PROBLEM 1

The 2012 audit of the financial statements of KITTEN Company discloses the following
information:
Accounts receivable, ending
Allowance for doubtful accounts, ending
Allowance for sales, returns and allowances,
ending
Gross sales returns and allowances (estimated
for the year)
Estimated bad debts for the year
Sales discounts not taken at end of year
Credit sales during the year (terms, 2/10, n/60)
Cash collected on accounts receivable during
the year (net of discounts taken)

2011
P558,000
22,200
14,100

2012
P561,300
21,000
11,748

14,700

11,748

21,600
0
1,125,000

22,500
1,200
1,140,000

1,056,000

1,102,500

REQUIRED:
Reconstruct the journal entries that were made by Kitten Company during 2012 to record
changes in the following accounts. (Assume that sales returns and allowances are estimated in
the period of sale and the net method is used in accounting for sales discounts).
a. Allowance for doubtful accounts
b. Allowance for sales returns and allowances
c. Accounts receivable
PROBLEM 2
Shown below is GOROSPE COMPANYS aging schedule of its accounts receivable on December
31, 2012.
Balance
Days Past Due
Customers
Due
Current
1-30
31-60
Over 60
AA Co.
P 23,000
P0
P0
P23,0
P0
00
BB, Inc.
105,000
62,000
20,000
13,00
10,000
0
CC Corp.
87,500
23,000
14,500
10,00
40,000
0
DD, Inc.
93,500
53,000
20,500
10,00
10,000
0
EE Transport
40,000
0
0
0
40,000
FF, Inc.
31,000
15,000
16,000
0
0
GG Co.
1,000
1,000
0
0
0
HH Corp.
64,000
20,000
18,000
16,00
10,000
0
II Company
60,000
60,000
0
0
0
Totals
P505,00
P234,00
P89,000
P72,0
P110,000
0
0
00
The accounts receivable balance per general ledger is P505,000 on December 31, 2012.
The following are audit comments for possible adjustment:
AA Co.
Merchandise found defective; returned by the customer on November 10 for credit, but the
credit memo was issued by Gorospe only on January 2, 2013.
BB, Inc.
Account is good but usually pays late.
CC Corp.
Merchandise worth P40,000 destroyed in transit on June 4, 2012. The carrier was billed on July
1. (See EE Transport and II Company).
DD, Inc.
Customer billed twice in error for P10,000. Balance is collectible.
EE Transport

Collected in full on January 15, 2013.

FF, Inc.
Paid in full on December 29, 2012, but not recorded. Collections were deposited January 3,
2013.
GG Co.
Received account confirmation from customer for P11,000. Investigation revealed an
erroneous credit for P10,000. (See HH Corp).
HH Corp.
Neglected to post P10,000 credit to customers account
II Company
Customer wants to know the reason for receipts of P40,000 credit memo as its account
payable balance is P100<000.
Based on the foregoing information, what should be the adjusted balance of the Accounts
receivable-trade at December 31, 2012?
PROBLEM 3
DAFFODIL AUTO PARTS Sells new parts to auto dealers. Company policy requires that a
prenumbered shipping document be issued for each sale. At the time of pickup or shipment,
the shipping clerk writes the date on the shipping document. The last shipment made in the
year ended December 31, 2012, was recorded on document 3167. Shipments are billed in the
order that the billing clerk receives the shipping documents.
For late December 2012 and early January 2013, shipping documents are billed on sales
invoices as follows:
SHIPPING DOCUMENT NO.
3163
3164
3165
3166
3167
3168
3169
3170
3171
3172

SALES INVOICE NO.

5332
5326
5327
5330
5331
5328
5329
5333
5335
5334

The December 2012 and January 2013 sales journals have the following information included:
SALES JOURNAL-December 2012
Day of Month
Sales Invoice No.
Amount of Sale
30
5326
P72,611
30
5329
191,430
31
5327
41,983
31
5328
62,022
31
5330
4,774
SALES JOURNAL-JANUARY 2013
Day of Month
Sales Invoice No.
1
5332
1
5331
1
5333
2
5335
2
5334

Amount of Sale
P264,131
10,639
85,206
125,050
64,658

1. What is the net overstatement (understatement) of Daffodils sales for the year ended
December 31, 2012?
a. P21,318
c. (P253,452)
b. P253,452
d. (P21,318)
2. What adjusting entry is necessary to correct Daffodils financial statements for the year
ended December 31, 2012?

