RECEIVABLES PRACTICE SET 1

Gross method vs. Net method vs. Allowance method

The following transactions were completed by Nebraska Company during the month of December:
December 3 Sold goods with list price of ₱600,000 to Atlanta Company under credit terms of 2/10,
1/15, n/30. Trade discounts granted are 5% and 3%.
December 5 Sold goods worth ₱250,000 to Alabama Company under credit terms 3/10, 2/15, 1/20,
n/30.

December 10 Sold goods worth ₱100,000 to Columbia Company under credit terms 3/10, 2/15, 1/20,
n/30.
December 11 Atlanta Company returned defective goods worth ₱60,000.

December 13 Collected the account of Atlanta Company in full.

December 20 Collected the account of Alabama Company in full.

December 25 Sold goods worth ₱175,000 to Brazil Company under credit terms 2/10, n/30.

Required:
1. Journalize the foregoing transactions using the:
o (a) Gross method
o (b) Net method
o (c) Allowance method
2. Prepare the year-end adjusting entry under the:
o (a) Gross method
o (b) Net method
o (c) Allowance method
3. How much cash was collected during December?
A. 728,042
B. 742,900
C. 999,542
D. 1,017,900
4. How much is the net sales to be reported at period-end under each method?
Gross method Net method Allowance method
A. 999,542 999,542 999,542
B. 1,003,042 999,542 999,542
C. 999,542 994,042 994,042
D. 1,003,042 994,042 994,042
5. What is the profit impact of the foregoing transactions under each method?
Gross method Net method Allowance method
A. 999,542 999,542 999,542
B. 1,003,042 999,542 999,542
C. 999,542 994,042 994,042
D. 1,003,042 994,042 994,042
Answers & Solutions Guide

1. ANSWER
Gross method Net Method Allowance Method

December 3
A/R 552,900.00 A/R 541,842.00 A/R 552,900.00
Sales 552,900.00 Sales 541,842.00 Allow. for SD 11,058.00
Sales 541,842.00
December 5
A/R 250,000.00 A/R 242,500.00. A/R 250,000.00
Sales 250,000.00 Sales 242,500.00. Allow. for SD 7,500.00
Sales 242,500.00
December 10
A/R 100,000.00 A/R 97,000.00 A/R 100,000.00
Sales 100,000.00 Sales 97,000.00 Allow. for SD. 3,000.00
Sales 97,000.00
December 11
SRA 60,000.00 SRA 58,800.00 SRA 58,800.00
A/R 60,000.00 A/R 58,800.00 Allow. for SD 1,200.00
A/R 60,000.00
December 13
Cash 483,042.00 Cash 483,042.00 Cash 483,042.00
SD 9,858.00 A/R 483,042.00 Allow. For SD 9,858.00
A/R 492,900.00 A/R 492,900.00
December 20
Cash 245,000.00 Cash 245,000.00 Cash 245,000.00
SD. 5,000.00 A/R 242,500.00 Allow. for SD 7,500.00
A/R 250,000.00 SDF 2,500.00 A/R 250,000.00
SDF 2,500.00
December 25
A/R 175,000.00 A/R 171,500.00 A/R 175,000.0
Sales 175,000.00 Sales 171,500.00 Allow. for SD 3,500.00
Sales 171,500.00

2. ANSWER
Gross method Net method Allowance method
Columbia Company
No entry. A/R 3,000.00 Allow. for SD 3,000.00
SDF 3,000.00 SDF
3,000.00
Brazil Company
SD 3,500.00 No entry No entry
Allow. for SD 3,500.00
Legends:
A/R Accounts receivable
SRA Sales returns and allowances
SD Sales discount
SDF Sales discount forfeited
Allow. for SD Allowance for sales discount
3. ANSWER: A

Collections – Atlanta Company ........…. 483,042.00

Collections – Alabama Company ......… 245,000.00
Collections – Columbia Company ....……… –
Collections – Brazil Company ........………… –

Total cash collections – December. 728,042.00

Comment: Answer will be the same regardless of the method used.

4. ANSWER: C

Gross Method Net Method Allowance Method

Sales – Atlanta Company 552,900.00 541,842.00 541,842.00
Sales – Alabama Company 250,000.00 242,500.00 242,500.00
Sales – Columbia Company 100,000.00 97,000.00 97,000.00
Sales – Brazil Company 175,000.00 171,500.00 171,500.00
Sales returns & allowances (60,000.00) (58,800.00) (58,800.00)
Sales discount – Atlanta (9,858.00) – –
Sales discount – Alabama (5,000.00) – –
Sales discount – Brazil (3,500.00) – –
Reported net sales 999,542.00 994,042.00 994,042.00

Comment: Sales discounts forfeited are not included in the above computations because it is classified
as other income account.

