PROBLEMS

Problem 5-1 (IAA)

Marvelous Company reported the following information before adjustments at year-end:

Accounts receivable 500,000

Notes receivable 200,000
Allowance for doubtful accounts. 20,000
Sales 5,000,000
Sales return and allowances 30,000
Sales discount 20,000

Required:
Prepare adjusting entry to provide for doubtful accounts under each of the following
independent assumptions:

a. Past experience indicates that 75% of all sales are credit sales and that an average 2% of
credit sales may prove uncollectible.
b. One percent of gross sales may prove uncollectible.
c. An analysis of the aging of trade accounts receivable indicates that accounts receivable in the
amount of P80,000 may prove uncollectible.
d. The policy is to maintain an allowance for doubtful accounts equal to 10% of the outstanding
accounts receivable.
Problem 5-2 (IAA)

At the beginning of current year, Template Company showed the following account balances:

Accounts receivable 1,000,000

Allowance for doubtful accounts 40,00/

The following summary transactions occurred during the current year:

1. Sales on account, 2/30, n/30 7,000,000

2. Collections from customers within the discount period 2,450,000

3. Collections from customers beyond the discount period 3,900,000

4. Accounts receivable written off as worthless 30,000

5. Recovery of accounts previously written off not included in the above collections 10,000

6. Credit memo for sales return 70,000

Required:

a. Prepare journal entries pertaining to accounts receivable.

b. Prepare the adjustment for doubtful accounts at year-end if the entity uses the percentage of
accounts receivable method consistently.
c. Determine the net realizable value of accounts receivable at year-end,
Problem 5-3 (IAA)

At the beginning of current year, Jocose Company reported the following:

Accounts receivable 2,000,000

Allowance for doubtful accounts 100,000

Additional information for the current year:

1. Cash sales of the entity amount to P800,000 and represent 10% of gross sales.

2. Ninety percent of the credit sales customers do not take advantage of the 5/10, n/30 terms.

3. Customers who did not take advantage of the discount paid P5,940,000.

4. It is expected that cash discounts of P10,000 will be taken on accounts receivable

outstanding at the end of the year.

5. Sales returns amounted to P80,000. All returns were from charge sales.

6. During the year accounts totaling P60,000 were written off as uncollectible.

Recoveries during the year amounted to P10,000. This amount is not included in the collections.

7. The allowance for doubtful accounts is adjusted so that it represents a certain percentage of
the outstanding accounts receivable at year-end.

Required:

a. Prepare journal entries to record the transactions.

b. Determine the net realizable value of accounts receivable at year-end.

Problem 5-4 (IAA)

At the beginning of current year, Relentless Company reported the following balances:

Accounts receivable 600,000

Allowance for doubtful accounts 25,000

The following transactions took place in the current year.

1. Sales - cash and credit 3,070,000

2. Cash received from credit customers 2,455,000
3. Cash received from credit customers who took advantage of the 3/10, n/30 credit terms
(included in No. 2) 1,455,000
4. Accounts receivable written off as worthless 20,000
5. Cash received from cash customers 470,000
6. Credit memo for sales return and
allowances issued to credit customers 55,000
7. Cash refunds to cash customers 10,000
8. Recoveries of accounts written off, not included in above collections 5,000

Required:
a. Prepare journal entries to record the transactions.
b. Prepare the adjustment for doubtful accounts if the entity provides for doubtful accounts equal
to 2% of net credit sales.
c. Determine the net realizable value of accounts receivable at year-end?
Problem 5-5 (IAA)

At the beginning of current year, Nostalgia Company reported the following information:

Accounts receivable 1,500,000

Allowance for doubtful accounts 60,000

The following summary transactions affecting accounts receivable occurred during the current
year:

Sales all on account 2/10, 1/15, n/60 7,935,000

Cash received from customers 8,000,000
The cash received from customers included the following:
Customers paying within the 10-day discount period 4,410,000
Customers paying within the 15-day discount period 2,475,000
Recovery of accounts written off 15,000
Customers paying beyond the discount period ?
Accounts receivable written off as worthless 55,000
Credit memoranda for sales return 30,000

Required:

a. Prepare journal entries to record the transactions.

b. Prepare the adjustment for doubtful accounts if the entity follows the percentage of accounts
receivable consistently.
c. Determine the net realizable value of accounts receivable at year-end?
Problem 5-6 (PHILCPA Adapted)

At the beginning of current year, Rampant Company reported that the allowance for doubtful
accounts has a credit balance of P170,000.

