4. Accounts Receivable And Receivable Financing (1).docx

BALIUAG UNIVERSITY CPA REVIEW FINANCIAL ACCOUNTING PROBLEMS

FAR-2017-05

ACCOUNTS RECEIVABLE AND RECEIVABLE FINANCING 1. Y COMPANY provided the following information for 2017: Accounts receivable – January 1 Credit sales Collection from customers, excluding the recovery of accounts written off Accounts written off as worthless Sales returns Recovery of accounts written off Estimated future sales returns on December 31 Estimated uncollectible accounts on December 31 per aging

2,000,000 10,000,000 8,000,000 100,000 500,000 50,000 150,000 300,000

What is the net realizable value of accounts receivable on December 31, 2017? a. 3,400,000 b. 3,100,000 c. 2,950,000 d. 2,900,000 2. The following data were taken from the records of Z COMPANY for the year ended December 31, 2017: Sales on account 3,600,000 Notes received to settle accounts 400,000 Provision for doubtful accounts 90,000 Accounts receivable determined to be worthless 25,000 Purchases on account 3,900,000 Payment to creditors 3,200,000 Discounts allowed by creditors 260,000 Merchandise returned by customers 15,000 Collections received to settle accounts 2,450,000 Notes given to creditors in settlement of accounts 250,000 Merchandise returned to suppliers 70,000 Payments on notes payable 100,000 Discounts taken by customers 40,000 Collections received in settlement of notes 180,000 What is the net realizable value of accounts receivable on December 31, 2017? a. 605,000 b. 890,000 c. 825,000 d. 670,000 3. A COMPANY reported current net receivables on December 31, 2017 which consisted of the following: Trade accounts receivable 930,000 Allowance for uncollectible accounts 20,000 Claim against shipper for goods in transit on November 2017 30,000 Selling price of unsold goods sent by Paolo on consignement at 130% of cost and not included in the ending inventory 260,000 Security deposit on lease of warehouse used in storing inventories 300,000 What is the correct total of current net receivables on December 31, 2017? a. 1,500,000 b. 1,200,000 c. 1,240,000 d. 940,000

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4. When examining the accounts of B COMPANY, it is ascertained that balances relating to both receivables and payables are included in a single controlling account called “receivable control” that has a debit balance of P4,850,000. An analysis of the make-up of this account revealed the following: Debit(Credit) Accounts receivable – customers Accounts receivable – officers Debit balances – creditors Postdated checks from customers Subscription receivable Accounts payable for merchandise Credit balances in customers’ accounts Cash received in advance from customers for goods not yet shipped Expected bad debts

( ( ( (

7,800,000 500,000 300,000 400,000 800,000 4,500,000 ) 200,000) 100,000) 150,000)

After further analysis of the aged accounts receivable, it is determined that the allowance for doubtful accounts should be P200,000. What amount should be reported as “trade and other receivables” under current assets? a. 8,950,000 b. 8,800,000 c. 8,600,000 d. 8,850,000 5. From inception of operations, C COMPANY provided for uncollectible accounts expense under the allowance method and provisions were made monthly at 2% of credit sales. No year-end adjustments to the allowance account were made. The balance in the allowance for doubtful accounts was P1,000,000 on January 1, 2017. During 2017, 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 P50,000. An aging of accounts receivable was made for the first time on December 31, 2017 as follows: Classification November – December July – October January – June Prior to January 1, 2017

Balance 6,000,000 2,000,000 1,500,000 500,000

Uncollectible 10% 20% 30% 50%

Based on the review of collectability of the account balances in the “prior to January 1, 2017” aging category, additional accounts totaling P100,000 are to be written off on December 31, 2017. Effective December 31, 2017, the entity adopted the aging method for estimating the allowance for doubtful accounts. What is the year-end adjustment to the allowance for doubtful accounts on December 31, 2017? a. 900,000 debit b. 500,000 credit c. 500,000 debit d. 0 6. During the current year, D COMPANY reported beginning allowance for doubtful accounts P200,000, sales P9,500,00, sales returns and allowances P1,000,000, sales discounts P500,000, accounts written off P300,000 and recovery of accounts written off P50,000. It is estimated that 5% of net sales may prove uncollectible. What is the allowance for doubtful accounts at year end? a. 350,000 b. 375,000 c. 400,000 d. 425,000