a. Accounts receivable
21,318
Sales
21,318
b. Accounts receivable
253,452
Sales
253,452
c. Sales
21,318
Accounts receivable
21,318
d. Sales
253,452
Accounts receivable
253,452
3. Cutoff tests designed to detect credit sales made before the end of the year that have
been recorded in the subsequent year provide assurance about managements assertion
of
a. Rights and obligations
b. Completeness
c. Existence
d. Valuation and allocation
4. Tracing shipping documents to prenumbered sales invoices provides evidence that
a. No duplicate shipments or billings occurred
b. Shipments to customers were properly invoiced
c. All goods ordered by customers were shipped
d. All prenumbered sales invoices were accounted for
5. An auditor most likely review an entitys periodic accounting for the numerical sequence
of shipping documents and invoices to support managements financial statement
assertion of
a. Existence
b. Rights and obligations
c. Valuation and allocation
d. Completeness
PROBLEM 4
Presented below are unrelated situations. Answer the questions relating to each situation:
1. The following information is from GUMAMELA CORP.s first year of operations:
a. Merchandise purchased
P450,000
b. Ending merchandise inventory
123,000
c. Collections from customers
150,000
d. All sales are on account and goods sell at 30% above cost.
What is the accounts receivable balance at the end of the companys first year of
operation?
2. BANABA CO. reported the following information at the end of its first year of operations,
December 31, 2012:
Bad debt expense for 2012
P271,000
Uncollectible accounts written off during 2012
35,400
Net realizable value of accounts receivable
895,000
What is the accounts receivable balance at December 31, 2012?
3. SUNFLOWER COMPANY sells a variety of imported goods. By selling on credit, Sunflower
cannot expect to collect 100% of its accounts receivable. At December 31, 2011,
Sunflower reported the following in its statement of financial position:
Accounts receivable
P2,197,500
Less: Allowance for bad debts
(133,500)
Accounts receivable, net
P2,064,000
a. What is the accounts receivable balance at December 31, 2012?
b. What is the December 31, 2012, balance of the Allowance for Bad Debts account?
4. The following information pertains to ACACIA, INC. for the year ended December 31,
2012:
Credit sales during 2012
P4,450,000
Collection of accounts written off in prior periods
170,000
Worthless accounts written off in 2012
191,000
Allowance for doubtful accounts, Jan. 1 2012
155,000
Acacia, Inc. provides for doubtful accounts based on 1% of credit sales.
What is the balance of the allowance for doubtful accounts at December 31, 2012?
5. MAHOGANY COMPANYs analysis and aging of its accounts receivable at December 31,
2012, disclosed the following:
Accounts receivable
P460,000

Accounts estimated to be uncollected (per aging)

95,000
Allowance for bad debts (per books)
103,000
What is the net realizable value of Mahoganys receivables at December 31, 2012?
6. The following amounts are shown on the 2012 and 2011 financial statements of SAN
FRANCISCO CO.:
2012
2011
Accounts receivable
?
P470,000
Allowance for bad debts
20,000
10,000
Net sales
2,600,000
2,400,000
Cost of goods sold
1,900,000
1,752,000
San Francisco Co.s accounts receivable turnover for 2012 is 6.5 times.
What is the accounts receivable balance at December 31, 2012?
7. The policy of ILANGILANG, INC. is to debit bad debt expense for 3% of all new sales. The
following are the companys sales and allowance for bad debts for the past four years.
Year
Sales
Allowance for Bad
Debts
Year-End Balance
2009
P3,000,000
P45,000
2010
2,950,000
56,000
2011
3,120,000
60,000
2012
2,420,000
75,000
What are the amounts of accounts written off in 2010, 2011, and 2012?
PROBLEM 5
CALACHUCHI CORP.s accounts receivable subsidiary ledger shows the following information:
Customer
Account Balance
Invoice
Dec. 31, 2012
Date
Amount
Aruy, Inc.
P35,180
12/06/12
P14,000
11/29/12
21,180
Naku Co.
20,920
09/27/12
12,000
08/20/12
8,900
Syak Co.
30,600
12/08/12
20,000
10/25/12
10,600
Trip Co.
45,140
11/17/12
23,140
10/09/12
22,000
Uy Co.
31,600
12/12/12
19,200
12/02/12
12,400
Xak Co.
17,400
09/12/12
17,400
The estimated bad debt rates below are based on Calachuchi Corp.s receivable collection
experience.
Age of Accounts
1 30 days
31 60 days
61 90 days
91 12 days
Over 120 days

Rate
1%
1.5%
3%
10%
50%

The allowance for bad debts account had a debit balance of P5,500 on December 31, 2012,
before adjustment.
1. The companys accounts receivable under 61 90 days category should be
a. P32,320
c. P44,600
b. P44,320
d. P42,000
2. The companys accounts receivable under 91 120 days category should be
a. P9,699
c. P29, 400
b. P40,000
d. P12,000
3. The allowance for bad debts to be reported in the statement of financial position at
December 31, 2012, is
a. P9,699
c. P4,199
b. P15,199
d. P5,500
4. What entry should be made on December 31, 2012, to adjust the allowance for bad
debts account?
a. Bad debt expense
15,199
Allowance for bad debts
15,199

b. Bad debt expense

Allowance for bad debts
c. Allowance for bad debts
Bad debt expense
d. Bad debt expense
Allowance for bad debts
5. What is the net realizable value of accounts
a. P165,641
b. P171,141

4,199
4,199
5,500
5,500
9,699
9,699
receivable at December 31, 2012?
c. P196,039
d. P186,340

