Financial Accounting 3

Receivables and Non-Current Assets for Sale

Theories (Receivables)

1. Which of the following should be recorded in Accounts Receivable?

a. Receivables from officers
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these

2. What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a balance sheet?
a. As offsets to capital.
b. By means of footnotes only.
c. As assets but separately from other receivables.
d. As trade notes and accounts receivable if they otherwise qualify as current assets.

3. Of the approaches to record cash discounts related to accounts receivable, which is more theoretically correct?
a. Net approach.
b. Gross approach.
c. Allowance approach.
d. All three approaches are theoretically correct.

4. All of the following are problems associated with the valuation of accounts receivable except for
a. uncollectible accounts.
b. returns.
c. cash discounts under the net method.
d. allowances granted.

5. Which of the following concepts relates to using the allowance method in accounting for accounts receivable?
a. Bad debt expense is an estimate that is based on historical and prospective information.
b. Bad debt expense is based on the actual amounts determined to be uncollectible.
c. Bad debt expense is an estimate that is based only on an analysis of the receivables aging.
d. Bad debt expense is management's determination of which accounts will be sent to the attorney for collection.

6. When accounts receivable are factored

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

7. If accounts receivable are pledged against borrowing, the amount of accounts receivable pledged shall be
a. Excluded from total receivables with disclosure
b. Excluded from total receivables without disclosure
c. Included in total receivables with disclosures
d. Included in total receivables without disclosures.

8. When a specific customers account is written off by a company using allowance method, what is its effect on profit and net amortized cost of the
accounts receivable?

Amortized Cost
Profit of Accounts Receivable

a. None None
b. Decrease Decrease
c. Increase Increase
d. Decrease None

9. A form of receivables financing which is equivalent to an absolute sale of accounts receivable is

a. Pledge of accounts receivable.
b. Assignment of accounts receivable.
 c. Factoring.
d. Discounting of notes receivable.

10. Account receivable shall be recognized initially at

a. Face value
b. Discounted value
c. Maturity value
d. Current value

Straight Problem (Receivables)

1. Mabuhay Company provided the following data relating to accounts receivable for 2013:

Accounts receivable, January 1 P 650,000

Credit sales 2,700,000
Sales returns 75,000
Accounts written off 40,000
Collections from customers 2,150,000
Estimated future sales returns at December 31 50,000
Estimated uncollectible accounts at 12/31 per aging 110,000

What amount should Mabuhay report as net realizable value of accounts receivable on December 31, 2013?

Solution:
Accounts receivable January 1 650,000
Credit sales 2,700,000
Total 3,350,000
Less: Collections from customers 2,150,000
Accounts written off 40,000
Sales returns 75,000 2,265,000

Accounts Receivable December 31 1,085,000

The net realizable value of accounts receivable is computed as follows:

Accounts receivable 1,085,000

Less: Allowance for doubtful accounts 110,000
Allowance for sales returns 50,000 160,000
Net realizable value 925,000

2. When examining the accounts of Bubbles 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?
Solution:
Accounts receivable customers
(7,800,00 + 400,000) 8,200,000
Allowance for doubtful accounts ( 200,000)
Accounts receivable officers 500,000
Debit balances creditors 300,000
Total trade and other receivables 8,800,000
3. On December 31, 2013, the accounts receivable control account of Gagay Company had a balance of P8,200,000. 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 Companys equity
in assigned accounts is P500,000) 1,500,000
Trade installments receivable due 1 18 months, including unearnedfinance charge of
P50,000 850,000
Trade accounts receivable from officers, due currently 150,000
Trade accounts on which postdated checks are held
(no entries were made on receipt of checks) 200,000
Total 8,200,000
What is the correct balance of trade accounts receivable on December 31, 2013?

Solution:
Accounts receivable unassigned 2,000,000
Accounts receivable assigned 1,500,000
Trade installments receivable (850,000 50,000) 800,000
Accounts receivable from officers 150,000
Accounts on which postdated checks are held 200,00
Total trade accounts receivable 4,650,000

4. You are given the following information relating to Dagul Trading, a general merchandising company:
Rate of gross profit on sales 20%
Accounts receivable, December 31, 2012 P 80, 000
Collections on accounts receivable in 2012 430, 000
Cost of goods available for sale in 2012 460, 000
Merchandise Inventory, December 31, 2012 100, 000

Assuming all sales were on account, what was the companys Accounts receivable balance on December 31, 2012?

Solution:
Cost of goods sold (360,000 80%) 450,000
Accounts receivable, December 31, 2012 80,000
Collections on accounts receivable in 2012 (430,000)
Accounts receivable, 12/31/12 100,000

5. Stick-O Company factored P4,000,000 of accounts receivable without guarantee for a finance charge of 5%. The finance entity retained an
amount equal to 10% of the accounts receivable for possible adjustments. What amount should be recorded as gain or loss on the transfer of
accounts receivable?
Solution:
Loss on factoring equal to finance fee (5% x 4,000,000) 200,000