intacc-prob-1-8

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Intacc PROB 1-8

BS Accountancy (Pamantasan ng Cabuyao)

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Problem 1:
Dreamer Company reported the “Receivables” account with a debit balance of P2,000,000 at year-end. The allowance for doubtful
accounts had a credit balance of P50,000 on same date.

Subsidiary details revealed the following:

Trade accounts receivable 775,000

Trade notes receivable 100,000

Installment receivable, normally due 1 year to two years 300,000
Customers’ accounts reporting credit balances arising from sales return (30,000)

Advance payments for purchase of merchandise 150,000

Customers’ accounts reporting credit balances arising from advance payments (20,000)

Cash advance to subsidiary 400,000

Claim from insurance entity 15,000

Subscriptions receivable due in 60 days 300,000

Accrued interest receivable 10,000

2,000,000

Required:

a. Prepare one compound entry to reclassify the receivables account.

b. Compute the amount to be presented as “trade and other receivables” under current assets.
c. Indicate the classification and presentation of the other items excluded from “trade and other receivables”.

Problem 2:
Affectionate Company sold merchandise on account for P500,000. The terms are 3/10, n/30. The related freight charge amounted to
P10,000. The account was collected within the discount period.

Required:
Prepare journal entries to record the transactions under the following freight terms:

a. FOB destination and freight collect
b. FOB destination and freight prepaid
c. FOB shipping point and freight collect
d. FOB shipping point and freight prepaid

a. Allowance for sales return
Accounts receivable should be adjusted due to the probability that some customers will return goods that are unsatisfactory, or
will make other claims requiring reduction in the amount due as in the case of shipment shortages and defects.

Problem 3:
Raven Company started business in January 2021. Sales for the first year totaled P4,000,000. The entity priced its merchandise to yield a
40% gross profit based on sales. Industry statistics suggest that 10% of the merchandise sold to customers will be returned. The entity
estimated sales returns based on the industry average. During the year, customers returned goods with sale price of P300,000.

Required:
Prepare journal entries to record sales, sales returns and the year-end adjusting entry for estimated sales returns.

Problem 4:
On March 15, 2021, Romela Company sold 100 air conditioning units. The sale price for each unit is P45,000. All of sales are subject to
terms 2/10, n/30. The entity used the gross method of accounting for accounts receivable.

Required:
1. Prepare journal entry to record the sale
2. Prepare journal entry to record receipt of the payment assuming the correct amount was received on March 25, 2021.
3. Prepare journal entry to record receipt of the payment assuming the correct amount was received on April 9, 2021.

Problem 5:
On February 14, 2021, Prime Company sold 50 air conditioning units. The sale price for each unit is P50,000. All of the sales are subject
to terms 2/10, n/30. The entity used the net method of accounting for accounts receivable.

Required:
1. Prepare journal entry to record the sale
2. Prepare journal entry to record receipt of the payment assuming the correct amount was received on February 24, 2021.
3. Prepare journal entry to record receipt of the payment assuming the correct amount was received on March 10, 2021.

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Problem 6: Days Past Invoice Percent
Scion Company began operations on January 1, 2020. On December 31, 2020 and Uncollectible
2021, the entity provided for uncollectible accounts expense based on 1% of annual Date
credit sales. On January 1, 2021, the entity changed the method of determining the 0 – 30 1
allowance for uncollectible accounts by applying certain percentages to the aging of 31 – 90 5
accounts receivable. 91 – 80 20
Over 180 80

In addition, the entity wrote off all accounts receivable 2021 2020
3,000,000 2,800,000
that were over 1 year old. The following additional Credit Sales 2,915,000 2,400,000
information related to the years ended December 31, Collections, including recovery
2021 and 2020: Accounts written off 27,000 None
7,000 None
Required: Recovery of accounts previously written off

1. Determine the allowance for doubtful accounts Days past invoice date 300,000 250,000
on January 1, 2021. 80,000 90,00
0 – 30 60,000 45,000
2. Determine the allowance for doubtful accounts 31 – 90 25,000 15,000
on December 31, 2021 before adjustment. 91 – 180
Over 180
3. Determine the required allowance on December
31, 2021.

4. Prepare the adjustment to record the doubtful accounts expense for the current year.

1. Percent of Accounts Receivable
-A certain rate, usually determined from past experience of the entity, is multiplied by the open accounts at the end of the period
in order to get the required allowance balance.
-This method has the advantage of presenting the accounts receivable fairly in the statement of financial position at net realizable
value. However, it violates the principle of matching bad debt loss against the sales revenue.
-The loss experience rate may be difficult to obtain and may not be reliable.

