HOMEWORK ON RECEIVABLES

PROBLEM 1

The net realizable value of Green Corp.’s accounts receivable at the end of the year was P2,000,000. At
the beginning of the year, the allowance for doubtful accounts had a balance of P120,000. Charges to
bad debts expense for the year were P160,000 and accounts receivable amounting to P80,000 were
written off.

Determine the gross amount of Green’s accounts receivable at the end of the year.

Allowance for Doubtful Account 120,000

Bad Debts Expense 160,000
Write-offs (80,000)
ADA Ending 200,000
Net Realizable Value 2,000,000
Gross Amount of AR 2,200,000

ADA
80,000 120,000
160,000
200,000

PROBLEM 2

White Corp. shows a balance of P2,811,400 in the Accounts Receivable account on December 31, 2023.
The balance consists of the following:
Installment accounts due in 2024 P 430,000
Installment accounts due after 2024 440,000
Overpayments to creditors 26,400
Due from regular customers, of which P400,000 represents accounts
pledged as security for a bank loan 990,000
Advances to employees 15,000
Advances to subsidiary company (made in 2021) 910,000

What is the correct amount of Accounts Receivable that should be shown on the statement of financial
position of White Corp. on December 31, 2023?

Installment accounts due in 2024 430,000

Due from regular customers, of which 990,000
Accounts receivable - current 1,420,000

Installment accounts due in 2024 - noncurrent 440,000

PROBLEM 3

The accounting clerk of Red Company reported Accounts Receivable balance at year-end of P120,000.
You, the manager decided to test the accuracy of the amount. The following information is available for
your first year in business.
a. Collection from customers P198,000
b. Merchandise purchased 320,000
c. Ending merchandise inventory 70,000
 d. Goods are marked to sell at 40% above cost

Assume all sales are made on account; compute the correct Accounts Receivable at year-end. How much
is the apparent shortage?

Merchandise Purchased P320,000

Ending Merchandise Inventory (70,000)
Sold Merchandise (COGS) 250,000
Mark up 1.40
Credit sales/Accounts Receivable 350,000

Account Receivable 350,000

Collections (198,000)
Accounts Receivable at year end 152,000

Accounts Receivable at year end 152,000

Reported Account Receivable (120,000)
Shortage 32,000

Account Receivable

Credit Sales - 350,000 Collections - 198,000

Ending - 152,000

OR

Cost of Goods Sold (320,000 - 70,000) 250,000

Sales Rate 1.40%
Sales on Account/Account Receivable 350,000
Collection (198,000)
Correction Accounts Receivable 152,000

Correct Accounts Receivable 152,000

Reported Accounts Receivable (120,000)
Shortage 32,000

PROBLEM 4

Yellow Co. had the following information relating to its accounts receivable:

Accounts receivable, Jan. 1 P1,500,000

Allowance for doubtful accounts, Jan. 1 40,000
Credit sales 10,000,000
Sales discounts 70,000
Collection from customers (excluding recoveries) 8,700,000
Accounts written off 120,000
Accounts previously written off but were eventually collected 60,000

Compute for the doubtful accounts expense for the year and the ending balance of the allowance for
doubtful accounts given the following independent assumptions:
 1. Uncollectible accounts are estimated at 1.5% of net credit sales.

Net Credit Sales (10,000,000 - 70,000) 9,930,000

Rate 1.5%
Doubtful accounts expense 148,950
Allowance for doubtful accounts Jan. 1 40,000
Accounts written off (120,000)
Allowance for doubtful accounts Dec 31 68,950

2. Uncollectible accounts are estimated at 7.5% of outstanding accounts receivable.

Accounts receivable, Dec. 31 2,680,000

Rate 7.5%
Allowance for doubtful accounts, Dec 31 201,000
Allowance for doubtful accounts, Jan. 1 (40,000)
Accounts written off 120,000
Doubtful accounts expense 281,000

AR .
1,500,000
10,000,000 8,700,000
60,000 120,000
60,000
11,560,000 8,880,000
2,680,000

ADA .
120,000 40,000

PROBLEM 5

Green & White Corp. has computed the net realizable value of its accounts receivable to be P1,050,000
at the end of the year. On Jan. 1 of the current year, the allowance for doubtful accounts had a balance of
P75,000. Charges to doubtful accounts expense amounted to P120,000 during the year and P50,000
worth of receivables was written off.

What is the gross amount of Green & White’s accounts receivable at the end of the year?