5. ANSWER: A

Gross Method Net Method Allowance Method

Reported net sales 999,542.00 994,042.00 994,042.00
SDF – Alabama Co. – 2,500.00 2,500.00
SDF – Columbia Co. – 3,000.00 3,000.00
Impact on profit 999,542.00 999,542.00 999,542.00

Gross method vs. Net method vs. Allowance method

On January 1, 2023, Trevor Co. sells goods with a list price of ₱1,000,000 on account under credit terms
of 10%, 15%, 3/10, 2/15, 1/20, n/30.
1. How much should be debited to Accounts Receivable on January 1, 2023, under the gross
method?
A. 742,050 C. 765,000
B. 750,000 D. 1,000,000

2. How much should be debited to Accounts Receivable on January 1, 2023, under the net
method?
A. 742,050 C. 765,000
B. 750,000 D. 1,000,000

3. How much should be debited to Accounts Receivable on January 1, 2023, under the allowance
method?
A. 742,050 C. 765,000
B. 750,000 D. 1,000,000

4. Assuming the customer settled its account on January 11, 2023, what amount should be recognized as sales
discountunder the gross method, net method, and allowance method, respectively?
Gross method Net method Allowance method
A. Zero Zero Zero
B. 22,950 Zero Zero
C. Zero 22,950 22,950
D. 22,950 22,950 22,950

5. Assuming the customer settled its account on January 16, 2023, what amount should be recognized as sales
discountunder the gross method, net method, and allowance method, respectively?
Gross method Net method Allowance method
A. Zero Zero Zero
B. 15,300 Zero Zero
C. Zero 15,300 15,300
D. 15,300 15,300 15,300

6. Assuming the customer settled its account on January 16, 2023, what amount should be recognized as sales
discount forfeited under the gross method, net method, and allowance method, respectively?
Gross method Net method Allowance method
A. Zero Zero Zero
B. Zero 7,650 7,650
C. Zero 7,650 15,300
D. Zero 15,300 15,300

7. Assuming the customer settled its account on January 21, 2023, what amount should be recognized as sales
discountunder the gross method, net method, and allowance method, respectively?
Gross method Net method Allowance method
A. Zero Zero Zero
B. 7,650 Zero Zero
C. Zero 7,650 7,650
D. 7,650 7,650 7,650

8. Assuming the customer settled its account on January 21, 2023, what amount should be recognized as sales
discount forfeited under the gross method, net method, and allowance method, respectively?
Gross method Net method Allowance method
A. Zero Zero Zero
B. Zero 15,300 Zero
C. Zero 15,300 15,300
D. Zero Zero 15,300

9. Assuming the customer settled its account on January 31, 2023, what amount should be recognized as sales
discountunder the gross method, net method, and allowance method, respectively?
Gross method Net method Allowance method
A. Zero Zero Zero
B. 22,950 Zero Zero
 Gross method Net method Allowance method
C. 15,300 Zero Zero
D. 7,650 Zero Zero
10. Assuming the customer settled its account on January 31, 2023, what amount should be recognized as sales
discount forfeited under the gross method, net method, and allowance method, respectively?
Gross method Net method Allowance method
A Zero Zero Zero
B Zero 22,950 22,950
C Zero 22,950 Zero
D Zero Zero 22,950

The following relate to a single sale of goods made by Rendora Co. in 2023:
• Selling price: P250,000
• Delivery cost: 2,500
• Terms: 3/15, n/30
• Shipment date: December 27, 2023
• Date the goods are received by the customer: January 4, 2024
• Date payment is received by Rendora Co.: January 6, 2024

1. If the term is FOB destination, how much sales should be recorded by Rendora for the year ended
December 31, 2023?
A. Zero C. P247,500
B. P245,000 D. P 25,000
2. If the term is FOB shipping point, freight collect, how much net cash did Rendora receive on January
6, 2024?
A. P240,000 C. P 245,000
B. P242,500 D. P 247,500
3. If the term is FOB destination, freight collect, how much net cash did Rendora receive on January 6,
2024?
A. P240,000 C. P245,000
B. P242,500 D. P247,500
4. If the term is FOB shipping point, freight prepaid, how much net cash did Rendora receive
on January 6, 2024?
A. P240,000 C. P245,000
B. P242,500 D. P247,500
5. If the term is FOB destination, freight prepaid, how much net cash did Rendora receive on January
6, 2024?
A. P240,000 C. P245,000
B. P242,500 D. P247,500