Bad debt recoveries and bad debts written off in the current year were P30,000 and P235,000,
respectively.

The allowance account had been previously calculated as a percentage of net sales.

It was decided however to provide for doubtful accounts commencing with the year-end
adjusting entry on the basis of an analysis of the age of the accounts receivable.

The following schedule was prepared.

Percent uncollectible

Not yet due 1,700,000. NIL

1-30 days past due 1,200,000 5
31-60 days past due 100,000 25
61-90 days past due 150,000 50
Over 90 days past due 120,000 100
Additional accounts to be written off 30,000

Required:

1. What amount should be reported as required allowance for doubtful accounts at year-end?
2. How much would be the doubtful accounts expense for the current year?
3. What is the adjusting entry for the doubtful accounts
expense for the current year?
4. What amount should be reported as net realizable value of accounts receivable at year-end?
Problem 5-7 (AICPA Adapted)
From inception of operations, Savvy Company carried no allowance for doubtful accounts.

Uncollectible receivables were expensed as written off and recoveries were credited to income
as collected. During the current year, management recognized that the accounting policy with
respect to doubtful accounts was not correct, and determined that an allowance for doubtful
accounts was necessary.

A policy was established to maintain an allowance for 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 five years.

Accounts receivable balances were P1,250,000 and P2,000,000 on January 1, 2021 and
December 31, 2021, respectively.

Required:
1. Prepare journal entry to set up the allowance for doubtful accounts on January 1, 2021.
2. Compute the doubtful accounts expense for the current year.
3. Determine the net realizable value of accounts receivable on December 31, 2021.
Problem 5-8 (AICPA Adapted)

From inception of operations, Paramount Company provided for uncollectible accounts

receivable under the allowance method using the percentage of sales method.

The balance in the allowance for doubtful accounts was P500,000 on January 1, 2021. During
the current year, credit sales totaled P20,000,000, interim provisions for doubtful accounts were
made at 2% of credit sales, P200,000 of bad debts were written off, and recoveries of accounts
previously written off amounted to 50,000.

The aging of accounts receivable showed the following summary:

Based on the review of collectibility of the account balances in "prior to January 1, 2021" aging
category, additional accounts totaling P100,000 are to be written off on December 31, 2021.

Effective with the year ended December 31, 2021, the entity adopted a new accounting method
for estimating the allowance for doubtful accounts at the amount indicated by the year-end
aging of accounts receivable.

Required:

1. Determine the allowance for doubtful accounts before adjustment.

2. Determine the required allowance for doubtful accounts on December 31, 2021.
3. Prepare adjusting entry to record the doubtful account expense for 2021.
Problem 5-9 (AICPA Adapted)

Sigma Company began operations on January 1, 2020. On December 31, 2020 and 2021, the
entity provided for uncollectible accounts expense based on 1% of annual credit sales.

On January 1, 2021, the entity changed the method of determining the allowance for
uncollectible accounts by applying certain percentages to the aging of accounts receivable

In addition, the entity wrote off all accounts receivable that were over 1 year old.

The following additional information related to the years ended December 31, 2021 and 2020:

Required:

1. Determine the allowance for doubtful accounts on January 1,2021.

2. Determine the allowance for doubtful accounts on Decembe
r 3. Determine the required allowance on December 31, 2021 31, 2021 before adjustment.
4. Prepare the adjustment to record the doubtful accounts expense for the current year.