Chapter 5

Receivables (Part 1)

PROBLEM 5-1: TRUE OR FALSE

1. FALSE
2. FALSE
3. FALSE
4. TRUE
5. TRUE
6. FALSE 25
7. FALSE 25
8. FALSE 7
9. TRUE
10. FALSE

PROBLEM 5-2: THEORY AND COMPUTATIONAL

1. D 6. D
2. C 7. A
3. C 8. D
4. C 9. B
5. C 10. A
11. Solution: (85,000 + 5,000 2,000 + 3,000) = 91,000

12. Solution: 550,000 FOB shipping point

13. Solutions:

Requirement (a): Traditional GAAP

Gross method Net method

1. Sale on account
Accounts receivable 90,000 Accounts receivable 87,300
Sales 90,000 Sales 87,300

(100,000 x 90%) (100,000 x 90% x 97%)

2. Collection is made within the discount period

Cash on hand 87,300 Cash on hand 87,300
Sales discounts (90K x 3%) 2,700 Accounts receivable 87,300
Accounts receivable 90,000

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3. Collection is made beyond the discount period.
Accounts receivable 90,000 Cash on hand 90,000
Cash in bank 90,000 Sales discount forfeited 2,700
Accounts receivable 87,300

Requirement (b.1): PFRS 15

Invoice amount (100,000 x 90%) 90,000
Multiply by: 3%
Total available discount 2,700
Multiply by: 80%
Discount expected to be taken 2,160

Invoice amount 90,000

Less: Discount expected to be taken (2,160)
Transaction price 87,840

1. Sale on account
Accounts receivable 87,840
Revenue 87,840

2. Portion collected within the discount period

Cash on hand (90,000 x 80% x 97%) 69,840
Accounts receivable 69,840

3. Portion collected beyond the discount period

Cash on hand (90,000 x 20%) 18,000
Accounts receivable 18,000

Requirement (b.2): PFRS 15

1. Sale on account
Accounts receivable (100K x 90%) 90,000
Revenue 90,000
Sales discount 2,160
Allowance for sales discount 2,160

2. Portion collected within the discount period

Cash on hand (90,000 x 80% x 97%) 69,840
Allowance for sales discount 2,160
Accounts receivable (90,000 x 80%) 72,000

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3. Portion collected beyond the discount period
Cash on hand [(90K x 20%) or remaining balance] 18,000
Accounts receivable 18,000

14. Solution:
Requirement (a):
(a)
Bad debt expense 25,000
Allowance for doubtful accounts 25,000

(b)
Allowance for doubtful accounts 5,000
Accounts receivable 5,000

(c)
Accounts receivable 3,000
Allowance for doubtful accounts 3,000
Cash on hand 3,000
Accounts receivable 3,000

Requirement (b):
Allowance for doubtful accounts
10,000 beg.
Write-offs 5,000 25,000 Bad debts expense
3,000 Recoveries
end. 33,000

15. Solution:
Requirement (a):
(a)
Accounts receivable 250,000
Sales 250,000

(b)
Cash on hand 220,000
Accounts receivable 220,000

(c)
Bad debt expense 30,000
Allowance for doubtful accounts 30,000

(d)
Allowance for doubtful accounts 15,000
Accounts receivable 15,000

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(e)
Accounts receivable 8,000
Allowance for doubtful accounts 8,000
Cash on hand 8,000
Accounts receivable 8,000

Requirement (b):

Accounts receivable
beg. 120,000
Sales on account 250,000 220,000 Collections, excluding recoveries
15,000 Write-offs
Recovery 8,000 8,000 Collection on recovery
135,000 end.

16. Solutions:
Requirement (a):

(1) Percentage of net credit sales

Sales 650,000
Sales returns and allowances (50,000)
Net sales 600,000
Rate 1%
Bad debt expense 9,000

Bad Debt Expense 9,000

Allowance for Doubtful Accounts 9,000

(2) Percentage of ending receivable

Allowance for doubtful accounts

2,500 beg.
Write-offs - 5,500 Bad debts expense (squeeze)
- Recoveries
end. 8,000a

a (100,000 x 8%) = 8,000

Bad Debt Expense 5,500

Allowance for Doubtful Accounts 5,500

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Requirement (b):

(1) Percentage of net credit sales

The entry would not change under the percentage of net credit sales method.