PROBLEM 6
YELLOW BELLS, INC., estimates its bad debt losses by agig its accounts receivable. The aging
schedule of accounts receivable at December 31, 2012, is presented below:
Age of Accounts
Amount
0 30 days
P 843,200
31 60 days
461,000
61 90 days
192,400
91 120 days
76,650
Over 120 days
39,400
P1,612,650
Yellow Bells, Inc.s uncollectible accounts experience for the past 5 years is summarized in the
following schedule:
Year
A/R
0 30
31 60
61 90
91 120 Over 120
Balance
Days
Days
Days
Days
Days
Dec. 31
2011
P1,312,5
0.3%
1.8%
12%
38%
65%
00
2010
999,999
0.5%
1.6%
11%
41%
70%
2009
465,000
0.2%
1.5%
9%
50%
69%
2008
816,000
0.4%
1.7%
10.2%
47%
81%
2007
1,243,66
0.9%
2.0%
9.7%
33%
95%
7
The balance of the allowance for bad debts account at December 31, 2012, (before
adjustment) as P84,500.
1. What is the average bad debt expense rate for 91 120 days accounts?
a. 76%
c. 10.38%
b. 8.6%
d. 41.80%
2. What is the average bad debt expense rate for 31 60 days accounts?
a. 10.38%
c. 0.46%
b. 41.80%
d. 1.72%
3. The net realizable value of the companys accounts receivable on December 31, 2012,
should be
a. P1,518,887
c. P1,528,150
b. P1,612,650
d. P1,603,358
4. What entry should be made to adjust the allowance for bad debts on December 31,
2012?
a. Bad debt expense
178,263
Allowance for bad debts
178,263
b. Bad debt expense
93,763
Allowance for bad debts
93,673
c. Bad debt expense
9,263
Allowance for bad debts
9,263
d. Allowance for bad debts
9,263
Bad debt expense
9,263
5. In evaluating the adequacy of the allowance for bad debts, an auditor likely reviews the
entitys aging of receivables to support managements financial statement assertion of
a. Existence
b. Valuation and allocation
c. Completeness
d. Rights and obligations
PROBLEM 7

Presented below are unrelated situations. Answer the questions relating to each situation.
1. ORCHIDS COMPANYs Accounts receivable at December 31, 2012 had a balance of
P1.200,000. The allowance for bad debts account had a credit balance of P40,000. Net
sales in 2012 were P6,704,000 (net of sales discounts of P56,000). An aging schedule
shows that P150,000 of the outstanding accounts receivable are doubtful.
What is the adjusting entry for estimated bad debt expense?
2. The following selected transactions occurred during the year ended December 31, 2012:
Gross sales (cash and credit)
P750,000
Collections from credit customers, not of 2% cash discount
245,000
Cash sales
150,000
Uncollectible accounts written off
16,000
Credit memos issued to credit customers for sales
Returns and allowances
8,400
Cash refunds given to cash customers for sales returns
And allowances
12,640
Recoveries on accounts receivable written off in prior years
(not included in cash received stated above)
5,421
At the year-end, the company provides for estimated bad debt losses by crediting the
Allowance for Bad Debts account for 2% of its net credit sales for the year.
a. What is the companys net credit sales in 2012?
b. What is the bad debt expense for 2012?
3. COCONUT CO. estimates its bad debt expense to be 3% of net sales. The companys
unadjusted trial balance at December 31, 2012, included the following accounts:
Debit
Credit
Allowance for bad debts
P8,000
Sales
2,600,000
Sales returns and allowances
P45,000
What is the companys bad debt expense for 2012?
4. BANAWE, INC. estimates its uncollected accounts to be 3% of the accounts receivable
balance. The following information was taken from the companys statement of financial
position at December 31, 2012:
Debit
Credit
Net sales (including cash sales of
P3,460,000
P825,000)
Allowance for bad debts
P69,000
Accounts receivable
2,460,000
What is the bad debt expense to be reported for 2012?
PROBLEM 8
LAGUNDI COMPANY applies the allowance method to value its accounts receivable. The
company estimates its bad debts based on past experience, which indicates that 1.5% of net
credit sales will be uncollectible. Its total sales for the year ended December 31, 2012,
amounted to P4,000,000 including cash sales of P400,000. After a thorough evaluation of the
accounts receivable from Nolog Company amounting to P20,000, Lagundi has decided to write
off this account before year-end adjustments are made.
Shown below are Lagundis account balances at December 31, 2012, before any adjustments
and the P20,000 write off.
Sales
P4,000,000
Accounts receivable
1,500,000
Sales discounts
250,000
Allowance for bad debts
33,000
Sales returns and allowances
350,000
Bad debt expense
0
Lagundi has decided to value its accounts receivable using the statement of financial position
approach as suggested by its external auditors. Presented below is the aging of the accounts
receivable subsidiary ledger accounts at December 31, 2012.
Account
Balance
Less than
61 90
91 120
Over 120
60 days
days
days
days
Antiporda
P100,000
P100,000
Balbakwa
256,000
180,000
P76,000
Curdapia
654,000
500,000
154,000
Dagul
50,000
P50,000

