Republic of the Philippines

Tarlac State University

College of Business and Accountancy

Financial Accounting and Reporting – Accounting for Receivables

1. On May 1, 2021, Kelly Company sold to Bryer Company merchandise having a list price of
P12,000,000 on account. Kelly Company allowed trade discounts of 20%; 10% and 10%. Terms
were 8/10; n/30, FOB shipping point. Kelly Company engages On-Time Company to deliver the
goods. On-Time Company, however, requires that all shipments be paid in advance, so Kelly
Company prepaid the freight charges amounting to P130,000.

On May 3, 2021, Bryer Company notified Kelly Company that merchandise with a selling price of
P800,000 contained flaws that rendered it worthless. Subsequently, Kelly Company issued a credit
memo covering worthless merchandise.

On May 11, 2021, Kelly Company received a check for the balance due from Bryer Company.

A) Prepare all the related journal entries to record the above-mentioned transactions under the
following methods of recording the sale:
(a) Gross method
(b) Net method

B) Assuming that the receivables were collected on May 12, 2021, (instead of May 11, 2021)
prepare the journal entries under the following methods of recording the sale:
(a) Gross method
(b) Net method

2. On December 31, 2021, the accounts receivable control account of Belle Company showed the
following:

Accounts deemed to be worthless P75,000

Advance payments to creditors on purchase orders 300,000
Advances to unaffiliated companies 750,000
Customer’s credit balance arising from sales return (450,000)
Interest receivable on bond investment 300,000
Other trade accounts receivable – unassigned 1,500,000
Subscriptions receivable – ordinary share due in 30 days 1,650,000
Trade accounts receivable – assigned 1,125,000
Trade installment receivable due 1-18 months, (including unearned finance
charges, P37,500) 637,500
Trade receivables from officers, due currently 112,500
Trade accounts receivable on which post-dated checks are held (no entries were
made on receipts of checks) 150,000
Total 6,150,000
The correct balance of trade receivables on December 31, 2021 is

3. Linda Company’s accounts receivable balance at January 1, 2021 was P1,450,000 net of
allowances totaling P75,000.
During 2021, Linda Company reported sales of P5,200,000. 15% of sales in 2021 were cash sales
and the rest were on account under a 3/10, n/30 credit term. Sales returns amounted to P80,000
for cash sales in which the customers were refunded and P95,000 for credit sales.
 Total debit to cash during the period P5,470,000 which includes recoveries on previously written
off accounting totaling P110,000. 40% of the collections from its current customers were made
within the discount period.
Receivables written off in 2021, P90,000.
The gross accounts receivable of Linda Company at December 31, 2021 is

4. Willow Company sells products for P650,000 during the month of February 2021. During 2021,
receivables collected totaled P320,000. P8,000 were written off as uncollectible and a P1,000
accounts previously written off was collected.
Prepare the journal entries necessary to record the preceding information if:

(a) Bad debts are estimated at 3% of sales at the time of sale

(b) Bad debts are recorded as the actually occur

5. The following were abstracted from the records of Hannah Company:

Accounts receivable, December 31, 2021 P760,000
Allowance for bad debts (before adjustment), December 31, 2021 3,500
Sales, 2021 2,500,000
Sales discounts, 2021 20,000
Sales returns, 2021 30,000

A. Determine the bad debts expense and allowance for bad debts

Bad debts expense Allowance for bad debts

a. Bad debts based on 0.4% of
net sales
b. Bad debts based on 2.5% of
outstanding accounts
receivable
c. Aging analysis of which
P18,000 of the accounts are
uncollectible

B. Assuming the same foregoing data except that the allowance account before adjustment at
December 31, 2021 of P3,500 was a debit rather than a credit balance, determine the bad debts
expense and adjusted balance of the Allowance for bad debts:

Bad debts expense Allowance for bad debts

a. Bad debts based on 0.4% of
net sales
b. Bad debts based on 2.5% of
outstanding accounts
receivable
c. Aging analysis of which
P18,000 of the accounts are
uncollectible

