UNIVERSITY OF THE CORDILLERAS

RECEIVABLES

PROBLEM NO. 1
LILIA GARCIA, Inc. grants its customers 45 days credit. The company uses the allowance method f or its uncollectible
accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount of credit
sales f or the month. At the f iscal year-end of December 31, an aging of accounts receivable schedule is prepared and the
allowance f or uncollectible accounts is adjusted accordingly.

At the end of 2020, accounts receivable were ₱2,500,000 and the allowance accounts had a credit balance of ₱212,000.
Accounts receivable activity f or 2021 was as f ollows:
Credit sales ₱ 7,600,000
Write-of f s 164,000
Collections ?

The company’s controller prepared the f ollowing aging summary of year-end accounts receivable:
Age Group Amount Percent Uncollectible

0 - 60 days ₱ 1,650,000 2%
61 - 90 days 440,000 10%
91 - 120 days 100,000 30%
Over 120 days 256,000 40%
Total ₱ 2,446,000

Based on the preceding information, determine the following:

1. Allowance f or uncollectible accounts bef ore year-end adjustment
a. ₱200,000 c. ₱212,000
b. ₱209,400 d. ₱152,000
2. Required balance in the allowance f or uncollectible accounts at December 31, 2021
a. ₱200,000 c. ₱209,400
b. ₱152,000 d. ₱212,000
3. Correct bad debt expense f or 2021
a. ₱152,000 c. ₱9,400
b. ₱142,600 d. ₱161,400

4. Net realizable value of accounts receivable at December 31, 2021

a. ₱2,246,000 c. ₱2,446,000
b. ₱2,236,600 d. ₱2,284,600
5. Collections f rom customers during 2021
a. ₱2,664,000 c. ₱9,882,000
b. ₱9,936,000 d. ₱7,490,000

PROBLEM NO. 2
(Computation of Percentage of Bad debts expense)
Use the following data for the next nine questions:
Since it started its operations in 2017, Valdez Co. carried no allowance f or doubtf ul accounts. Uncollectible receivables
were expensed as written of f and recoveries were credited to income as collected. On March 1, 2021 (af ter the f inancial
statements were issued), management recognized that Valdez’s accounting policy with respect to doubtf ul accounts was
not correct, and determined that an allowance f or doubtf ul accounts was necessary.

Data f or f ive years f ollow:

Accounts
Credit Sales written off Recoveries
2017 2,100,000 20,000 15,000
2018 1,850,000 40,000 20,000
2019 2,050,000 130,000 5,000
2020 2,000,000 22,000 20,000
2021 2,000,000 113,000 40,000

The year-end balances of accounts Receivable are as f ollows:

December 31, 2020 1,000,000

REO CPA REVIEW PHILIPPINES

www.realexcellenceonline.com.ph REAL EXCELLENCE ONLINE CPA REVIEW
December 31, 2021 1,200,000

Questions:
Based on the above data, answer the f ollowing:
Case No. 1: Bad debts are provided f or as a percentage of credit sales. The historical bad debt loss percentage is to be
computed based on all available years up to a maximum of f ive years.
1. The percentage to be used to compute the allowance f or bad debts on December 31, 2021 is
a. 2.50% c. 3.65%
b. 1.90% d. 2.25%
2. How much is the doubtf ul accounts expense f or 2021?
a. 50,000 c. 45,000
b. 38,000 d. 73,000
3. Assuming the Allowance f or Doubtful accounts on January 1, 2021 is ₱400,000, how much is the allowance f or doubtful
accounts December 31, 2021?
a. 372,000 c. 400,000
b. 365,000 d. 377,000
Case No. 2: Bad debts are provided f or as a percentage of credit sales. The company’s contracts are generally f or two
years.
4. The percentage to be used to compute the allowance f or bad debts on December 31, 2021 is
a. 2.50% c. 3.65%
b. 1.90% d. 2.25%
5. How much is the doubtf ul accounts expense f or 2021?
a. 50,000 c. 45,000
b. 38,000 d. 73,000
6. How much is the allowance f or doubtf ul accounts December 31, 2021?
a. 25,000 c. 27,000
b. 19,000 d. 73,000
Case No. 3: Assume that a policy was established to maintain an allowance f or doubtful accounts based on historical bad
debt loss percentage applied to year-end accounts receivable. The historical bad debt loss percentage is to be recomputed
each year based on all available past years up to a maximum of f ive years.
7. The percentage to be used to compute the allowance f or bad debts on December 31, 2021 is
a. 2.50% c. 3.65%
b. 1.90% d. 2.25%
8. How much is the doubtf ul accounts expense f or 2021?
a. 50,000 c. 81,000
b. 38,000 d. 73,000
9. How much is the allowance f or doubtf ul accounts December 31, 2021?
a. 25,000 c. 27,000
b. 19,000 d. 73,000

PROBLEM NO. 8
LUKE AUTO PARTS sells new parts to auto dealers. Company policy requires that a prenumbered shipping document be
issued f or each sale. At the time of pick-up or shipment, the shipping clerk writes the date on the shipping document. The
last shipment made in the year ended December 31, 2021, was recorded on document 3167. Shipments are billed in the
order that the billing clerk receives the shipping documents.

