Financial Accounting & Reporting AIRIVERA

Receivables – Part 1
2017-002
Trade and other receivables
1. Information from the records of AIR Company is shown below:

Accounts Receivable - net of P10,000 credit 50,000

balance in customer's account
Notes receivable (trade) 5,000
Notes receivable (non-trade), P5,000 25,000
collectible within 1 year
Dividends receivable 1,000
Subscription Receivable 2,000
Advances to officers and employees (due in 18 4,000
months)
Accounts Payable - net of P6,000 debit balance 3,000
in supplier's accounts

Requirements:
a. Total trade receivables
b. Total current receivables

Initial measurement
2. An entity sells goods with a list price of P15,000 for P10,000. How much
is the accounts receivable to be recognized?

Gross Method and Net Method

3. An entity sells goods with a list price of P10,000 on account under credit
terms of 20%, 10%, 2/10, n/30.

a. How much is the accounts receivable to be recognized at the time of

sale under 1) gross method & 2) net method?
b. How much is the sales discount to be recorded assuming collection is
made within discount period under 1)gross method 2) net method?
c. How much is the sales discount forfeited to be recorded assuming
collection is made beyond discount period under 1)gross method 2) net
method?

Allowance for sales discount

4. Assume an entity that uses the gross method has accounts receivable of
P10,000 as of year-end. The credit term is 2,10, n/30. However, the entity
estimates that cash discounts will be availed only of 50% of the recorded
receivables. Compute for the recoverable historical cost (net realizable
value) of the accounts receivable.

Allowance for sales return

5. On December 31, 2015, Air Co. sold goods for P15,000 to Xyz, Inc. on
account. To induce sale, Air Co. provides its buyers the right to return
goods with 30 days upon purchase if the buyers are not satisfied with the
goods.

a. If Air Co. can reliably estimate that 20% of the goods will be returned
within the agreed period of time, compute for the recoverable
historical cost of accounts receivable.
b. Assume that 25% of the goods are actually returned on January 5, 2016
and the balance of receivable is collected. Provide the journal entry
of this transaction.

Percentage of credit sales

6. Air Co. has the following information on December 31, 2015 before any
year-end adjustments

Allowance for doubtful accounts, Jan 1 8,000

Write-offs 5,000
Recoveries 1,000
Sales (including cash sales of P100,000 600,000

Albert I. Rivera, CPA,MBA,CRA 1

 Sales returns and discounts (including P1,000
6,000
sales returns on cash sales)
Accounts receivable, Dec 31 150,000
Percentage of credit sales 2%

Compute for the following:

a. Bad debt expense
b. Allowance for doubtful accounts on 31 December
c. Net realizable value of accounts receivable

Percentage of receivable
7. Air Co. has the following information on December 31, 2015 before any
year-end adjustments:

Accounts receivable, Jan 1 80,000

Net credit sales 270,000
Collections from customers (excluding 140,000
recoveries)
Allowance for doubtful accounts, Jan 1 10,000
Write-offs 5,000
Recoveries 1,000
Percentage of receivables 5%

Compute for the following:

a. Bad debt expense
b. Net realizable value of accounts receivable

Computation of Percentage
8. Air Co. has been recognizing bad debt expenses based on the direct write-
off method. In 2014, Air Co. decided to change to the allowance method and
that doubtful accounts shall be estimated using the percentage of
receivables method. The percentage is to be computed based on all
available historical data up to a maximum of 4 years. Information for four
years is shown below:

Year Write-Offs Recoveries Net Credit Sales

20x1 7,000 1,000 100,000
20x2 10,000 3,000 160,000
20x3 15,000 5,000 200,000
20x4 28,000 2,000 240,000

The balances of accounts receivable on January 1, 20x4 and December 31,

20x4 are P100,000 and P200,000, respectively.

Compute for the doubtful accounts expense to be recognized in 2014.

Aging based on days outstanding

9. Air Co. has the following information:

%
Days outstanding Receivable Balances
Uncollectible
0-60 120,000 1%
61-120 90,000 2%
Over 120 100,000 6%
310,000

During the year, Air Co. wrote of P7,000 receivables and recovered P4,000
that had been written-off in prior years. The allowance for doubtful
accounts has a beginning balance of P2,000.

Compute for the following:

a. Doubtful accounts expense
b. Net realizable value of accounts receivable

Albert I. Rivera, CPA,MBA,CRA 2

Aging based on days past due
10. Air Co. sells to wholesalers on terms 2/15, net/30. An analysis of Air
Co.’s trade receivable balances at December 31, 2015, revealed the
following

Age in days Receivable

Balances
0-15 100,000
16-30 60,000
31-60 50,000
61-90 40,000
91-120 30,000
121-150 20,000
Total 300,000

Air Co. uses the aging of receivables method. The estimated percentages of
collectability based on past experience are shown below

Accounts % of
overdue for Collectability
<31 days 97%
31-60 90%
61-90 85%
91-120 65%
>120 days 40%

The allowance for doubtful accounts has a balance of P8,000 as of 31

January 2015. No write-offs or recoveries were made during the year.