Empoy
Total
%
collectible

420,000
P1,480,0
00

P780,000

P230,000

P420,000
P420,000

99%

95%

85%

P50,000
60%

1. The entry to write off Lagundis accounts receivable from Nolog of P20,000 will
a. Decrease total assets and net income for 2012
b. Increase total assets and decrease net income for 2012
c. Have no effect on total assets and net income for 2012
d. Have no effect on total assets and increase net income for 2012
2. Lagundis estimated bad debt expense for 2012 based on net credit sales is
a. P60,000
c. P45,000
b. P12,000
d. P56,250
3. The final entry to adjust the allowance for bad debs account is
a. Bad debt expense
44,300
Allowance for bad debts
44,300
b. Bad debt expense
45,000
Allowance for bad debts
45,000
c. Bad debt expense
24,300
Allowance for bad debts
24,300
d. Allowance for bad debts
24,300
Bad debt expense
24,300
4. What is the net realizable value of Lagundis accounts receivable on December 31,
2012?
a. P1,435,700
c. P1,397,700
b. P1,435,000
d. P1,377,700
5. Which of the following, most likely would give the most assurance concerning the
valuation and allocation assertions of accounts receivable?
a. Vouching amounts in the subsidiary ledger to details on shipping documents.
b. Comparing receivables turnover ratios with industry statistics for reasonableness.
c. Inquiring about receivables pledged under loan agreements.
d. Assessing the allowance for uncollectible accounts for reasonableness.
PROBLEM 9
From inception of operations to December 31, 2012, MAKAHIYA CORP. provided for uncollected
accounts receivable under the allowance method: provisions were made monthly at 2% 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. Makahiyas usual credit terms are net 30
days.
The balance in the Allowance for Bad Debts account was P143,000 at January 1, 2012. During
2012, credit sales totaled P15,000,000, interim provisions for doubtful accounts were made at
2% of credit sales, P140,000 of bad debts were written off, and recoveries of accounts
previously written off amounted to P43,000. Makahiya installed a computer facility in
November 2012 and an aging of accounts receivable was prepared for the first time as of
December 31, 2012. A summary of the aging is as follows:
Classification by Month
Balance in Each
Estimated %
of Sale
Category
Uncollectible
November-December
P2,160,000
2%
2012
July-October 2012
1,300,000
10%
January-June 2012
840,000
25%
Prior to January 1, 2012
300,000
70%
P4,600,000
Based on the review of collectability of the account balances in the prior to January 2, 2012
aging category, additional receivables totaling P12,000 were written off as of December 31,
2012. The 70% uncollectible estimate applies to the remaining P180,000 in the category.
Effective with the year ended December 31, 2012, Makahiya adopted a new accounting
method for estimating the allowance for doubtful accounts ate the amount indicated by the
year-end aging analysis of accounts receivable.
1. What is the balance of the Allowance for Bad Debts account on December 31, 2012
(before year-end adjustment)?

2.

3.
4.

5.

a. P300,000
c. P226,000
b. P143,000
d. P346,000
What is the journal entry for the year-end adjustment to the allowance for Bad Debts
account balance as of December 31, 2012?
a. Bad Debts Expense
283,200
Allowance for Bad Debts
283,200
b. Bad Debts Expense
163,200
Allowance for Bad Debts
163,200
c. Allowance for Bad Debts
143,000
Bad Debts Expense
143,000
d. Bad Debts Expense
509,200
Allowance for Bad Debts
509,000
For the year ended December 31, 2012, Makahiyas bad debt expense would be
a. P626,200
c. P300,000
b. P283,200
d. P583,200
The net realizable value of Makahiyas accounts receivable at December 31, 2012
should be
a. P4,374,000
c. P3,970,800
b. P3,896,800
d. P4,090,800
An auditors purpose in reviewing credit ratings of customers with delinquent accounts
receivable most likely is to obtain evidence concerning managements assertion about
a. Completeness
b. Existence
c. Rights and obligations
d. Valuation and allocation

PROBLEM 10
You are examining the financial statements of SALUYOT COMPANY for the year ended
December 31, 2012. Your audit of the accounts receivable and other related accounts
disclosed the following information:
1. The December 31, 2012, balance in the Accounts Receivable control account is
P788,000.
2. The only entries in the Bad Debts Expense account were:
a. A credit for P1,296 on December 1, 2012, because customer A remitted in full for
the account charged off October 31, 2012.
b. A debit on December 31 for the amount of the credit to Allowance for Bad Debts.
3.

The Allowance for Bad Debts account is presented below:

Date
Particulars
Debit
Credit
Jan. 1
Balance
Oct. 31
Uncollectible:
Customer A
P1,296
B
P6,032
3,280
C
2,256
Dec. 31
3% of P788,000
P23,640

Balance
P15,250

9,218

32,858

4. An aging schedule of the accounts receivable as of December 31, 2012, and the
decisions are as shown in the table below:
Age
Net Debit
Amount to which the allowance is to be adjusted after
Balance
adjustments and corrections have been made
0 1 month
P372,960
1%
13
307,280
2%
months
36
88,720
3%
months
Over 6
24,000
Definitely uncollectible, P4,000; P8,000 is considered to
months
be 50% uncollectible; the remainder is estimated to be
80% collectible
P792,960
5. There is a credit balance in one account receivable(0-1 month) of P8,000; it represents
an advance on a sales contract; also there is a credit balance in one of the 1-3 months
accounts receivable of P2,000 for which merchandise will be accepted by the customer.

