Illustration no.

1
The following information is from GUMAMELA CORP’s first year of operations:
1. Merchandised purchased P450,000
2. Ending merchandise inventory 123,000
3. Collections from customers 150,000
4. All sales are on account and goods sell at 30% above cost.

What is the accounts receivable balance at the end of the company’s first year of operations?

Solution:
Purchases P450,000
Less: Merchandise Inventory, ending 123,000
Cost of goods sold 327,000
Multiply by sales ratio x 130%
Sales 425,100
Less: Collection from customers 150,000
Accounts receivable, ending 275,100

Illustration no. 2
BANABA CO. reported the following information at the end of its first year of operations, December 31,
2014:
Bad Debt expense for 2014 P271,000
Uncollectible accounts written off during 2014 35,400
Net Realizable value of accounts receivable 895,000

What is the accounts receivable balance at December 31, 2014?

Solution:
Allowance for Bad Debts

0 Beginning balance
271,000 Bad Debt expense
Write-off 35,400

Ending balance 235,600

Accounts Receivable, December 31, 2014 1,130, 600

Allowance for Bad Debts, December 31, 2014 235,600
Net realizable value of Accounts Receivable 895,000
Illustration no. 3

SUNFLOWER COMPANY sells a variety of imported goods. By selling on credit, Sunflower cannot expect
to collect 100% of its accounts receivable. At December 31, 2013, Sunflower reported the following in its
financial statement of financial position:
Accounts Receivable P2,197,500
Less: Allowance for Bad Debts (133,500)
Accounts Receivable, net P2,064,000

During the year ended December 31, 2014, Sunflower earned sales revenue of P537,702,500 and
collected cash of P528,070,500 from customers. Assume bad debt expense for the year was 1% of sales
revenue and that Sunflower wrote off uncollectible accounts receivable totaling P5,439,500.

A. What is the accounts receivable balance at December 31, 2014?

B. What is the December 31, 2014, balance of the Allowance for Bad Debts account?

Solution:

A. Accounts Receivable

Beg. Balance 2,197,500

Sales 537,702,500 528,070,500 Collections
5,439,500 Write-off

6,390,000 Ending balance

B. Allowance for Bad Debts

133,500 Beg. Balance

5,377,025 Bad debt expense [537,702,500 x 1%]
Write-off 5,439,500

Ending balance 71,025

Illustration no. 4
The following information pertains to ACACIA, INC. for the year ended December 31, 2014:

Credit sales during 2014 P4,450,000

Collection of accounts written off in prior periods 170,000
Worthless accounts written off in 2014 191,000
Allowance for doubtful accounts, Jan. 1, 2014 155,000

Acacia, Inc., provides for doubtful accounts based on 1 ½% of credit sales.

What is the balance of the allowance for doubtful accounts at December 31. 2014?
Solution:
Allowance for Bad Debts

155,000 Beg. Balance

66,750 Bad debt expense [4,450,000 x 1 ½ %]
Write-off 191,000 170,000 Recovery

Ending balance 200,750

Illustration no. 5
The policy of ILANG-ILANG, Inc. is to debit bad debit expense for 3% of all new sales. The following are
the company’s sales and allowance for bad debts for the past four years.

Allowance for Bad

Year Sales Debts Year-End
Balance
2011 P3,000,000 P45,000
2012 P2,950,000 56,000
2013 P3,120,000 60,000
2014 P2,420,000 75,000

What are the amounts of accounts written off in 2012, 2013, and 2014?

Solution:

2012 2013 2014

Allowance balance, beginning P45,000 P56,000 P60,000
Add: Estimated collectibles (3% of sales) 88,500 93,600 72,600
Total allowance before write offs 133,500 149,600 132,600
Less: Allowance balance, ending 56,000 60,000 75,000
Accounts written off P77,500 P89,600 P57,600

Illustration no. 6
BANAWE, INC. estimates its uncollectible accounts to be 3% of the accounts receivable balance. The
following information was taken from the company’s statement of financial position at December 31,
2014:

Debit Credit
Net sales (including cash sales of P825,000) P3,460,000
Allowance for bad debts P 69,000
Accounts receivable 2,460,000

What is the bad debt expense to be reported for 2014?

Solution:
Required allowance, Dec. 31, 2014 [2,460,000 x 3%] P 73,800
Add: Allowance balance before adjustment – debit 69,000
Bad debt expense for 2014 P142,800

Illustration no. 7
LAGUNDI COMPANY applies the allowance method to value its accounts receivable. The company
estimates its bad debts based on past experience, which indicates that 1.5% of net credit sales will be
uncollectible. Its total sales for the year ended December 31, 2014, amounted to P4,000,000 including
cash sales of P400,000. After a thorough evaluation of the accounts receivable from Nolog Company
amounting to P20,000, Lagundi has decided to write off this account before year-end adjustments are
made.

Shown below are Lagundi’s account balances at December 31, 2014, before any adjustments and the
P20,000 write off.
Sales P4,000,000
Accounts Receivable 1,500,000
Sales discounts 250,000
Allowance for bad debts 33,000
Sales return and allowances 350,000
Bad debt expense 0

Lagundi has decided to value its account receivable using the statement of financial position approach as
suggested by its external auditors. Presented below is the aging of the accounts receivable subsidiary
ledger accounts at December 31, 2014.

Account Balance Less than 60 days 61-90 days 91-120 days Over 120 days
Antiporda P100,000 P100,000
Balbakwa 256,000 180,000 P76,000
Curdapia 654,000 500,000 154,000
Dagul 50,000 P50,000
Empoy 420,000 P420,000
Total P1,480,000 P780,000 230,000 420,000 50,000
% Collectible 99% 95% 85% 60%

Requirement:
1. Lagundi’s estimated bad debt expense for 2014 based on net credit sales
2. Lagundi’s required allowance for 2014
3. What is the net realizable value of Lagundi’s accounts receivable on December 31, 2014?
Solution:

1. Credit sales [4,000,000 – P400,000] P3,600,000

Less: Sales discounts P250,000
Sales returns and allowances 350,000 600,000
Net Sales 3,000,000
Multiply: bad debt rate 1.5%
Bad debt expense P 45,000

2.
Accounts Receivable
Age Rate Amount
Balance
Less than 60 days P780,000 1% P7,800
61-90 days 230,000 5% 11,500
91-120 days 420,000 15% 63,000
Over 120 days 50,000 40% 20,000
Required allowance 102,300

Required allowance for bad debts 102,300

Less: Allowance balance [33,000 + 45,000 - 20,000] 58,000
Adjustment – increase in allowance P44,300

Adjusting entry:
Bad debt expense 44,300
Allowance for bad debts 44,300

3. Accounts Receivable P1,480,000

Less: Allowance for bad debts 102,300
Net realizable value, December 31, 2014 P1,377,700