(2) Percentage of ending receivable

The percentage of receivables approach would be affected as follows:
Allowance for doubtful accounts
beg. 2,500
Write-offs - 10,500 Bad debts expense (squeeze)
- Recoveries
end. 8,000

Bad Debt Expense 10,500

Allowance for Doubtful Accounts 10,500

17. Solutions:
Requirement (a):

No. of Days Probability Required

Outstanding Amount of Collection Uncollectability Allowance
0-30 days 500,000 0.98 0.02 10,000
31-60 days 200,000 0.9 0.1 20,000
Over 60 days 100,000 0.8 0.2 20,000
50,000

Allowance for doubtful accounts

- beg.
Write-offs 5,000 53,000 Bad debts expense (squeeze)
2,000 Recoveries
end. 50,000

Bad debt expense 53,000

Allowance for bad debts 53,000

Requirement (b):
50,000 (see computations above)

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Requirement (c):
Gross accounts receivable (500K + 200K + 100K) 800,000
Less: Allowance for bad debts (50,000)
Accounts receivable, net end. 750,000

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PROBLEM 5-3: EXERCISES

1. Solution:

Accounts receivable
beg. 140,000
Credit sales 680,000 568,000 Collections, excluding recoveries
12,000 Write-off

240,000 end.

Allowance for bad debts

18,000 beg.
Write-off 12,000 28,000 Bad debts
2,000 Recovery
end. 36,000

Carrying amount = 240,000 36,000 = 204,000

2. Solution:

Accounts receivable
beg. 150,000
Credit sales 600,000 408,000 Collections, excluding recoveries
9,000 Write-off

333,000 end.

Allowance for bad debts

12,000 beg.
Write-off 9,000 15,000 Bad debts
2,000 Recovery
end. 20,000

Carrying amount = 333,000 20,000 = 313,000

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3. Solution:

Accounts receivable
beg. 80,000
Credit sales 150,000 120,000 Collections, excluding recoveries
10,000 Write-off
100,000 end.

4. Solution:

Accounts receivable
beg. -
Credit sales 360,000 124,000 Collections, including recoveries
22,000 Write-off
Recoveries 6,000
220,000 end.

5. Solution:

Accounts receivable
beg. 220,000
Credit sales 360,000 558,000 Collections, including recoveries
22,000 Write-off

- end.

6. Solutions:
(1)
Doubtful Accounts Expense
(3% x 128,000) - 1,220 .................. 2,620
Allowance for Doubtful Accounts ........... 2,620

(2)
Doubtful Accounts Expense ................... 5,374.50
Allowance for Doubtful Accounts ........... 5,374.50

(747,000 - 18,000 - 12,400) x 30% x 2.5% = 5,374.50

7. Solutions:
(1)
Doubtful Accounts Expense ................... 35,700
Allowance for Doubtful Accounts ........... 35,700
[(3% x 590,000) + 18,000]

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(2)
Doubtful Accounts Expense ................... 32,025
Allowance for Doubtful Accounts ........... 32,025
[1.5% x (2,180,000 - 18,000 - 27,000)]

(3)
Doubtful Accounts Expense ................... 39,400
Allowance for Doubtful Accounts ........... 39,400
(21,400 + 18,000)

8. Solutions:
(1) Bad Debt Expense 4,670
Allowance for Doubtful Accounts 4,670

Gross receivables 90,000

Rate 6%
Total allowance needed 5,400
Present allowance (730)
Adjustment needed 4,670

(2) Bad Debt Expense 7,040

Allowance for Doubtful Accounts 7,040

Sales 360,000
Sales returns and allowances 8,000
Net sales 352,000
Rate 2%
Bad debt expense 7,040

9. Solution:

(1)
Harris Corporation
Analysis of Changes in the Allowance for Doubtful Accounts
For the Year Ended December 31, 2002

Balance at January 1, 2002 ............................... 260,000

Provision for doubtful accounts (18,000,000 x 2%) ....... 360,000
Recovery in 2002 of bad debts written off previously ..... 30,000
650,000
Deduct write-offs for 2002 (180,000 + 120,000) ......... 300,000
Balance at December 31, 2002, before change in accounting
estimate ............................................... 350,000
Increase due to change in accounting estimate during 2002
(537,600 - 350,000) .................................... 187,600
Balance at December 31, 2002, adjusted (Schedule 1) ...... 537,600

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Schedule 1
Computation of Allowance for Doubtful Accounts
at December 31, 2002

Doubtful
Aging Category Balance Percent Accounts
November-December 2002 2,280,000 2% 45,600
July-October 2002 1,200,000 15% 180,000
January-June 2002 800,000 25% 200,000
Prior to January 1, 2002 140,000 * 80% 112,000
4,420,000 537,600
* 260,000 - 120,000

(2)
Doubtful Accounts Expense .................... 187,600
Allowance for Doubtful Accounts ............ 187,600
To increase the allowance for doubtful
accounts at December 31, 2002, resulting
from a change in accounting estimate.

