allowance Method

GAAP requires this method bcoz it conforms MATCHING PRINCIPLES

Doubtful of collection

DA

xx
AFDA

Worthless or uncollectible
(written off)

AFDA

xx
xx

AR

xx