Problem A

The following selected transactions occurred during the year ended December 31, 2018:
Gross sales (cash and credit) 750,000
Collections from credit customers, net 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 12,600
Recoveries on accounts receivable written off in
prior years (not included in cash received stated above) 5,421

At 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.Required: (5 pts each)
1. What is the company’s net credit sales in 2018?
2. The bad debts expense for 2018 is ________________.
Problem B

The following postings summarizes the transactions affecting the accounts receivable of MARY
Company for 2018.

Accounts Receivable

Debit Credit
Jan. 1 balance after deducting Collection from customers
Credit balance of P3,000 P53,000 including overpayment of
Charge sales 625,000 P5,000 P620,000
Charge for goods out on Write offs 3,500
Consignment 5,000 Merchandise returns 2,500
Shareholders subscription 30,000 Allowance to customers for
Accounts written off but shipping damages 1,500
Recovered 1,000 Collection on carrier claims 1,000
Cash paid on customer for Collection on subscription 15,000
Jan. 1 credit balance 2,500
Deposit on contract 15,000
Claim against common carrier
for shipping damages 1,500
IOUs from employees 500
Cash advance to affiliate 10,000
Advance to supplier 5,000

Required:
1. Compute the adjusted balance of Trade Accounts Receivable as of Dec. 31, 2018.
2. Net Realizable value of Trade Accounts Receivable as of Dec. 31, 2018.
Problem C

You are auditing the Accounts Receivable and related Allowance for Bad Debts accounts of BMW Co.
The following data are available:

General Ledger:

Accounts Receivable, Dec. 31, 2018 – P202,000

Allowance for Bad Debts:

Jan. 1, 2018 – Balance P 5,000
July 31 – Write-offs 4,000
Dec. 31 – Provision 12,000

Summary of Aging Schedule:

The summary of the subsidiary ledger as of December 31, 2018, was totaled as follows:
Debit Balances:
Under one month P 90,000
One to six months 92,000
Over six months 28,000
Credit Balances:
Rosebud P2,000 - OK additional billing in January 2019
Tower 3,500 - Should have been credited to Inferno Co.*
Castaways 4,500 - Advance on a sales contract
* Account is in one to six months classification.

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 Debt Requirements:
It is agreed that 1 percent is adequate for accounts under one month.
Accounts one to six months are expected to require a reserve of 2%.
Accounts over six months are analyzed as follows:
Definitely bad P 2,000
Doubtful (estimated 50% collectible) 6,000
Apparently good, but slow (estimated 90% collectible) 20,000

Required:
1. Compute the adjusted balance of Accounts Receivable
2. Bad Debts Expense for 2018
3. Allowance for Bad Debts at Dec. 31, 2018.
Problem D
NASH Company sells office equipment and supplies to many organizations in the city and surrounding
area on contract terms of 2/10, n/30. In the past, over 75% of the credit customers have taken
advantage of the discount by paying within 10 days of the invoice date.

The number of customers taking the full 30 days to pay has increased within the last year. Current
indications are that less than 60% of the customers are now taking the discount. Bad debts as a
percentage of gross credit sales have risen from the 1.5% provided in past years to about 4% in the
current year.

The controller has responded to a request for more information on the deterioration in collection of
accounts receivable with the following report.

NASH Company
Finance Committee Report – Accounts Receivable Collections
May 31, 2019

The fact that some credit accounts will prove uncollectible is normal. Annual bad debt write-offs have
been 1.5% of gross credit sales over the past five years. During the last fiscal year, this percentage
increased to slightly less than 4%. The current Accounts Receivable balance is P1,600,000. The
conditions of this balance in terms of age and probability of collection is as follows:

Proportion of Total Age Categories Probability of Collection

68% not yet due 99%
 15% less than 30 days past due 96 ½%
8% 30 to 60 days past due 95%
5% 61 to 120 days past due 91%
2 ½% 121 to 180 days past due 70%
1 ½% over 180 days past due 20%

The Allowance for Doubtful Accounts has a credit balance of P43,300 on June 1, 2018. NASH
Company has provided for a monthly bad debts expense accrual during the current fiscal year based on
the assumption that 4% of gross credit sales will be uncollectible. Total gross credit sales for 2018-
2019 fiscal year amounted to P4,000,000. Write-offs of bad accounts during the year totaled P145,000.

Required:
1. Compute the Allowance for Bad Debts on May 31, 2019.
2. How much is the bad debts expense during the fiscal year?
Problem E
The following long-term receivables were reported in the December 31, 2018, statement of financial
position of NGO Corporation:

Note receivable from sale of plant 3,000,000

Note receivable from officer 800,000

The following transactions during 2019 and other information relate to the company’s long-term
receivables:

a. The note receivable from sale of plant bears interest at 12% per annum. The note is payable in 3
annual installments of P1,000,000 plus interest on the unpaid balance every April 1. The initial
principal an interest payment was made on April 1, 2019.

b. The note receivable from officer is dated December 31, 2018, earns interest at 10% per annum, and
is due on December 31, 2021. The 2019 interest was received on December 31, 2019.

c. NGO sold a piece of equipment to BAN, Inc. on April 1, 2019, in exchange for a P400,000 non-
interest bearing note due on April 1, 2021. 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, 2019,
was 12%. The present value factor of 1 for two periods at 12% is 0.797.

d. A tract of land was sold by NGO to ORA, Inc. on July 1, 2019, for P2,000,000 under an installment
sale contract. ORA signed a 4-year 11% note for P1,400,000 on July 1, 2019, 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, 2020, 2021, 2022, and 2023. The land had an established cash price of
P2,000,000, and its cost to NGO was P1,500,000. The collection of the installments on this note is
reasonably assured.

Required:
1. Compute the amount to be reported as non-current receivables on the statement of financial position
at December 31, 2019.

2. Compute the current portion of notes receivable on December 31, 2019.

3. Compute the amount of accrued interest income on December 31, 2019.