10. Solution:
Requirement (a):

No. of Days Probability Required

Outstanding Amount of Collection Uncollectibility Allowance
0-30 days 500,000 0.98 0.02 10,000
31-60 days 200,000 0.9 0.1 20,000
Over 60 days 100,000 0.8 0.2 20,000
50,000

Allowance for doubtful accounts

beg. 2,000
Write-offs - 52,000 Bad debts expense (squeeze)
- Recoveries
end. 50,000

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Requirement (b):
Allowance for doubtful
accounts
45,000 Jan. 1
Write-offs 50,000 - Bad debts expense
3,000 Recoveries
2,000 Dec. 31 (Dr.) - unadjusted

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PROBLEM 5-4: CLASSROOM ACTIVITY
1. Solution:
Due from customers on sales on account 120,000
Due from customers on sales in exchange for promissory notes 40,000
Total trade receivables 160,000

2. Solution:
Trade accounts receivable (350K + 10K) 360,000
Notes receivable 30,000
Advances to suppliers 10,000
Security deposit paid on a one-year lease contract 6,000
Dividends receivable 30,000
Total 436,000

3. Solution: 300,000 20,000 = 280,000

4. Solutions:

Requirement (a):
Accounts receivable 150,000
Sales 150,000

Cash 250,000
Sales 250,000

Cash 120,000
Accounts receivable 120,000

Bad debts expense 30,000

Allowance for bad debts 30,000

Allowance for bad debts 10,000

Accounts receivable 10,000

Accounts receivable 8,000

Allowance for bad debts 8,000
Cash 8,000
Accounts receivable 8,000

Requirement (b):

Accounts receivable
beg. 80,000
Credit sales 150,000 120,000 Collections
10,000 Write-off
Recovery 8,000 8,000 Collection on recovery
100,000 end.

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 Allowance for bad debts
12,000 beg.
Write-off 10,000 30,000 Bad debts
8,000 Recovery
end. 40,000

Requirement (c):
100,000 40,000 = 60,000

5. Solution:

Requirement (a):

Bad debts expense 12,000

Allowance for bad debts 12,000

Allowance for bad debts 3,000

Accounts receivable 3,000

Accounts receivable 1,000

Allowance for bad debts 1,000
Cash 1,000
Accounts receivable 1,000

Requirement (b):

Allowance for bad debts

6,000 beg.
Write-off 3,000 12,000 Bad debts
1,000 Recovery
end. 16,000

6. Solutions:

Requirement (a):

(1) Percentage of net credit sales

Credit sales 700,000
Sales returns and allowances (80,000)
Net sales 620,000
Rate 2%
Bad debt expense 12,400

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Bad Debt Expense 12,400
Allowance for Doubtful Accounts 12,400

(2) Percentage of ending receivable

Allowance for doubtful accounts

6,000 beg.
Write-offs - 12,000 Bad debts expense (squeeze)
- Recoveries
end. 18,000a

a (100,000 x 18%) = 8,000

Bad Debt Expense 12,000

Allowance for Doubtful Accounts 12,000

Requirement (b):

(1) Percentage of net credit sales

The entry would not change under the percentage of net credit sales method.

(2) Percentage of ending receivable

The percentage of receivables approach would be affected as follows:
Allowance for doubtful accounts
beg. 6,000
Write-offs - 24,000 Bad debts expense (squeeze)
- Recoveries
end. 18,000

Bad Debt Expense 24,000

Allowance for Doubtful Accounts 24,000

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7. Solutions:

Requirement (a):
No. of Days Required
Outstanding Amount Uncollectability Allowance
0-30 days 600,000 2% 12,000
31-60 days 200,000 4% 8,000
Over 60 days 100,000 10% 10,000
30,000

Allowance for doubtful accounts

10,000 beg.
Write-offs 6,000 23,000 Bad debts expense (squeeze)
3,000 Recoveries
end. 30,000