For late December 31, 2021 and early January 2022, Shipping Documents are billed on sales invoices as f ollows:

Shipping Sales
Document No. Invoice No.
3163 5332
3164 5326
3165 5327
3166 5330
3167 5331
3168 5328
3169 5329
3170 5333
3171 5335
3172 5334

The December 2021 and January 2022 sales journal have the f ollowing inf ormation included:

SALES JOURNAL-DECEMBER 2021

Day of Sales Amount
Month Invoice No. of Sale
30 5326 ₱ 72,611
30 5329 191,430
31 5327 41,983
31 5328 62,022
31 5330 4,774

SALES JOURNAL- 2022

Day of Sales Amount

Month Invoice No. of Sale
1 5332 ₱ 264,131
1 5331 10,639
1 5333 85, 206
2 5335 125,050
2 5334 64,658

1. What is the net overstatement (understatement) of LUKE’s sale f or the year ended December 31, 2021?
A. ₱21,318 B.₱253,452 C.(₱253,452) D.( ₱ 21,318 )

2. What adjusting entry is necessary to correct LUKE’s f inancial statements f or the year ended December 31, 2021?
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

PROBLEM NO. 9
Your sales cut-of f examination revealed the f ollowing inf ormation:
1. The December 31 inventory was determined based on a physical count conducted on December 29. Based on
such count, inventory was valued at ₱360,000.
2. The 2020 ledger shows a Sales balance of ₱4,000,000
3. The company’s gross profit rate is 20%.
4. All customers are within a three-day delivery area of the company plant.
5. The sales register f or December, 2020 and January 2021, showed the f ollowing details:

December Register
Invoice Number FOB Terms Date Shipped Amount
100 Destination 12/28 ₱10,000
101 Shipping point 12/30 12,000
102 Destination 12/27 9,000
103 Shipping point 12/29 17,500
104 Destination 12/30 7,200
105 Shipping point 12/28 18,000
January Register
Invoice Number FOB Terms Date Shipped Amount
106 Destination 12/31 ₱ 24,000
107 Shipping Point 12/29 15,000
108 Destination 01/02 22,500
109 Destination 12/27 30,000
110 Shipping Point 12/31 5,000
Required:
1. What is the adjusted sale in 2020?
2. What is the adjusted inventory balance at December 31, 2020?

PROBLEM NO. 10
You were able to gather the f ollowing inf ormation in connection with your audit of JOSIAH Company f or the year 2021
relating to the company’s notes receivable:
• On January 1, 2021, JOSIAH Co. sold a delivery equipment with a cost of ₱3,200,000 and accumulated depreciation
of ₱1,120,000. In consideration f or the sale, JOSIAH received cash of ₱160,000 and a noninterest-bearing note
receivable of ₱1,600,000 due on December 31, 2023. The prevailing rate of interest f or this type of note is 10%.
• On January 1, 2021, JOSIAH Co. sold a machinery with a cost of ₱4,000,000 and accumulated depreciation of
₱1,500,000. In consideration f or the sale, JOSIAH Co. received cash of ₱160,000 and a noninterest-bearing note
receivable of ₱1,800,000 due in 4 equal annual instalments starting December 31, 2021. The prevailing rate of
interest of this type of note is 10%.

QUESTION:
Based on the above data, answer the f ollowing: (Round of f present value f actors to f our decimal places)
1. The gain or loss on sale of delivery equipment in 2021 is
a. Nil c. 1,837,920
b. 717,920 d. 1,120,000
2. The interest income to be recognized in 2021 is
a. 340,000 c. 244,134
b. 262,849 d. 709,665
3. The carrying amount of the note as of December 31, 2021 is
a. 2,441,339 c. 3,254,517
b. 2,339,652 d. 1,442,701
4. The current portion of the note on December 31, 2021 is
a. 244,134 c. 1,826,421
b. 338,095 d. 1,400,384
5. The non-current portion of the note on December 31, 2021 is
a. 2,103,244 c. 244,134
b. 1,830,552 d. 363,617

PROBLEM NO. 11
You were able to gather the f ollowing inf ormation in connection with your audit of JOSIAH Company f or the year 2021
relating to the company’s notes receivable:
• On January 1, 2021, JOSIAH Co. sold delivery equipment costing ₱4,000,000 with accumulated depreciation of
₱2,200,000 in exchange f or a 3-year, ₱2,400,000 noninterest-bearing note receivable due as f ollows:

Expected date of collection Amount of cash f low

December 31, 2021 1,200,000
December 31, 2022 800,000
December 31, 2023 400,000
Total 2,400,000

The prevailing rate of interest f or this type of note is 12%.