6. The Accounts Receivable control account is not in agreement with the subsidiary ledger.
The differences cannot be located, and the companys accountant decides to adjust the
control to the sum of the subsidiaries after corrections are made.
1. The Adjustments to correct the entry made on December 1, 2012, is
a. Bad debts expense
1,296
Accounts receivable
1,296
b. Bad debts expense
1,296
Allowance for bad debts
1,296
c. Accounts receivable
1,296
Allowance for bad debts
1,296
d. No adjusting entry is necessary
2. The required allowance balance (per aging) on December 31, 2012, is
a. P29,354
c. P19,858
b. P19,058
d. P32,858
3. The net realizable value of Saluyots accounts receivable on December 31, 2012
amounts to
a. P779,902
c. P793,200
b. P774,142
d. P788,664
4. Saluyot should report bad debt expense for 2012 of
a. P13,344
c. P10,296
b. P22,344
d. P33,936
5. What entry is necessary to adjust the allowance account at December 31, 2012?
a. Bad debts expense
10,296
Allowance for bad debts
10,296
b. Bad debts expense
13,800
Allowance for bad debts
13,800
c. Allowance for bad debts
10,296
Bad debts expense
10,296
d. Allowance for bad debts
13,800
Bad debts expense
13,800
PROBLEM 11
The following information is based on a first audit of SABILA COMPANY.The client has not
prepared financial statements for 2012, 2011, or 2012. During these years, no accounts have
been written off as uncollectible, and the rate of gross income on sales has remained constant
for each of the three years.
Prior to January 1, 2012, the client used the accrual method of accounting. From January 1,
2012, to December 31, 2012, only cash receipts and disbursements records were maintained.
When sales on account were made, they were entered in the subsidiary accounts receivable
ledger. No general ledger posting have been made since December 31, 2009.
As a result of your examination, the correct data shown in the table below are available:
12/31/09
12/31/12
Accounts receivable balances:
Less than one year old
P15,400
P28,200
One to two years old
1,200
1,800
Two to three years old
800
Over three years old
2,200
Total accounts receivable
Inventories
Accounts payable for inventory purchased

P16,600
P11,600
P5,000

P33,000
P18,800
P11,000

Cash received on accounts receivable in:

Applied to:
Current year collections
Accounts of the prior year
Accounts of two years prior
Total
Cash sales
Cash disbursements for inventory
purchased

2010

2011

2012

P148,800
13,400
600
P162,800
P17,000
P125,000

P161,800
15,000
400
P177,200
P26,000
P141,200

P208,800
16,800
2,000
P227,600
P31,200
P173,800

1. The companys sales revenue for the three-year period amounted to

a. P658,200
c. P625,400
b. P74,200
d. P415,300
2. What is the companys total sales revenue for 2011?
a. P206,400
c. P268,200
b. P183,600
d. P180,400
3. The aggregate amount of purchases for the three-year period is
a. P131,000
c. P434,000
b. P440,000
d. P446,000
4. What is the companys gross income ratio in each of the three-year period?
a. 33.33%
c. 35.16%
b. 28.35%
d. 31.15%
5. What is the companys gross income for each of the three-year period?
2010
2011
a. P60,933
P68,200
b. 55,533
60,133
c. 122,400
137,600
d. 61,200
68,800

2012
P 80,000
79,000
178,800
89,400

PROBLEM 12
You are auditing the accounts receivable and the related allowance for bad debts account of
IKEBANA COMPANY.
The following data are available
General Ledger
Accounts receivable
2012
Dec. 31
424,000
Allowance for Bad Debts
2012
2012
July 31
GJ-Write off 8,000
Jan. 1
Balance
10,000
Dec. 31
GJ-Provision 24,000
Summary of Aging Schedule
The summary of the subsidiary ledger balances as of December
Debit balances:
Under one month
P180,000
One to six months
184,000
Over six months
76,000
P440,000
Credit balances:
AA Co.
P 4,000
2013
BB Co.
7,000
DD Co.*
CC Co.
9,000
P20,000
*Account is in one to six months classification.

31, 2012, is shown below:

OK; additional billing in Jan.

Should have been credited to
Advance on a sale contract

The customers ledger is not in agreement with the accounts receivable control. The client
instructs the auditor to adjust the control to the subsidiary ledger after corrections are made.
Allowance for Bad Debts Requirements
It is agreed that 1 percent is adequate for accounts under one month. Accounts one to six
months are expected to require an allowance of 2 percent. Accounts over six months are
analyzed as follows:
Definitely bad
P24,000
Doubtful (estimated to be 50% collectible)
12,000
Apparently good, but slow (estimated to be 90% collectible)
40,000
Total
P76,000
1. The adjusted balance of Ikebanas 1 to 6 months accounts receivable is
a. P164,000
c. P177,000
b. P171,000
d. P184,000
2. The adjusted balance of Ikebanas over 6 months accounts receivable is
a. P76,000
c. P69,000

