Receivables

I. The 2016 audit of the financial statements of KITTEN Company discloses the
following information:

Accounts receivable, ending

Allowance for doubtful accounts, ending
Allowance for sales returns
and allowances, ending
Gross sales returns and allowances (estimated)
Estimated bad debts for the year
Sales discount not taken at end of year
Credit sales during the year
(terms, 2/10, n/60)
Cash collected on Accounts receivable

2015

2016

P558,000
22,200

P561,300
21,000

14,100
14,700
21,600
0

11,748
15,600
22,500
1,200

1,125,000
1,056,000

1,140,000
1,102,500

1. Accounts written off for the year is

a. P21,300
b. P23,700
c. P22,200
d. P24,600

Answer: b
Allowance, beg
Bad debt expense for 2016
Accounts written off (SQUEEZE)
Allowance, ending

P22,200
22,500
(23,700)
P21,000

II. CALACHUCHI CORP.s accounts receivable subsidiary ledger shows the following
information:
ACCOUNT BALANCE
INVOICE

CUSTOMER
Aruy Inc.

DEC. 31, 2016

P 35,180

Naku Co.

20,920

Syak Corp.

30,600

Trip Co.

45,140

Uy Co.

31,600

Xak Corp.

17,400

DATE
12/06/16
11/29/16
09/27/16
08/20/16
12/08/16
10/25/16
11/17/16
10/09/16
12/12/16
12/02/16
09/12/16

AMOUNT
P 14,000
21,180
12,000
8,920
20,000
10,600
23,140
22,000
19,200
12,400
17,400

The estimated bad debt rates below are based on Calachuchi Corp.s receivable
collection experience:
Age of Accounts
0-30 days
31-60 days
61-90 days
91-120 days
Over 120 days

Rate
1%
1.5%
3%
10%
50%

1. The allowance for bad debts to be reported in the statement of financial position
at December 31, 2016, is
a. P9,699
b. P15,199
c. P4,199
d. P5,500
2. What is the net realizable value of accounts receivable at December 31, 2016?
a. P165,641
b. P171,141
c. P196,039
d. P186,340

Answer: a, b
1. Computation of Required Balance
0-30 days
P65,600 x 1% = P 656
31-60 days
44,320 x 1.5%= 665
61-90 days
32,600 x 3% = 978

91-120 days
29,400 x 10%= 2,940
Over 120 days
8,920 x 50%= 4,460
Total
P9,699
2. Accounts receivable
P180,840
Less: Allowance for bad debts
9,699
Net Realizable Value, Dec. 31, 2016
P171,141

III. During the audit of FOREVER COMPANY for the year ended December 31, 2016,
you find the following account.
Notes Receivable
Date
Debit
Credits
Sept. 1
Cornea, 20%, due in 3 months
P80,000
Oct. 1
Hunk co., 24%, due in 2 months
300,000
1
Discounted Cornea note at 25%
P80,000
Nov. 1
Valerie, 24%, due in 13 months
600,000
30
Cellular Co., no interest due in one year 500,000
30
Discounted Cellular note at 18%
500,000
Dec. 1
Tictic, 18%, due in 5 months
900,000
1
O. Reyes, President, 12%, due in 3 months
(for cash loan given to O. Reyes) 1,200,00
All notes are trade notes unless otherwise specified. The Cornea note was paid on
December 1 as per notification received from the bank. The Hunk Co. note was
dishonored on the due date but the legal department has assured management of its
full collectibility.
The company, with your occurrence, will treat the discounting as a conditional sale of
note receivable.
Based on the ledger account presented, what amount of interest income should be
accrued at December 31, 2016?
a. P55,500
b. P61,500
c. P49,500
d. P67,500
Answer: d
Hunk (P300,000 x 24% x 3/12)
Valerie (P600,000 x 24% x 2/12)
Tictic (P900,000 x 18% x 1/12)
o. Reyes (P1,200,000 x 12% x 1/12)

P18,000
24,000
13,500
12,000

Total accrued interest receivable, Dec. 31, 2016

P67,500