Net realizable value 1,050,000

Allowance for doubtful accounts, Dec. 31 75,000
Allowance for doubtful accounts, Jan. 1 120,000
Doubtful accounts expense (50,000) 145,000
Gross accounts receivable, Dec. 31 1,195,000

PROBLEM 6

Blue Inc. reported the following balances after adjustment at the end of 2023 and 2022:
 2023 2022
Accounts receivable 6,500,000 5,750,000
Net realizable value 6,300,000 5,600,000

During 2023, Blue wrote off accounts amounting to P205,000 and collected P45,000 worth of accounts
previously written off.

How much doubtful accounts expense should Blue recognize for the year ended Dec. 31, 2023

Allowance for doubtful accounts, 2023 200,000

Allowance for doubtful accounts, 2022 150,000
Accounts written off (205,000) (55,000)
Doubtful accounts expense 255,000
Note: Collection (recovery) of a written off account is recognized as income.

ADA .
205,000,000 150,000 (5,750,000 - 5,600,000)
255,000
200,000

PROBLEM 7

From the inception of operations to Dec. 31, 2023, DLSU Corp. provided for uncollectible accounts
receivable under the allowance method: provisions were made monthly at 3% of credit sales; bad debts
written off were charged to the Allowance account; and debts previously written off but were recovered
are credited to a revenue account; and no year-end adjustments to the Allowance account were made.
DLSU’ usual credit terms are net 30 days.

The balance in the Allowance for Doubtful Accounts was P143, 000 at January 1, 2023. During 2023,
credit sales totaled P15,000,000; interim provisions for doubtful accounts were made at 3% of credit
sales, P140,000 of bad debts were written off, and recoveries of accounts previously written off
amounted to P43,000. DLSU installed a computer facility in November 2023 and an aging of accounts
receivable was prepared for the first time as of December 31, 2023. A summary of the aging is as
follows:

Classification by month of sale Balance % Uncollectible

November-December 2023 2,160,000 2
July-October 2023 1,300,000 10
January-June 2023 840,000 25
Prior to Jan. 1, 2023 300,000 70

Based on the review of the collectability of the account balances in the ‘Prior to Jan. 1, 2023’ aging
category, additional receivables totalling P120,000 were written off as of December 31, 2023. The 70%
uncollectible estimate applies to the remaining P180,000 in the category. Effective with the year ended
December 31, 2023, DLSU 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.

1. What is the balance of the allowance for doubtful accounts on December 31, 2023 before year-end
adjustments? [FALSE]

Allowance for doubtful accounts, Jan 1 143,000

Recorded doubtful accounts expense (15,000,000 x 3%) 450,000
Accounts written off (140,000)
Additional write-off (120,000)
Allowance for doubtful accounts, Dec. 31, unadjusted 333,000

2. What is the additional expense, if any, to adjust the existing allowance?

Category Uncollectible
November-December (2,160,000 x 2%) 43,200
July-October (1,300,000 x 10%) 130,000
January-June (840,000 x25%) 210,000
Prior to Jan. 1 (180,000 x 70%) 126,000
Required allowance/ ADA, end 509,200

Required allowance / ADA, end 509,200

Allowance for doubtful accounts, Dec. 31, unadjusted (333,000)
Additional expense 376,200

3. For the year ended December 31, 2023, DLSU’s doubtful accounts expense would be?

Interim doubtful accounts expense 450,000

Additional expense 176,200
Total doubtful accounts expense 626,200

4. How much is the net realizable value of DLSU’s accounts receivable at December 31, 2023?

Accounts receivable Dec. 31 4,480,000

Allowance for doubtful accounts, Dec. 31, adjusted (509,200)
Net realizable value 3,970,800

PROBLEM 8

Green Co. purchases the accounts receivable of other companies on a without recourse, notification
basis. At the time the receivables are factored, 15% of the amount factored is charged to the client as
commission and recognized as revenue in Green’s books. Also, 10% of the receivables factored is
withheld by Green as protection against sales returns or other adjustments. This amount is credited by
Green to the Client Retainer account. At the end of each month, payments are made by Green to its
clients so that the balance in the Client Retainer account is equal to 10% of unpaid factored receivables.
Based on Green’s bad debt loss experience, an allowance for bad debts of 5% of all factored receivables
is to be established. Green makes adjusting entries at the end of each month.

On January 3, 2023, White Co. factored its accounts receivable totaling P3,000,000. By January 31,
P2,500,000 of these receivables had been collected by Green.