b. P52,000
d. P45,000
3. The adjusted accounts receivable balance on December 31, 2012 should be
a. P404,000
c. P69,000
b. P420,000
d. P413,000
4. The required balance of the allowance for bad debts account on December 31, 2012 is
a. P404,000
c. P15,480
b. P15,340
d. P21,340
5. The entry to adjust the allowance for bad debts account is
a. Bad debts expense
13,340
Allowance for bad debts
13,340
b. Allowance for bad debts
2,000
Bad debts expense
2,000
c. Bad debts expense
17,340
Allowance for bad debts
17,340
d. Bad debts expense
15,340
Allowance for bad debts
15,340
PROBLEM 13
PITO-PITO COMPANY produces herbal tea and other slimming products that are sold throughout
the Philippines. While the company is experiencing a steady growth in sales, it has become
noticeable that collections of accounts receivable from customers are no longer as fast as they
used to be.
Pito-Pito Companys products are sold on payment terms of 2/10, n/30. In the past, more than
75% of the credit customers have availed of the discount by paying within the discount period.
During the year ended December 31, 2012, there has been an increase in the number of
customers taking the full 30 days to pay. The company estimates that less than 60% of the
customers are taking advantage of the discount. Bad debt losses as a percentage of gross
credit sales have increased from the 1.5% provided in prior years to about 4% in the current
year.
The deterioration of accounts receivable collections has prompted the companys controller to
prepare the following report.
ACCOUNTS RECEIVABLE COLLECTIONS
December 31, 2012
A. It is normal that some receivables will prove uncollectible. In fact, annual bad debt writeoffs had been 1.5% of total credit sales for many years. However, this rate has increased
to 4% during the current year.
B. The accounts receivable balance at December 31, 2012 is P3,000,000. The condition of
this balance in terms of age and probability of collection is presented below.
Proportion of Total
Age Categories
Probability of Collection
64%
1 to 10 days
99%
18%
11 to 30 days
97.5%
8%
Past due 31 to 60 days
95%
5%
Past due 61 to 120 days
80%
3%
Past due 121 to 180 days
65%
2%
Past due over 180 days
20%
C. The allowance for bad debts had a credit balance of P54,600 on January 1, 2012.
D. The P640,000 bad debt expense provided during the year is based on the assumption
that 4% of total credit sales will be uncollectible.
E. Accounts written-off during the year totaled P585,000.
1. What is the required allowance balance on December 31, 2012?
a. P154,200
c. P209,200
b. P109,600
d. P55,000
2. What year-end adjustment is necessary to bring Pito-Pito Companys allowance for
doubtful accounts to the balance indicated by the aging analysis?
a. Bad debt expense
10,400
Allowance for doubtful accounts
10,400
b. Allowance for doubtful accounts
10,400
Bad debt expense
10,400
c. Bad debt expense
44,600
Allowance for doubtful accounts
44,600
d. Bad debt expense
154,200
Allowance for doubtful accounts
15,200
3. What is the net realizable of Pito-Pito Companys accounts receivable at December 31,
2012?
a. P2,955,400
c. P2,736,200

b. P2,845,800
d. P1,675,800
4. Pito-Pito should report bad debt expense for 2012 of
a. P99,600
c. P640,000
b. P595,400
d. P684,600
5. Pito-Pitos total credit sales for 2012 is
a. P16,000,000
c. P25,600,000
b. P42,666.667
d. P14,625,000
PROBLEM 14
Presented below are unrelated situations. Answer the questions relating to each situation.
1. On December 5, 2012, BANDERA ESPAOLA, INC. sold its accounts receivable (net
realizable value, P260,000) for cash of P230,000. Ten percent of the proceeds was
withheld by the factor to allow for possible customer returns and other account
adjustments. The related allowance for bad debts is P40,000.
A. What amount of loss on factoring should be recognized?
B. What is the entry to record the factoring of accounts receivable?
2. On April 1, 2012, SAMPAGUITA CORPORATION assigned accounts receivable totaling
P400,000 as collateral on a P300,000, 16% note from Iwahig Bank. The assignment was
done on a nonnotification basis. In addition to the interest on the note, the bank also
receives a 2% service fee, deducted in advance on the P300,000 value of the note.
Additional information is as follows:
A. Collections of assigned accounts in April totaled P191,100, net of a 2% sales
discount.
B. On May 1, Sampaguita Corporation paid the bank the amount owed for April
collections plus accrued interest on note to May 1.
C. The remaining accounts were collected by Sampaguita Corporation during May
except for P2,000 accounts written off as worthless.
D. On June 1, Sampaguita Corporation paid the bank the remaining balance of
Sampaguita Corporation.
Prepare the journal entries to record the above transactions on the books of Sampaguita
Corporation.
3. ROSAL FINANCE CORP. 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
Rosals books. Also, 10% of the receivables factored is withheld by Rosal as protection
against sales returns or other adjustments. This amount is credited by Rosal to the
Client Retainer account. At the end of each month, payments are made by Rosal to its
clients so that the balance in the Client Retainer account is equal to 10% of unpaid
factored receivables. Based on Rosals bad debt loss experience, an allowance for bad
debts of 5% of all factored receivables is to be established. Rosal makes adjusting
entries at the end of each month.
On January 3, 2012, Poor Inc. factored its accounts receivable totaling P1,000,000. By
January 31, P800,000 on these receivables had been collected by Rosal.
Prepare the entries on Rosals and Poors books to record the above information.
PROBLEM 15
During your audit of FOREVER COMPANY for the year ended December 31, 2012, you find the
following account.
NOTES RECEIVABLE
Date
Debit
Credit
Sep. 1
Cornea, 20%, due in 3 months
P80,000
Oct. 1
Hunk Co., 24%, due in 2 months
300,000
1
Discounted Cornea note at 25%
P80,00
0
Nov. 1
Valerie, 24%, due in 13 months
600,000
30
Cellular Co., no interest, due in one year
500,000
30
Discounted note at 18%
500,00
0
Dec. 1
Tictic, 18% due in 5 months
900,000
1
O. Reyes, President, 12%, due in 3
months (for cash loan given to O.
1,200,000
Reyes)