• On January 1, 2021, JOSIAH Co. sold of fice equipment with a cost of ₱3,000,000 and accumulated depreciation of
₱1,200,000 in exchange f or a 3-year, 3%, ₱2,000,000 note receivable. Principal is due on December 31, 2023 but
interest is due annually every December 31. The prevailing interest rate f or this type of note is 12%.

• On April 1, 2021, JOSIAH Co. sold machinery with a cost of ₱2,000,000 and accumulated depreciation of
₱1,100,000 in exchange f or a 3-year, ₱1,200,000 interest-bearing note receivable due in equal annual payment
starting April 1, 2022. The note bears interest of 10% and is due every April 1.

QUESTION:
Determine the f ollowing: (Round of f present value f actors to f our decimal places)
1. The gain (or loss) on sale of delivery equipment in 2021

2. How much is the interest income f or 2021?

3. How much is the carrying amount of the note on December 31, 2021?

4. How much is the current portion of the note on December 31, 2021?

5. How much is the noncurrent portion of the note on December 31, 2021?

PROBLEM NO. 12 (LOAN RECEIVABLE)

Chris Garcia Bank granted a loan to a borrower on January 1, 2021. The interest on the loan is 10% payable annually
starting December 31, 2021. The loan matures in three years on December 31, 2023. Data related to the loan are:
Principal amount ₱4,000,000
Origination f ees charged against the borrower 342,100
Direct origination cost incurred 150,020

Questions:
Based on the above data, answer the f ollowing: (Round of f present value f actors to f our decimal places)
1. The carrying amount of the loan as of January 1, 2021 is
a. ₱3,807,920. c. ₱4,192,080.
b. ₱4,000,000. d. ₱4,492,120.
2. The ef f ective interest rate of the loan is
a. 9%. c. 12%.
b. 10%. d. 12.19%.
3. The interest income to be recognized in 2021 is
a. ₱400,000. c. ₱464,185.
b. ₱456,950. d. ₱404,291.
4. The carrying amount of the loan as of December 31, 2021 is
a. ₱3,864,870. c. ₱4,000,000
b. ₱3,872,105 d. ₱4,496,411
5. The current portion of the loan as of December 31, 2021 is
a. Nil c. ₱63,784
b. ₱56,950. d. ₱400,000.

PROBLEM NO. 13 Impairment of Receivable, One-time Collection of Principal

On January 1, 2018, Marcy Co. received a ₱16,000,000 note receivable f rom Lynn Inc. The principal is due on December
31, 2022 while interest at 10% is due annually at the end of each year f or f ive (5) years.

Lynn Inc. made the required payments during 2018 and 2019. However, during 2020, Lynn Inc. began to experience
f inancial dif f iculties, requiring Marcy Co. to reassess the collectability of the note. Interest was accrued in 2020. On
December 31, 2020, Marcy Co. determined that the note has been impaired and projects f uture cash f lows as f ollows:
Amount
Expected date of collection of cash flow
December 31, 2021 1,600,000
December 31, 2022 3,200,000
December 31, 2023 4,800,000

Questions:
Based on the above data, answer the f ollowing:
Case No. 1
1. How much is the loan impairment in 2020?
a. 9,894,720 c. 7,705,280
b. 8,294,720 d. 2,189,440
2. How much is the interest income f or 2021?
a. Nil c. 687,581
b. 770,528 d. 1,600,000
3. How much is the carrying amount of the note on December 31, 2021?
a. 4,800,000 c. 4,363,389
b. 6,875,808 d. 8,000,000
Case No. 2- Assume instead that On January 1, 2018, the loan receivable was issued at ₱14,846,080 to yield 12% and
the loan was impaired on December 31, 2020 af ter the receipt of interest on that date.
4. How much is the loan impairment in 2020?
a. 7,525,643 c. 8,062,314
b. 7,834,603 d. 9,434,603
Case No. 3- Go back to the original data and assume that the equal principal are due annually including the interest 10%
on the outstanding balance starting December 31, 2018. Also, assume that the interest was not accrued and the projected
cash f lows are:
Amount
Expected date of collection of cash flow
December 31, 2021 1,000,000
December 31, 2022 2,000,000
December 31, 2023 4,800,000
5. How much is the impairment loss?

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