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BA 114.

1 – RECEIVABLES
EXERCISES

1. At the close of its first year of operations, December 31, 2014, Linn Company had accounts
receivable of P490,000, after deducting the related allowance for doubtful accounts. During
2014, the company had charges to bad debt expense of P90,000 and wrote off, as
uncollectible, accounts receivable of P40,000. What should the company report on its
balance sheet at December 31, 2014, as accounts receivable before the allowance for
doubtful accounts?

2. Before year-end adjusting entries, Bass Company's account balances at December 31, 2014,
for accounts receivable and the related allowance for uncollectible accounts were P700,000
and P45,000, respectively. An aging of accounts receivable indicated that P62,500 of the
December 31 receivables are expected to be uncollectible. The net realizable value of
accounts receivable after adjustment is ________________.

3. The following information is available for Reagan Company:

Allowance for doubtful accounts at December 31, 2013 P 8,000


Credit sales during 2014 400,000
Accounts receivable deemed worthless and written off during 2014 9,000

As a result of a review and aging of accounts receivable in early January 2015, however, it
has been determined that an allowance for doubtful accounts of P9,500 is needed at
December 31, 2014. What amount should Reagan record as "bad debt expense" for the year
ended December 31, 2014?

Use the following information for questions 4 and 5.

A trial balance before adjustments included the following:


Debit Credit
Sales P425,000
Sales returns and allowance P14,000
Accounts receivable 53,000
Allowance for doubtful accounts 760

4. If the estimate of uncollectibles is 1% of net sales, the amount of the adjustment is


______________.

5. If the estimate of uncollectibles is 10% of gross account receivables, the amount of the
adjustment is ______________.

6. Marley Company received a seven-year zero-interest-bearing note on February 22, 2014, in


exchange for property it sold to O’Rear Company. There was no established exchange price
for this property and the note has no ready market. The prevailing rate of interest for a note
of this type was 6% on February 22, 2014, 6.5% on December 31, 2014, 6.7% on February
22, 2015, and 7% on December 31, 2015. What interest rate should be used to calculate the

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interest revenue from this transaction for the years ended December 31, 2014 and 2015,
respectively?

7. On December 31, 2014, Eller Corporation sold for P50,000 an old machine having an original
cost of P90,000 and a book value of P40,000. The terms of the sale were as follows:

P10,000 down payment


P20,000 payable on December 31 each of the next two years

The agreement of sale made no mention of interest; however, 9% would be a fair rate for
this type of transaction. What should be the amount of the notes receivable net of the
unamortized discount on December 31, 2014 rounded to the nearest peso?

Use the following information for questions 8 and 9.

Jason Co. assigned P1,000,000 of accounts receivable to Easy Finance Co. as security for a
loan of P840,000. Easy charged a 2% commission on the amount of the loan; the interest
rate on the note was 10%. During the first month, Jason collected P220,000 on assigned
accounts after deducting P760 of discounts. Jason accepted returns worth P2,700 and wrote
off assigned accounts totaling P7,400.

8. The amount of cash Jason received from Easy at the time of the transfer was
______________.

9. Entries during the first month would include a


a. debit to Cash of P220,760.
b. debit to Bad Debt Expense of P7,400.
c. debit to Allowance for Doubtful Accounts of P7,400.
d. debit to Accounts Receivable of P230,860.

10. On the December 31, 2014 balance sheet of Zebb Co., the current receivables consisted of
the following:
Trade accounts receivable P 85,000
Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit (November 2014) 3,000
Selling price of unsold goods sent by Zebb on consignment
at 130% of cost (not included in Zebb's ending inventory) 26,000
Security deposit on lease of warehouse used for storing
some inventories 30,000
Total P142,000

At December 31, 2014, the correct total of Zebb's current net receivables was
______________.

11. Lye Co. prepared an aging of its accounts receivable at December 31, 2014 and determined
that the net realizable value of the receivables was P290,000. Additional information is
available as follows:

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Allowance for uncollectible accounts at 1/1/14—credit balance P 29,000
Accounts written off as uncollectible during 2014 23,000
Accounts receivable at 12/31/14 320,000
Uncollectible accounts recovered during 2014 5,000

For the year ended December 31, 2014, Lye's uncollectible accounts expense would be
______________.

12. Linn Co.'s allowance for uncollectible accounts was P184,000 at the end of 2014 and
P180,000 at the end of 2003. For the year ended December 31, 2014, Linn reported bad
debt expense of P26,000 in its income statement. What amount did Linn debit to the
appropriate account in 2014 to write off actual bad debts?

13. The following accounts were abstracted from Vann Co.'s unadjusted trial balance at
December 31, 2014:
Debit Credit
Accounts receivable P700,000
Allowance for uncollectible accounts 8,000
Net credit sales P3,000,000

Vann estimates that 2% of the gross accounts receivable will become uncollectible. After
adjustment at December 31, 2014, the allowance for uncollectible accounts should have a
credit balance of ______________.

14. On January 2, 2014, Poker Company sold equipment with a carrying amount of P480,000 in
exchange for a P600,000 non-interest bearing note due January 2, 2017. There was no
established exchange price for the equipment. The prevailing rate of interest for a note of
this type at January 2, 2014 was 10%. How much should Poker Company report as interest
income in its 2014 profit or loss?

15. Using the same facts above, how much should Poker Company report as gain or loss on sale
of equipment in its 2014 profit or loss?

16. Using the same facts above, what is the carrying value of the note receivable as of
December 31, 2014 statement of financial position?

17. Brothers Inc. accepted from a customer a P400,000, 90-day, 12% interest-bearing note
dated August 31, 2014. On September 30, 2014, Brothers discounted the note at Star Bank
at 15%. However, the proceeds were not received until October 1, 2014.

If the discounting is treated as a sale, what amount of receivable should the company report
in its September 30, 2014 statement of financial position?

18. Using the same facts above, what total amount of receivable due from the maker of the
note should Brothers Inc. report in its September 30, 2014 statement of financial position if
the discounting is treated as a borrowing?

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19. Richards Company uses the allowance method of accounting for bad debts. The following
summary schedule was prepared from an aging of accounts receivable outstanding on
December 31 of the current year.

No. of Days Probability


Outstanding Amount of Collection
0-30 days P500,000 .98
31-60 days 200,000 .90
Over 60 days 100,000 .80

The following additional information is available for the current year:

Net credit sales for the year .................. P4,000,000


Allowance for Doubtful Accounts:
Balance, January 1 ............................. 45,000 Cr
Balance before adjustment, December 31 ......... 2,000 Dr

If Richards bases its estimate of bad debts on the aging of accounts receivable, doubtful
accounts expense for the current year ending December 31 is ______________.

20. During its second year of operations, Shark Company found itself in financial difficulties.
Shark decided to use its accounts receivable as a means of obtaining cash to continue
operations. On July 1, 2014, Shark sold P 1,500,000 of accounts receivable for cash proceeds
of P 1,390,000. No bad debt allowance was associated with these accounts. On December
15, 2014, Shark assigned the remainder of its accounts receivable, P 5,000,000 as of that
date, as collateral on a P 2,500,000, 12% annual interest rate loan from Finance Company.
Shark received P 2,500,000 less a 2% finance charge. Additional information is as follows:

Allowance for bad debts (before adjustment), 12/31/2014 P 65,000(cr.)


Estimated Uncollectible, 12/31/2014 3% of AR
Accounts Receivable (not including factored and assigned
Accounts), 12/31/2014 1,000,000

None of the assigned accounts had been collected by the end of the year. Shark Company
shall recognize bad debt expense for the year at?

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