All noted are trade notes unless otherwise specified. The Cornea note was paid on December 1
as per notification received from the bank. The Hunk Co. note was dishonored on the due date
but the legal department has assured management of its full collectability.
The company, with your concurrence, will treat the discounting as a conditional sale of note
receivable.
1. At what amount on the current assets section of the December 31, 2012 statement of
financial position will the Notes receivable-trade be carried?
a. P1,500,000
c. P2,400,000
b. P1,800,000
d. P2,080,000
2. What amount of loss on notes receivable discounting should be reported in the 2012
income statement of the company?
a. P90,500
c. P90,000
b. P90,833
d. P0
3. Based on the ledger account presented, what amount of interest income should be
accrued at December 31, 2012?
a. P55,500
c. P49,500
b. P61,500
d. P67,500
PROBLEM 16
The AUTOMATIC COMPANY sells plastic products to wholesalers. The end of the companys
reporting period is December 31. During 2012, the following transactions related to receivable
occurred:
March 31
Sold merchandise to Mismo Co. and accepted a 10% note. Payment of P120,000
principal plus interest is due on March 31, 2013.
April 12
Sold merchandise to Ace Co. for P20,000 with terms 2/10, n/30. Automatic uses the
gross method to account for cash discounts.
April 21
Collected the entire amount due from Abe Co.
April 27
A customer returned merchandise costing Automatic P60,000. Automatic reduced
the customers receivable balance by P80,000, the sales price of the merchandise.
The company records sales returns as they occur.
May 30
Transferred receivables of P1,000,000 to a factor without recourse. The factor
charged Automatic a @5 finance charge on the receivables transferred. The criteria
to derecognize the asset are met.
July 31
Sold merchandise to Fabon Company for P150,000 and accepted an 8%, 6-month
note. 8% is an appropriate rate for this type of note.
Sept. 30
Discounted the Fabon Company note ate the bank. The banks discount rate is
12%. The note was discounted without recourse.
Required:
1. Prepare the necessary journal entries to account for the above transactions. For
transactions involving the sale of merchandise, ignore the entry for the cost of goods
sold.
2. Prepare any necessary adjusting entries at December 31, 2012. Adjusting entries are
only recorded at year-end.
PROBLEM 17
The following long term receivable were reported in the December 31, 2011statement of
financial position of MANGO CORPORATION:
Note receivable from sale of plant
P3,000,000
Note receivable from officer
800,000
The following transactions during 2012 and other information relate to the companys long
term receivables:
1. The note receivable from sale of plant interest at 12% per annum. The note is payable in
3 annual installments of P1,000,000 plus interest on the unpaid balance every April1.
The initial principal and interest payment was made on April 1, 2012.
2. The note receivable from officer is dated December 31, 2011, earns interest at 10% per
annum, and is due on December 31, 2014. The 2012 interest was received on December
31, 2012.
3. Mango sold a piece of equipment to Banana, Inc. on April 1, 2012, in exchange for a
P400,000 non-interest-bearing note due on April 1, 2014. 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 April 1, 2012 was 12%. The present value factor of 1 for
two periods at 12% is 0.797.