Analysis of Doubtful Accounts

Situation no. 1
Tamsin Company’s allowance for doubtful accounts was P2,000,000 at the end
of 2023 and P1,800,000 at the end of 2022.
For the year ended December 31, 2023, the entity reported doubtful accounts expense of P300,000 in its
statement of comprehensive income and made no recoveries of accounts written off in prior years.
How much were recorded as accounts written-off during 2023?
A. Zero C. 300,000
B. 100,000 D. 500,000

Situation no. 2
At the beginning of 2023, Logic Company had a credit balance of P100,000 in the allowance for
uncollectible accounts. Based on past experience, 2.5% of credit sales would be uncollectible.
During 2023, the company wrote off P175,000 of uncollectible accounts. Sales for the year
totaled P5,250,000, of which 30% is cash sales.
1. What is the doubtful accounts expense for 2023?
A. 16,875 C. 131,250
B. 91,875 D. 166,875
2. What amount should be reported as allowance for doubtful accounts on December 31, 2023?
A. 16,875. C. 131,250
B. 91,875. D. 175,000
Situation no. 3
Antonov Company provided the following accounts abstracted from the unadjusted trial balance on
December 31, 2023:
Account Debit Credit
Accounts receivable 2,500,000
Allowance for doubtful accounts 20,000
Sales 10,000,000
The company estimated that 4% of the gross accounts receivable will become uncollectible.
Cash sales are 40% of the total sales.
1. What amount should be reported as allowance for doubtful accounts on December 31, 2023?
A. 80,000 C. 120,000
B. 100,000 D. 280,000
2. What amount should be recognized as doubtful accounts expense for the year 2023?
A. 80,000 C. 120,000
B. 100,000 D. 280,000
3. At what amount shall the accounts receivable be presented on December 31, 2023?
A. 2,380,000 C. 2,500,000
B. 2,400,000 D. 2,520,000

Situation no. 4
Linux Company used the allowance method of accounting for doubtful accounts.
The following summary schedule was prepared from an aging of accounts receivable outstanding on
December 31, 2023:
Number of days outstanding Amount Uncollectability %
0 – 30 days ₱2,500,000 2%
31 – 60 days 1,000,000 10%
61 – 90 days 500,000 20%
Over 90 days 100,000 40%

Additional information for the year 2023:

• Sales for 2023 (25% cash sales; 75% credit sales): ₱50,000,000
• Allowance for doubtful accounts:
o Balance, January 1, 2023: ₱520,000
o Write-offs during the year: 1,350,000
o Recovery of accounts written off during the year: 750,000
• The company based the estimate of doubtful accounts on the aging of accounts receivable.
1. What amount should be reported as allowance for doubtful accounts on December 31,
2023?
A. 210,000 C. 370,000
B. 290,000 D. 600,000
2. What amount should be reported as doubtful accounts expense for 2023?
A. 210,000 C. 370,000
B. 290,000 D. 600,000
 3. At what amount shall the accounts receivable be presented on December 31, 2023?
A. 3,500,000 C. 3,810,000
B. 3,730,000 D. 4,100,000

Situation no. 5
• Marni Company sold goods to customers on terms 4/15, 2/30 net 60.
All sales of the entity are on account.
Based on past experience, 60% of the customers will take advantage of the 4%
discount while 30% of the customers will take advantage of the 2% discount.
• The entity used the gross method of recording sales and accounts receivable.
• An analysis of the trade accounts receivable at year-end revealed the following:
Age of accounts Amount Collectibility
0 – 15 days P1,000,000 100%
16 – 30 days 700,000 100%
31 – 60 days 200,000 90%
Over 60 days 100,000 75%
Total 2,000,000

1. What amount should be reported as allowance for sales discount at year-end?

A. 25,800 C. 54,000
B. 28,200 D. 72,000
2. What amount should be reported as allowance for doubtful accounts at year-end?
A. Zero C. 45,000
B. 16,800 D. 255,000
3. What is the net realizable value of accounts receivable at year-end?
A. 1,926,800 C. 1,971,800
B. 1,955,000 D. 2,000,000