Prepare the entries on Green’s and White’s books to record the above information.
White’s books
3-Jan Cash 2,100,000
Commission expense 450,000
Receivable from factor 300,000
Allowance for doubtful accounts 150,000
Accounts Receivable 3,000,000

31-Jan Cash 250,000

Receivable from factor 250,000

Green’s books
3-Jan Accounts receivable 3,000,000
Cash 2,100,000
Commission Income 450,000
Client Retainer 300,000
Allowance for doubtful accounts 150,000

31-Jan Cash 2,500,000

Accounts Receivable 2,500,000

31-Jan Client retainer 250,000

Cash 250,000

PROBLEM 9

Blue Corp. required additional cash for its operation and used its accounts receivable to raise such
needed cash, as follows:

On December 1, 2023, Blue assigned on a non-notification basis accounts receivable of P5,000,000 to a

bank in consideration for a loan of 90% of the receivables less a 0.5% service fee on the accounts
assigned. Blue signed a note for the bank loan. On December 31, 2023, Blue collected assigned
accounts of P3,400,000 less discount of P160,000. Blue remitted the collections to the bank in partial
payment for the loan. The bank applied first the collection to the interest and the balance to the principal.
The agreed interest is 1.25% per month on the loan balance.

Blue sold P1,800,000 of accounts receivable for P1,350,000. The receivables had a carrying amount of
P1,600,000 and were sold outright on a non-recourse basis.

Blue received an advance of P400,000 from Black Bank by pledging P500,000 of accounts receivable.
Blue issued a 1-year note for this.

On December 31, 2023, Blue discounted at a bank a customer’s P1,200,000, 10-month, 10% note
receivable dated April 30, 2023. The bank discounted the note at 15% on the same date.

1. In its December 31, 2023, statement of financial position, how much should Blue report as note
payable in its current liabilities section?

Original note(5,000,000 x 90%) 4,500,000

Payment applied to principal: (P3.4M - 160,000)-(4.5M x 1.25%) (3,183,750)
 Note payable from assignment 1,316,250
Note payable from pledging 400,000
Note payable, Dec. 31 1,716,250

2. How much is Blue’s equity in the assigned accounts receivable as of December 31, 2023?

AR assigned 5,000,000
Face value collected (3,400,000) 1,600,000
Note payable, Dec. 31 (1,316,250)
Equity on assigned accounts 283,750

3. How much were the proceeds from the note receivable discounted on December 30?

Face value 1,200,000

Interest to maturity (1,200,000 x 10% x 10/12) 100,000
Maturity value 1,300,000
Discount (1,300,000 x 15% x 2/12) (32,500)
Proceeds 1,267,500

4. How much was debited to the Allowance for Doubtful Accounts during the sale of the receivables?

Gross amount 1,800,000

Carrying amount 1,600,000
ADA debited 200,000

PROBLEM 10

When Animo Corp. found itself in severe financial problems, it applied for a loan in City National Bank. In
accordance with the terms of the application, Animo assigned P6,000,000 of its accounts receivable to the
bank. The receivables serve as a collateral for the assurance of the payment of the loan.

On January 1, 2019, upon the approval of the loan, City forwarded 80% of the face value of the assigned
accounts less 0.5% of the face value of the note for processing fees. The terms of the loan also states that

Animo should pay 1.5% of the outstanding balance of the note or P50 000, whichever is higher, as interest
to be paid every two months. Notice regarding the balance of the assigned accounts and the payment of
interest will be given by City every two months. On the same date, the debtors of Animo were informed
that their payments should be forwarded directly to the bank.

On February 28, City informed Animo that 30% of the assigned accounts were already collected. Half of
the assigned accounts were entitled to the 2% cash discount. Animo also found out in the notice that
P80,000 of the assigned accounts were proven to be worthless, and P20,000 were granted allowances,
upon Animo’s approval. A check for the payment of the interest was sent by Animo on the same date.
After two months, City sent another notice to Animo stating that the remaining assigned accounts were
already collected. None of them were given any discounts. A check was sent by City to Animo for the
excess collection.
 Receivable Note
Beg. Balance 6,000,000 4,800,000
Collection (1,800,000) (1,782,000)
Writeoffs (1,800,000/2 x98%) (80,000)
Sales allowance (20,000) .
Balance, Feb. 28 4,100,000 3,018,000

1. What was Animo’s equity on the assigned accounts on February 28?

Accounts receivable - assigned, Feb. 28 4,100,000

Notes payable, Feb 28 3 018,000
Equity on Assigned accounts, Feb 28 1,082,000

2. How much cash did Animo receive from City from the excess collection of the assigned accounts?

April Collection 4,100,000

Notes Payable, Feb 28 (3,018,000)
Interest Incurred (50,000)
Cash received 1,032,000

Actual Base Higher

As of Feb 28 72,000 50,000 72,000
Ad of Apr 30 45,720 50,000 50,000

3. How much was the total interest incurred by Animo on the note?

Actual Base Higher

As of Feb 28 72,000 50,000 72,000
Ad of Apr 30 45,720 50,000 50,000
122,000

PROBLEM 11

On March 1, 2024, Black Co. discounted its P5,000,000, 10%, 9-month note to a financial institution. The
note was dated January 1, 2024, and the institution discounted the note at 12%.
How much did Black receive on March 1?