4. A tract of land was sold by Mango to Orange, Inc. on July 1, 2012, for P2,000,000 under
an installment sale contract. Orange signed a 4-year 11% note for P1,400,000 on July 1,
2012, 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, 2013, 2014, 2015,
and 2016. The land had an established cash price of P2,000,000, and its cost to Mango
was P1,500,000. The collection of the installments on this note is reasonably assured.
1. The amount to be reported as noncurrent receivables in the statement of financial
position at December 31, 2012 is
a. P3,096,242
c. P3,221,550
b. P3,067,550
d. P3,250,242
2. The current portion of notes receivable on December 31, 2012 should be
a. P1,451,250
c. P2,097,250
b. P1,297,250
d. P2,297,250
3. The accrued interest receivable on December 31, 2012 should be
a. P257,000
c. P285,692
b. P180,000
d. P334,000
4. On December 31, 2012, the unamortized discount on note receivable sale of equipment
should be
a. P42,944
c. P0
b. P109,892
d. P52,508
5. The total interest income for the year ended December 31, 2012 should be
a. P427,000
c. P375,692
b. P455,692
d. P532,692
PROBLEM 18
Presented below are unrelated situations. Answer the questions relating to each situation.
1. On January 1, 2012, WALING-WALING CO. sells its equipment with a carrying value of
P160,000. The company receives a non-interest-bearing note due in 3 years with a face
amount of P200,000. There is no established market value for the equipment. The
prevailing interest rate for a note of this type is 12%. The following are the present value
factors of 1 to 12%:
Present value of 1 to 3 periods
0.71178
Present value of an ordinary annuity of 1 to 3 periods
2.40183
a. What is the gain or loss to be recognized on the sale of the equipment?
b. What is the discount on note receivable on January 1, 2012?
c. What is the discount amortization at the end of the third year (using the effective
interest method)?
2. On January 2, 2012, a tract of land that originally cost P800,000 was sold by VIETNAM
ROSE COMPANY. The company received a P1,200,000 note as payment. It bears interest
rate of 4% and is payable in 3 annual installments of P400,000 plus interest on the
outstanding balance. The prevailing rate of interest for a note of this type is 10%.
The present value table shows the following present value factors of 1 to 10%:
Present value factor of 1 to 3 periods
0.75132
Present value factor of 1 to 12 for 2 periods
0.82645
Present value factor of 1 for 1 period
0.90909
Present value of an ordinary annuity of 1 for 3 periods
2.48685
a. What amount of gain on sale of land should be recognized on January 2, 2012?
b. How much interest income should be reported for 2012?
3. The notes receivable account of CAMITO, INC. consisted of the following:
A. 60-day note of P10,000 dated May 15 with a 9% interest rate, discounted at the
bank on June 8 at 12%.
B. 120-day note of P100,000 (face amount) dated October 1 with no stated interest
rate and a market rate of (% interest, discounted at the bank on November 30 at
12%. This note was received from the sale of equipment.
Determine the proceeds from discounting of notes receivable.
PROBLEM 19
The Notes Receivable account of BUNSOY CO. has a debit balance of P239,200 on December
31, 2012. There was no balance at the beginning of the year. Your analysis of the account
reveals the following:
1. Notes amounting to P845,000 were received from customers during the year.

2. Notes of P 416,000 were collected on due date and notes amounting to P221,000 were
discounted at the Aggressive Bank. The notes Receivable account was credited for the
notes discounted.
3. Of the P221,000 notes discounted, P104,000 was paid on maturity date while a note for
P31,200 was dishonored and was charged bak to Notes Receivable account.
4. Cash of P33,000 was received as partial payment on notes not yet due. The amount
received was credited to Liability on Partial Payments account.
5. A note for P50,000 was pledged as collateral for a bank loan.
6. Included in the companys cash account balance iss a three-month note from an officer
amounting to P8,000 which is over past due.
Assuming that Bunsoy Co. will use a Notes Receivable Discounted account, the adjusted
balance of the Notes Receivable account on December 31, 2012 is
A. P260,800
C. P364,800
B. P323,200
D. P175,000
PROBLEM 20
YOKOHANA BANK loaned P5,500,000 to Bargain Company on January 1, 2012. The initial loan
repayment terms include a 10% interest rate plus annual principal payments of P1,100,000on
January 1 each year. Bargain made the required interest payment in 2012 but did not make the
P1,100,000 principal payment nor the P550,000 interest payment for 2013. Yokohana is
preparing its annual financial statements on December 31, 2013. Bargain is having financial
difficulty, and Yokohana has concluded that the loan is impaled.
Analysis of Bargains financial condition on December 31, 2013 indicates the principal
payments will be collected, but the collection of interest is unlikely. Yokohana did not accrue
the interest on December 31, 2013.
The projected cash flows are:
December 31, 2014
P1,750,000
December 31, 2015
2,000,000
December 31, 2016
1,750,000
P5,500,000
1. What
a.
b.
2. What
a.
b.
3. What
a.
b.
4. What
a.
b.
5. What
a.
b.

is the loan impairment loss on December 31, 2013?

P941,500
c. P0
P550,000
d. P5,500,000
is the interest income to be reported by Yokohana Bank in 2014?
P501,435
c. P455,850
D. P550,000
is the carrying value of the loan receivable on December 31, 2015?
P1,590,785
b. P3,264,350
P1,750,000
d. P4,558,500
is the interest income in 2015?
P159,079
b. P455,850
P550,000
d. P326,435
is the interest income in 2016?
P159,079
b. P326,435
P550,000
d. P455,850

PROBLEM 21
On January 1, 2010, MELON CORP. loaned P3,000,000 to Debtor Company. Under the loan
agreement, Debtor Company is to make an annual principal payment of P600,000 for 5 years
plus interest 1t 8%. The first principal and interest payment is due on January 1, 2011. The
required payments were made by Debtor Company for 2011 and 2012. However, during 2012,
Debtor Company began to face financial difficulties, requiring Melon Corp. to reevaluate the
collectability of the loan. On December 31, 2012, Melon Corp. determines that it will be able to
collect the remaining principal, but it is unlikely that the interest will be collected.
The following present value factors are taken from the table of present values:
Present value of 1 at 8% for:
1 period
0.92593
2 periods
0.85734
3 periods
0.79383
1. What is the present value of the expected future cash flows as of December 31, 2012?
a. P1,800,000
c. P1,669,962
b. P2,146,260
d. P1,428,894

2. What is the amount of loan impairment on December 31, 2012?

a. P371,106
c. P730,038
b. P130,038
d. P0
3. Assuming that Melon Corp.s assessment of the collectability of the loan has not
changed, what amount of interest revenue should be recognized for 2013?
a. P85,597
c. P96,000
b. P144,000
d. P133,597