Problem 7:
At the beginning of current year, Template Company showed the following account balances:

Accounts receivable 1,000,000
Allowance for doubtful accounts 40,000

The following summary transactions occurred during the current year: 7,000,000
2,450,000
1. Sales on account, 2/30, n/30 3,900,000
2. Collections from customers within the discount period
3. Collections from customers beyond the discount period 30,000
4. Accounts receivable written off as worthless 10,000
5. Recovery of accounts previously written off not included in the above collections 70,000
6. Credit memo for sales return

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. What is the net realizable value of accounts receivable at year-end?

Problem 8: 600,000
At the beginning of current year, Relentless Company reported the following balances: 25,000

Accounts receivable
Allowance for doubtful accounts

The following transactions took place in the current year. 3,070,000
2,455,000
1. Sales – cash and credit
2. Cash received from credit customers 1,455,000
3. Cash received from credit customers who took advantage of the 3/10, n/30 credit 20,000

terms (included in No. 2) 470,000
4. Accounts receivable written off as worthless 55,000
5. Cash received from cash customers 10,000
6. Credit memo for sales return and allowances issued to credit customers 5,000
7. Cash refunds to cash customers
8. Recoveries of accounts written off, not include in above collections

Required:
1. Prepare journal entries to record the transactions.
2. Prepare the adjustment for doubtful accounts if the entity provides for doubtful accounts equal to 2% of net credit sales.
3. Determine the net realizable value of accounts receivable at year-end.

Problem 9:

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

Accounts Receivable 500,000 20,000
Notes Receivable 200,000 5,000,000
Allowance for Doubtful Accounts
Sales 30,000
Sales Return and Allowances 20,000
Sales Discount

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 receivables 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 10:
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.

Year Credit Sales Accounts Recoveries
written off
2017 1,500,000 -0-
2018 2,200,000 15,000 2,000
2019 3,000,000 40,000 3,000
2020 3,300,000 50,000 5,000
2021 4,000,000 65,000 10,000
88,000

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.

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ANSWER:

PROBLEM 1:

a. Accounts receivable 775,000
Notes receivable 100,000
Installment receivable 300,000
Advances to suppliers 150,000
Advances to subsidiary 400,000
Claims receivable
Subscription receivable 15,000
Accrued interest receivable 300,000
Customer’s credit balances
Advances from customers 10,000
Receivables
30,000
b. Accounts receivable 20,000
Allowance for doubtful accounts 2,000,000
Notes receivable
Installment receivable 775,000
Advances to suppliers (50,000)
Claim receivable 100,000
Subscription receivable 300,000
Accrued interest receivable 150,000
Total Trade and Other Receivables
15,000
300,000

10,000
1,600,000

c. The advances to subsidiary should be classified as noncurrent and presented as long-term investment.

The customer’s credit balances and advances from customers should be classified as current liabilities and included as part of
“Trade and Other Payables”.

PROBLEM 2:

FOB destination and freight collect 500,000 500,000
1. Accounts receivable 10,000 10,000
Freight out
Sales 475,000 500,000
Allowance for freight charge 15,000
10,000 500,000
2. Cash 10,000
Sales discount 500,000
Allowance for freight charge 10,000 500,000
Accounts receivable
485,000 500,000
FOB destination and freight prepaid 15,000
1. Accounts receivable 500,000
Freight out 500,000
Sales 500,000
Cash 485,000 10,000
15,000
2. Cash 510,000
Sales discount 510,000
Accounts receivable
495,000
FOB shipping point and freight collect 15,000
1. Accounts receivable
Sales

2. Cash
Sales discount
Accounts receivable

FOB shipping point and freight prepaid
1. Accounts receivable
Sales
Cash

2. Cash
Sales discount
Accounts receivable

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PROBLEM 3: 4,000,000 4,000,000
300,000
Sales 100,000 300,000
1. Accounts receivable
Sales revenue 4,500,000 100,000
4,410,000 400,000
Sales Return 300,000
2. Sales return 90,000 100,000
Accounts receivable 4,500,000
4,500,000
Year-end adjusting entry
3. Sales return 4,500,000
Allowance for sales return 4,500,000

Estimated sales return (10% x 4,000,000)
Actual returns
Balance

PROBLEM 4:

1. Accounts receivable
Sales revenue

2. Cash
Sales discount
Accounts receivable

3. Cash
Accounts receivable

PROBLEM 5:

1. Accounts receivable 2,450,000
Sales revenue
2,450,000

2. Cash 2,450,000
Accounts receivable
2,450,000

3. Cash 2,500,000
Accounts receivable
Sales discount forfeited* 2,450,000
50,000

*The sales discount forfeited account is classified as other income.