6. On December 31, 2021, before any year-end adjustments, the balance in Mack Company’s
accounts receivable account had a debit balance of P1,300,000 and the allowance for bad debts
had a credit balance of P50,000.
The year-end balance reported in the balance sheet for the allowance for bad debts will be based
on the aging schedule shown below:
 Days outstanding Amount Percentage of collectibility
1-30 days past due P850,000 .98
31-60 days past due 260,000 .95
61-90 days past due 100,000 .90
91-120 days past due 50,000 .80
Over 120 days past due 40,000 .50

Total receivables written off during the year totaled P30,000; while total recoveries of previously
written off accounts during the year totaled P9,000.

a) The adjusted allowance for doubtful accounts on December 31, 2021 is

b) The amount to be reported as bad debts expense for 2021 is

7. Presented below are a series of independent situations

A. Rose Company’s unadjusted trial balance at December 31 included the following accounts

Dr Cr
Allowance for bad debts P9,000
Sales P4,750,000
Sales returns and allowances 125,000

Rose Company estimates its bad debts expense to be 4% of net sales.

A1) Bad debts expense for the year
A2) Allowance for bad debts at December 31

B. An analysis and aging schedule of Levi Company’s accounts receivable at December 31,
2021, disclosed the following:
Amounts estimated to be uncollectible P280,000
Accounts receivable 2,250,000
Allowance for doubtful accounts 225,000
The net realizable value of Levi’s receivables at December 31, 2021

C. Alex Company provides for bad debts based on 4% of credit sales. Date for 2021 includes:
Credit sales during the year, P4,700,000; Allowance for bad debts 01/01/21; P95,000;
Collection of accounts written off in prior years, P33,000; Customer accounts written off
as uncollectible during year, P65,000
The allowance for bad debts account at December 31, 2021 is

D. At the end of its first year of operations on December 31, 2021, Evelyn Company reported
the following:
Accounts receivable, net of allowance for bad debts P1,200,000
Accounts written off as uncollectible during 2021 45,000
Bad debts expense for 2021 120,000
Accounts receivable balance at December 31, 2021 before subtracting the allowance for
bad debts accounts is

E. During 2021, Jacqui Company wrote off uncollectible accounts of P15,000, recovering
accounts of P7,000 that had been written off in 2021. The following information were
made available:
December 31, 2020 December 31, 2021
Accounts receivable P1,010,000 P1,360,000
Net Realizable Value 960,000 1,265,000
 After year-end adjustment, uncollectible accounts expense for 2021 is

F. The following were from Rob Company’s balance sheet

Debit Credit
Net credit sales P750,000
Allowance for bad debts P14,000
Accounts receivable 410,000

If the bad debts were computed at 2.5% of the accounts receivable, the bad debts
expense to be reported in 2021 is

G. For the year ended December 31, 2021, Carol Company estimated its allowance for
uncollectible accounts using the year-end aging of accounts receivable. The following data
were available
Allowance for uncollectible accounts, 01/01/21 P184,000
Provisions for uncollectible accounts in 2021 (2% on sales of P5,000,000) 100,000
Uncollectible accounts written off during 2021 90,000
Estimated uncollectible accounts per aging 12/31/21 265,000

G1) Year-end adjustment to uncollectible accounts expense

G2) The uncollectible accounts expense for 2021 after adjustment is

H. Eric Company had a P300,000 balance in accounts receivable and allowance for debts on
January 1 was P36,000.
Credit sales for the year was P1,700,000. Bad debts expense is estimated to be 2% of
sales. Write-offs for the year was P28,000.
The debit balance in Accounts receivable December 31 was P345,000.
The amount of cash collected from customer is

I. Pat Company started on January 1, 2020. On December 31, 2020, Pat Company provided
for bad debts based on 1% of credit sales.
On January 1, 2021, Pat Company changed its method of determining its allowance for
bad debts by applying certain percentage to the accounts receivable aging as follows:

Days past invoice date Percent deemed to be uncollectible

0-30 1
31-90 5
91-180 20
Over 180 80
Pat Company wrote off all accounts that were over 1 year old.

The following relate to the years ended December 31, 2020 and 2021:
2021 2020
Credit sales P6,000,000 P5,600,000
Collections 5,830,000 4,800,000
Accounts written off 54,000 None
Recovery of accounts previously written off 14,000 None
Days past invoice date at December 31
0-30 600,000 500,000
31-90 160,000 180,000
91-180 120,000 90,000
Over 180 50,000 30,000

Bad debts expense for 2021