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7. E COMPANY adopted a new method for estimating doubtful accounts at an amount indicated by aging of accounts receivable. Allowance for doubtful accounts, January 1 250,000 Provision for doubtful accounts recorded during the year (2% of credit sales of P10,000,000) 200,000 Accounts written off 205,000 Uncollectible accounts per aging, December 31 220,000 What is the year-end adjustment to the allowance for doubtful accounts? a. 175,000 debit b. 175,000 credit c. 25,000 debit d. 25,000 credit 8. F COMPANY reported accounts receivable on December 31, 2017 as follows: Aye Company Bee Company Cee Company Day Company All other accounts receivable

800,000 2,000,000 1,200,000 1,000,000 5,000,000

The entity determined that Aye Company receivable is impaired by P400,000 and Day Company receivable is totally impaired. The other receivables from Bee and Cee are not considered impaired. The entity determined that a composite rate of 5% is appropriate to measure impairment on the remaining accounts receivable. What is the total impairment of accounts receivable for 2017? a. 1,810,000 b. 1,400,000 c. 1,650,000 d. 1,830,000 On December 1, 2017, G COMPANY assigned on a non-notification basis accounts receivable of P5,000,000 to a bank in consideration for a loan of 80% of the accounts less a 5% service fee on the accounts assigned. The entity signed a note for the bank loan. On December 31, 2017, the entity collected assigned accounts of P2,000,000 less discount of P200,000. The entity remitted the collections to the bank in partial payment for the loan. The bank applied first the collection to the interest and the balance to the principal. The agreed interest is 1% per month on the loan balance. The entity accepted sales returns of P100,000 on the assigned accounts and wrote off assigned accounts totaling P300,000. 9. What is the balance of accounts receivable assigned on December 31, 2017? a. 3,000,000 b. 2,600,000 c. 2,400,000 d. 2,900,000 10. What is the equity of the assignor in assigned accounts on December 31, 2017? a. 2,600,000 b. 2,240,000 c. 360,000 d. 0 H COMPANY factored P5,000,000 of accounts receivable. Control was surrendered by the entity. The finance company assessed a fee of 5% and retains a holdback equal to 10% of the accounts receivable. In addition, the finance company charged 12% interest computed on a weighted average time to maturity of the accounts receivable for 30 days. 11. What is the amount initially received from the factoring of accounts receivable? a. 4,250,000 b. 4,200,000 c. 4,700,685 d. 4,200,685 3

12. What total amount should be recognized as loss on factoring? a. 299,315 b. 799,315 c. 250,000 d. 0 13. I COMPANY factored P600,000 of accounts receivable on October 1, 2017. Control was surrendered by I COMPANY. The factor accepted the accounts receivable subject to recourse for non-payment. The factor assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable. In addition, the factor charged 15% interest computed on a weighted average time to maturity of 54 days. The fair value of the recourse obligation is P9,000. What amount of cash was initially received? a. 529,685 b. 538,685 c. 547,685 d. 556,685 On February 1, 2017, J COMPANY factored receivables with a carrying amount of P2,000,000 to K COMPANY. J COMPANY assesses a finance charge of 3% of the receivables and retains 5% of the receivable. 14. If the factoring is treated as a sale, what amount of loss from sale should J COMPANY report in its 2017 statement of comprehensive income? a. None b. 60,000 c. 100,000 d. 160,000 15. Assume that J COMPANY retained significant amount of risks and rewards of ownership and had a continuing involvement on the factored financial asset, what amount of loss from factoring should J COMPANY recognize? a. None b. 60,000 c. 100,000 d. 160,000

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