PROBLEM 6:

1. Allowance – 1/1/2021 (1% x 2,800,000) 28,000

2. Allowance – 1/1/2021 28,000
Doubtful accounts recorded in 2021 (1% x 3,000,000) 30,000
Recovery 7,000
65,000
Total (27,000)
Writeoff
38,000
Allowance before adjustment

3. 300,000 x 1% 3,000
80,000 x 5% 4,000
60,000 x 20% 12,000
25,000 x 80% 20,000
Required allowance -12/31/2021
39,000

4. Doubtful accounts expense 1,000
Allowance for doubtful accounts (39,000-38,000)
1,000

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PROBLEM 7:

Requirement a 7,000,000
1. Accounts receivable
Sales 7,000,000

2. Cash 2,450,000 2,500,000
Sales discount 50,000 3,900,000
Accounts receivable (2,450,000/98%)
30,000
3. Cash 3,900,000 10,000
Accounts receivable 10,000
70,000
4. Allowance for doubtful accounts 30,000
Accounts receivable 40,000

5. Accounts receivable 10,000 60,000
Allowance for doubtful accounts 20,000
40,000
Cash 10,000 1,500,000
Accounts receivable (60,000)
1,440,000
6. Sales return 70,000
Accounts receivable 2,600,000
1,000,000
Requirement b 40,000
Doubtful accounts expense 1,500,000
Allowance for doubtful accounts 20,000

Rate = 40,000/1,000,000 = 4% 470,000
55,000
Allowance for doubtful accounts - Dec 31 (4% x 1.5M) 5,000
Less: Allowance before adjustment 5,000
Doubtful accounts expense

Requirement c
Accounts receivable – December 31
Allowance for doubtful accounts

Net realizable value

PROBLEM 8:

Requirement a 2,600,000
1. Accounts receivable 1,000,000
Sales (3,070,000-470,000) 1,455,000

2. Cash (2,455,000-1,455,000) 45,000
Accounts receivable 20,000
470,000
3. Cash 55,000
Sales discount 5,000
Accounts receivable (1,455,000/97%) 5,000

4. Allowance for doubtful accounts
Accounts receivable

5. Cash
Sales

6. Sales return and allowances
Accounts receivable

7. Accounts receivable
Allowance for doubtful accounts

Cash
Accounts receivable

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Requirement b 50,000
Doubtful accounts expense
Allowance for doubtful accounts 50,000

Requirement b 45,000 2,600,000
Credit Sales 55,000
Less: Sales discount 100,000
Sales return and allowances 2,500,000
Net credit sales
50,000
Doubtful accounts (2,500,000 x 2%)

Requirement c 625,000
Accounts receivable 60,000
Less: Allowance for doubtful accounts
Net realizable value 1,440,000

PROBLEM 9: 75,000 3,750,000
50,000 75,000
a. Credit Sales (75% x 5,000,000)
60,000 75,000
Doubtful accounts (2% x 3,750,000)
30,000 50,000
Doubtful accounts expense 80,000
Allowance for doubtful accounts 20,000
60,000
b. Doubtful accounts expense (1% x 5M)
Allowance for doubtful accounts 60,000
50,000
c. Required allowance 20,000
Less: Credit balance of allowance 30,000
Doubtful accounts expense
30,000
Doubtful accounts expense
Allowance for doubtful accounts

d. Required allowance (10% x 500,000)
Less: Credit balance of allowance
Doubtful accounts expense

Doubtful accounts expense
Allowance for doubtful accounts

PROBLEM 10:

Rate in 2020 = 170,000 - 10,000 = 0.016 Rate in 2021 = 258,000 - 20,000 = 0.017
10,000,000 14,000,000
20,000
1. Retained earnings (.016 x 1,250,000) 20,000
Allowance for doubtful accounts 20,000
10,000
2. Allowance – January 1, 2021 92,000
Recoveries – 2021 122,000
Doubtful accounts – 2020 (SQUEEZE) 88,000
Total 34,000
Less: Writeoff – 2021
Allowance – Dec 31, 2021 (.017 x 2M) 2,000,000
34,000
3. Accounts receivable – December 31, 2021
Less: Allowance for doubtful accounts 1,966,000

Net realizable value

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