Module 5 Trade and Nontrade Receivables

Question 1

Your audit of Bananarama, Inc. for the year ended December 31, 2021 revealed that the Accounts Receivable account consists of the following:

Trade accounts receivable (current). 3,680,000
Trade accounts receivable (past due). 640,000
Uncollectible accounts. 128,000
Credit balance in customers’ accounts (80,000)
Consignment shipments* (at cost). 320,000
Total. 4,688,000

Additional information:
a. Includes the ff: Sale of goods by the consignee costing P96,000 for P160,000. A 10% commission was charged by the consignee and remitted the balance to Bananarama. The cash was received In January 2022.
b. The balance of the allowance for doubtful accounts before audit adjustment is a credit of P80,000. It is estimated that an allowance should be maintained to equal 5% of trade receivables, net of amount due from consignee who is bonded. The company has not yet provided for the 2021 bad debt expense.

1. Based on the above and the result of your audit, determine the adjusted balance of the accounts receivable account.

Answer 1

1. 4,464,000

Question 2

Excellence Co. received on January 1, 2020, a P400,000, non-interest bearing 4-year note from a customer, in exchange for sale of equipment with cost of P280,000 and accumulated depreciation of P20,000. The note is due in 4 equal annual installments, every December 31. Prevailing market rate is 12%.

At what amount is the note initially measured on January 1, 2020?

Answer 2

303,735

Question 3

Courageous Inc. has always used the percentage of sales method in providing for uncollectible accounts. The credit balance in the allowance for doubtful accounts was P45,000 on January 1, 2020.

a. During the current year, total sales amounted to P1,250,000. Sales returns were P15,000 and sales discounts were P20,000.
b. Credit sales are 60% of sales.
c. Interim provision for doubtful accounts is made at 3% of net credit sales.
d. Write-offs during the year was P25,000.
e. Recoveries of accounts previously written off amounted to P7,000.

Starting with year end December 31, 2020, the entity adopted a new accounting method for estimating the allowance for doubtful accounts at the amount indicated by year-end aging of receivables.

The aging of accounts receivables showed the ff. summary as of December 31, 2020:

Classification. Balance Percent collectible
0-30 days. 80,000. 97%
31-60 days. 50000. 95%
61-90 days. 35000. 80%
40,000 60% 205000
Based on the review of collectability of accounts balances in “91 days and above” category, additional accounts amounting to P10,000 are to be written off on December 31, 2020.
What amount should be the adjustment to the allowance for doubtful accounts account for provision of bad debts under aging of receivables?
a. Add 900 to allowance for doubtful accounts
b. Reduction of allowance for doubtful accounts in the amount of 20,970
c. Reduction of allowance for doubtful accounts in the amount of 24,970
d. Reduction of allowance for doubtful accounts in the amount of 14,970