Bad debt expense 23,000

Allowance for bad debts 23,000

Requirement (b):
(600,000 + 200,000 + 100,000) 30,000 = 870,000 carrying amount

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PROBLEM 5-5: TRUE OR FALSE
1. TRUE 6. TRUE
2. TRUE 7. FALSE
3. FALSE 8. TRUE
4. FALSE 9. TRUE
5. FALSE 10. FALSE

PROBLEM 5-6: THEORY

1. B 6. A
2. D 7. D
3. D 8. A
4. D 9. B
5. B 10. A

PROBLEM 5-7: THEORY

1. A 6. A
2. D 7. A
3. D 8. B
4. D 9. B
5. B 10. C
11. D
12. D

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PROBLEM 5-8: COMPUTATIONAL: MULTIPLE CHOICE
1. B (450 x 2%) = 9
2. C 1,000 200 sales returns 9 sales discount = 791
3. A (100,000 x 50% x 2%) = 1,000
4. C (100K + 611K 591K 45K) = 75,000
5. A
Solution:
Allowance for bad debts
10,800 Jan. 1
Bad debts expense (450K x
Write-offs 18,000 13,500 3%)
Dec. 31 6,300

6. D (1,000,000 x 3%) = 30,000

7. A
Solution:
Days Estimated outstanding Amount % uncollectible Allowance
0 - 60 120,000 1% 1,200
61 - 120 90,000 2% 1,800
Over 120 100,000 6% 6,000
9,000
8. B
Solution:
Accounts receivable at 12/31/x1 - gross 350,000
Accounts receivable at 12/31/x1 - net (325,000)
Allowance for uncollectible accounts - 12/31/x1 25,000

Allowance for uncollectible accounts

30,000 Jan. 1
Write-offs 18,000 2,000 Recoveries
Bad debts expense
11,000 (squeeze)
Dec. 31 25,000

9. C 650K + 2.7M 75K 40K 2.15M = 1.085M

10. D
Solution:
Percentage of credit sales: (1,750,000 x 2%) = 35,000
Percentage of accounts receivable:
Allowance for bad debts
16,000 Jan. 1
29,000 Bad debts expense (squeeze)
Dec. 31 (900K x
5%) 45,000

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PROBLEM 5-9: COMPUTATIONAL: MULTIPLE CHOICE
1. A (260K + (2% x 9M) 325K = 115K

2. A (93,000 2,000 + 3,000) = 94,000

3. C (2,920,000 32,000) x 1% = 28,880

4. D (450,000 32,000) = 418,000

5. D [54,000 60,000 + 15,000 + (3,000,000 x 3%)] = 99,000

6. A
Allowance for doubtful accounts
128,000 beg.
Write-offs 88,000 80,000 Bad debts expense (squeeze)
- Recoveries
a
end. 120,000

a (880,000 760,000) = 120,000

7. B (1,000,000 x 2%) = 20,000

8. C
Allowance for doubtful
accounts
Dec. 31 (unadjusted) 2,000
Write-offs - 60,000 Bad debts (4M x 1.5%)
- Recoveries
end. 58,000

(500,000 + 200,000 + 100,000) = 800,000 58,000 = 742,000

9. D
Allowance for doubtful
accounts
1,500 beg. (96K - 94.5K)
Write-offs 3,200 3,900 Bad debts (squeeze)
800 Recoveries
end. (105K - 102K) 3,000

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10. B
Accounts
receivable
beg. 50,000
Sales on account 620,000 578,000 Collections, including recoveries
Recoveries 3,000 20,000 Write-offs
75,000 end.

11. A
Accounts receivable
beg. 40,000
Sales on account 520,000 487,000 Collections, including recoveries
Recoveries 2,000 10,000 Write-offs
65,000 end.

12. D
Accounts receivable
beg. 45,000
Sales on account 550,000 525,500 Collections, including recoveries
Recoveries 2,500 12,000 Write-offs
60,000 end.

13. B
Allowance for doubtful accounts
- beg.
Write-offs 40,000 90,000 Bad debts expense
- Recoveries
end. 50,000

490,000 + 50,000 = 540,000

14. B (700,000 62,500) = 637,500

15. D [(80,000 4,000) - (4,500 4,000)] = (76,000 500) = 75,500

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16. C (9,500 + 9,000 8,000) = 10,500

17. B (425,000 14,000) = 4,110

18. A (53,000 x 10%) 760 = 4,540

19. B (148,000 + 70,000 + 60,000 + 2,000 160,000) = 120,000

20. C [840,000 (36,000 + 76,800)] = 727,200

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