Principal 5,000,000
Interest (5,000,000 x 10% x 9/12) 375,000
Maturity value 5,375,000
Discount (5,375,000 x 12% 7/12) (376,250)
Proceeds 4,998,750
PROBLEM 12 (not yet done)

John Corp. received a 5-year, 8% note from Baptist Dela Salle Inc. for the sale of its inventory on Jan. 1,
2023. The items cost John P2,200,000 and were sold for P4,000,000, the face value of the note signed
by Baptist Dela Salle. The note pays interest every June 30 and Dec. 31. The effective interest on this
note is 10%.
1. What is the amount of the note at initial recognition?

PV of principal 4,455,652 (4M x 0.613913)

PVOA of interest 1,235,478 (4M x .04 x 7.721734)
PV of note 3,691,131

Date Interest Receipt Amortization Carrying value

1/1/23 4,429,357
6/30/23 221,468 192,000 29,468 4,458,825
12/31/23 222,941 192,000 30,941 4,489,766
6/30/24 224,488 192,000 32,488 4,522,254

2. How much is the interest revenue recorded by John in 2024?

3. What is the carrying value of the note at the end of 2025?
4. What is the unamortized discount on the note on Dec. 31, 2026?

PROBLEM 13

On January 1, 2023, Archer Co. received a P6,000,000, 10% note from a customer upon the sale of its
goods. The note is to be paid in six equal semi-annual installments, plus interest on the outstanding
balance every June 30 and December 31, starting June 30, 2023. The effective rate on the note is 9%.
1. How much is the note upon initial recognition?
2. How much is the interest income recognized by Archer in 2023?
3. How much is the carrying amount of the note on December 31, 2024?

PROBLEM 14

On January 1, 2023, Animo Co. received a P4,000,000, noninterest-bearing note from a borrower. The
note is to be paid in 16 quarterly installments starting January 1, 2023. The effective rate on this note is
12%.
1. How much is the note upon initial recognition?
2. How much is the interest income recognized by Animo in 2023?
3. How much is the carrying amount of the note on December 31, 2024?
PROBLEM 15

The following long-term receivables were reported in the Dec. 31, 2022, statement of financial position of
Green Inc.:
Note receivable from sale of plant 3,000,000
Note receivable from officer 800,000

The following transactions during 2023 and other information relate to the company’s long-term
receivables:

a. The note receivable from sale of plant bears interest at 12% per annum. The note is payable in 3
annual instalments of P1,000,000 plus interest on the unpaid balance every April 1. The initial
principal and interest payment was made on Apr.1, 2023.

b. The note receivable from officer is dated Dec. 31, 2022, earns interest at 10% per annum, and is
due on Dec. 31, 2025. The 2023 interest was received on Dec. 31, 2023.

c. Green sold a piece of equipment to White Co. on Apr.1, 2023, in exchange for a P400,000
noninterest-bearing note due on Apr.1, 2025. The note had no ready market, and there was no
established exchange price for the equipment. The prevailing interest rate for a note of this type
at Apr. 1, 2023 was 12%.

d. A tract of land was sold by Green to Archer, Inc. on July 1, 2023, for P2,000,000 under an
instalment sale contract. Archer signed a 4-year 11% note for P1,400,000 on July 1, 2023, in
addition to the down payment of P600,000. The equal annual payments of principal and interest
on the note will be P451,250 payable on July 1, 2024, 2025, 2026 and 2027. The land had an
established cash price of P2,000,000 and its cost to Green was P1,500,000. The collection of the
instalments on this note is reasonable assured.

1. What amount should be reported as noncurrent receivables in the statement of financial position at
Dec. 31, 2023?
2. What is the current portion of notes receivable on Dec. 31, 2023?
3. What is the accrued interest receivable on Dec. 31, 2023?
4. What is the unamortized discount on notes receivable from the sale of equipment on Dec. 31, 2023?
5. What is the total interest income for the year ended Dec. 31, 2023?

May 2023