Compute for the following:

a. Allowance for doubtful accounts on December 31, 2015
b. Doubtful accounts expense for the year

Cash Price Equivalent

11. An entity sells household appliances either on cash basis or on 6-month
installment basis. On January 1, 2015, a TV set with a cash price of
P100,000 was sold at an installment price of P120,000. At what amount
should the receivable be initially recognized?

Initial Measurement at Face Amount

12. Air Co. received the following note receivables on January 1, 2015

9-month, 10% note from Fair Co 5,000

6-month, non-interest bearing note 10,000
form Bair, Inc. (The effect of
discounting is deemed immaterial)
14%, 3-year not from Cair Corp 2,000

At what amount should the receivable be initially recognized?

TVOM – Future Value of P1

13. If you deposit P10,000 today at a bank due in 3 years at 10% interest
rate compounded annually. How much will your deposit be worth after 3
years?

TVOM – Present Value of P1

14. If you wish to withdraw P13,310 three years from now and the interest
rate is 10% compounded annually, how much deposit will you make today?

Present Value of an Annuity

15. In consideration for services performed, you received a P10,000
noninterest bearing note today which is due in 10 equal annual instalments
of P1,000 each. You then determined that the current market rate as of
today is 12%.

Albert I. Rivera, CPA,MBA,CRA 3

 a. If the first instalment is due one year from now, how much is the
initial carrying amount of the noninterest bearing note?
b. If the first instalment is due immediately today, how much is the
initial carrying amount of the non-interest bearing note?

Noninterest bearing note – lump sum

16. On January 1, 20x1, Air Co sold a transportation equipment with a
historical cost of P2,000,000 and accumulated depreciation of P700,000 in
exchange for cash of P100,000 and a noninterest bearing note receivable of
P1,000,000 due on January 1, 20x4. The prevailing rate of interest for
this type of note is 12%.

a. Compute for the present value of note receivable on January 1, 20x1?

b. Compute the carrying values of note receivable on December 31: 20x1,
20x2 & 20x3?

Noninterest bearing note - instalment

17. On January 1, 20x1, Air Co sold a transportation equipment with a
historical cost of P2,000,000 and accumulated depreciation of P700,000 in
exchange for cash of P100,000 and a noninterest bearing note receivable of
P1,000,000 due in 4 equal annual instalments starting December 31, 20x1
and every December 31 thereafter. The prevailing rate of interest for this
type of note is 12%.

a. Compute for the present value of note receivable on January 1, 20x1

b. Compute the carrying values of note receivable on December 31: 20x1,
20x2, 20x3 & 20x4?

Noninterest bearing note – instalment in advance

18. On January 1, 20x1, Air Co sold a transportation equipment with a
historical cost of P2,000,000 and accumulated depreciation of P700,000 in
exchange for cash of P100,000 and a noninterest bearing note receivable of
P1,000,000 due in 4 equal annual instalments starting January 1, 20x1 and
every January 1 thereafter. The prevailing rate of interest for this type
of note is 12%.

a. Compute for the present value of note receivable on January 1, 20x1

b. Compute the carrying values of note receivable on January 1: 20x1,
20x2, 20x3 & 20x4?

Noninterest bearing note – semi-annual cash flows

19. On January 1, 20x1, Air Co. sold machinery with historical cost of
P2,000,000 and accumulated depreciation of P1,100,000 in exchange for a 3-
year, P1,200,000 noninterest bearing note receivable due in equal semi-
annual payments every July 1 and December 31 starting on July 1, 20x1. The
prevailing rate of interest is 10%.

a. Compute for the present value of note receivable on January 1, 2015

b. Compute the carrying values of note receivable on July 1, 20x1,
December 31, 20x1?

Noninterest bearing note – non-uniform cash flows

20. On January 1, 2015, Air Co. sold machinery costing P2,000,000 with
accumulated depreciation of P1,100,000 in exchange for a 3-year P1,200,000
noninterest bearing note receivable due as follows:

Date Amount
12/31/2015 600,000
12/31/2016 400,000
12/31/2017 200,000

The prevailing rate of interest for this type of note is 10%.

a. Compute for the present value of note receivable on January 1, 2015

b. Compute the carrying values of note receivable on December 31: 2015,
2016 & 2017?

Albert I. Rivera, CPA,MBA,CRA 4