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REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE

ACCOUNTS RECEIVABLE

1. Mangatarem Company had the following information relating to its accounts receivable
for the year 2005:
Accounts receivable – January 1 P12,000,000
Credit sales 20,000,000
Collection from customers, excluding the recovery of accounts written off 17,000,000
Accounts written off as worthless 300,000
Sales returns 1,000,000
Recovery of accounts written off 100,000
Estimated future sales returns on December 31 400,000
Estimated uncollectible accounts on December 31, per aging 1,000,000
Mangatarem should report the December 31, 2005 accounts receivable, before
allowance for sales returns and uncollectible accounts, at
a. P13,700,000 c. P13,800,000
b. P12,300,000 d. P13,130,000

2. Binmaley Company operates in an industry that has a high rate of bad debts. On
December 31, 2005, before any year-end adjustments, the accounts receivable
balance was P20,000,000 and its allowance for doubtful accounts balance was
P1,500,000. The year-end balance reported for the allowance for doubtful accounts is
based on the following schedule:
Time Outstanding Accounts Receivable Percent Uncollectible
Under 30 days P10,000,000 5%
31 - 180 days 5,000,000 10%
181 - 360 days 3,000,000 30%
More than one year 2,000,000 100%
The accounts which have been outstanding for more than one year and 100%
uncollectible would be written off immediately. What should be the doubtful accounts
expense for the year ended December 31, 2005?
a. P1,900,000 c. P3,900,000
b. P2,400,000 d. P2,000,000

3. Calasiao Company determined that the net realizable value of its accounts receivable
at December 31, 2005 based on an aging of the receivables, was P15,000,000.
Additional information is as follows:
Allowance for uncollectible accounts – 1/1/2005 P1,500,000
Uncollectible accounts written off during 2005 1,000,000
Uncollectible accounts recovered during 2005 200,000
Accounts receivable – December 31, 2005 17,000,000
For 2005, what should be Calasiao’s uncollectible accounts expense?
a. P2,000,000 c. P1,800,000
b. P1,500,000 d. P1,300,000
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4. Bayambang Company sells to wholesalers on terms of 5/15, net 30. Bayambang has
no cash sale but 50% of customers take advantage of the discount. Bayambang uses
the gross method of recording sales. An analysis of trade receivables at December 31,
2005 revealed the following:
Age Amount _ Collectible
0 - 15 days 15,000,000 100%
16 - 30 days 3,000,000 95%
Over 30 days 2,000,000 1,500,000
On the December 31, 2005 balance sheet, what amount should be reported as
allowance for discounts?
a. P750,000 c. P375,000
b. P650,000 d. P500,000

5. The following accounts were abstracted from Villasis Company’s unadjusted trial
balance at December 31, 2005:
Debit Credit
Accounts receivable P20,000,000
Allowance for doubtful accounts 300,000
Net credit sales P70,000,000
VilIasis estimates that 5% of the gross accounts receivable will become uncollectible.
The doubtful accounts expense for the year ended December 31, 2005 should be
a. P1,000,000 c. P1,300,000
b. P3,500,000 d. P 700,000

6. All of Urdaneta Company’s sales are on a credit basis. The following information is
available for 2005:
Allowance for doubtful accounts, 1/1/2005 P1,000,000
Sales 22,000,000
Sales returns 2,000,000
Accounts written off as uncollectible 600,000
Recovery of accounts written off 200,000
Urdaneta provides for doubtful accounts expense at the rate of 10% of net sales. At
December 31, 2005, the allowance for doubtful accounts balance should be
a. P3,200,000 c. P2,800,000
b. P2,600,000 d. P2,000,000

7. On January 1, 2005, the balance of accounts receivable of Manaoag Company was

P5,000,000 and the allowance for doubtful accounts on same date was P800,000. The
following data were gathered:
Credit sales Writeoffs Recoveries
2002 P10,000,000 P250,000 P20,000
2003 14,000,000 400,000 30,000
2004 16,000,000 650,000 50,000
2005 25,000,000 1,100,000 145,000
Doubtful accounts are provided for as percentage of credit sales. The accountant
calculates the percentage annually by using the experience of the three years prior to
the current year. How much should be reported as 2005 doubtful accounts expense?
a. P750,000 c. P330,000
b. P812,500 d. P875,000
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8. The Natividad Publishing Company follows the procedure of debiting Bad Debts
Expense for 2% of all new sales. Sales for 4 consecutive years and year-ended
allowance account balances were as follows:
Allowance for Bad
Debts End-of-Year
Year Sales Credit Balance
2002 P2,100,000 P21,500
2003 1,975,000 35,500
2004 2,500,000 50,000
2005 2,350,000 66,000
Compute the amount of accounts written off for the year 2005.
a. P31,000 b. P25,500 c. P35,500 d. P5,500

9. Anda Corporation provided for uncollectible accounts receivable under the allowance
method since the start of its operations to December 31, 2005. Provisions were made
monthly at 2 percent 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.
Anda's usual credit terms are net 30 days.

The credit balance in the allowance for doubtful accounts was P260,000 at January 1,
2005. During 2005, credit sales totaled P18,000,000, interim provisions for doubtful
accounts were made at 2 percent of credit sales, P180,000 of bad debts were written
off, and recoveries of accounts previously written off amounted to P30,000. Anda
installed a computer system in November 2005 and an aging of accounts receivable
was prepared for the first time as of December 31, 2005. A summary of the aging is as
follows:
Balance in Estimated %
Classifications by Month of Sale Each Category Uncollectible
November-December 2005 P2,280,000 2%
July-October 2005 1,200,000 15%
January-June 2005 800,000 25%
Prior to January 1, 2005 260,000 80%

Based on the review of collectibility of the account balances in the "prior to January 1,
2005" aging category, additional receivables totaling P120,000 were written off as of
December 31, 2005. Effective with the year ended December 31, 2005, Anda 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.
QUESTIONS:

1. How much is the adjusted balance of the allowance for doubtful accounts as of
December 31, 2005?
a. P537,600 b. P350,000 c. P633,600 d. P753,600

2. How much is the doubtful accounts for the year 2005?

a. P427,600 b. P577,600 c. P547,600 d. P457,600

3. The recorded allowance for doubtful accounts should be increased by

a. P283,600 b. P187,600 c. P67,600 d. P0

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