Esperanza Company used the allowance method of accounting for doubtful accounts. The following
summary schedule was prepared from an aging of accounts receivable outstanding on December 31,
2023:
Number of days Uncollectibility (%)
Amount
outstanding
0 – 30 days ₱1,000,000 2%
31 – 60 days 800,000 4%
61 – 90 days 600,000 6%
(₱40,000 definitely uncollectible, remaining balance- 10%
Over 90 days 400,000
uncollectible)
Total 2,800,000
The balance of the allowance for doubtful accounts on January 1, 2023, was ₱75,000. During the year,
the company wrote off ₱25,000 and recovered ₱30,000 of accounts previously written off in prior years.
Requirements: Based on the above data, answer the following:
1. How much is the doubtful accounts expense for 2023?
A. 44,000 C. 124,000
B. 84,000 D. 128,000

2. At what amount shall the accounts receivable be presented on December 31, 2023?
A. 2,636,000 C. 2,760,000
B. 2,676,000 D. 2,800,000

Santo Company provided for doubtful accounts expense monthly at 1.5% of credit sales.
The balance in the allowance for doubtful accounts was ₱80,000 on January 1, 2023.
During 2023, credit sales totaled ₱1,200,000, ₱40,000 accounts were written off, and recoveries of
accounts previously written off amounted to ₱30,000.
An aging of accounts receivable was made on December 31, 2023:
Age Category Amount % Uncollectible
1–120 days ₱300,000 10% uncollectible
121–240 days 100,000 30% uncollectible
241–360 days 75,000 50% uncollectible
More than 360 days 25,000 75% uncollectible
Total ₱500,000
Based on the review of the “more than 360 days” category, additional accounts of ₱5,000 are to be
written off on December 31, 2023.

Questions
1. What amount should be reported as doubtful accounts expense for 2023?
A. 18,000 C. 47,500
B. 46,250 D. 51,250
2. What is the year-end adjustment to the allowance for doubtful accounts on December 31,
2023?
A. 29,500 debit C. 47,500 debit
B. 29,500 credit D. 47,500 credit
3. What is the net realizable value of accounts receivable on December 31, 2023?
A. 378,750. C. 383,750
B. 382,500. D. 387,500

Long-term interest-bearing note with reasonable interest rate

Refer to the following three independent situations:

Situation no. 1
Northwest Company received a 10% promissory note on July 1, 2022, with a face amount of P300,000.
The principal amount of the note is due to be collected on June 30, 2025, while the interest on the note is
due annually every June 30 starting June 30, 2023. The market rate of interest of this kind of note is 10%.
1. How much is the interest income for the year ended December 31, 2022?
A. Zero C. 30,000
B. 15,000 D. 30,750
2. How much is the interest income for the year ended December 31, 2023?
A. Zero C. 30,000
B. 15,000 D. 30,750
3. What amount should be reported as current assets in relation to the note on December 31,
2023?
A. 15,000 C. 315,000
B. 30,000 D. 330,000
4. What amount should be reported as non-current assets in relation to the note on
December 31, 2023?
A. Zero C. 315,000
B. 300,000 D. 330,000
5. What amount should be reported as current assets in relation to the note on December 31,
2024?
A. 15,000 C. 315,000
B. 30,000 D. 330,000
6. What amount should be reported as non-current assets in relation to the note on
December 31, 2024?
A. Zero C. 315,000
B. 300,000 D. 330,000
Situation no. 2
Southeast Company has a 12% note receivable dated July 1, 2022, in the original amount of P900,000.
Payments of P300,000 in principal plus accrued interest are due annually on July 1, 2023, 2024, and
2025. The market rate of interest of this kind of note is 12%.
1. How much is the interest income for the year ended December 31, 2022?
A. Zero C. 54,000
B. 18,000 D. 108,000
2. How much is the interest income for the year ended December 31, 2023?
A. 36,000 C. 90,000
B. 72,000 D. 108,000
3. What amount should be reported as current assets in relation to the note on December 31, 2023?
A. 36,000 C. 336,000
B. 300,000 D. 390,000
4. What amount should be reported as non-current assets in relation to the note on December 31,
2023?
A. Zero C. 354,000
B. 300,000 D. 600,000
5. How much is the interest income for the year ended December 31, 2024?
A. 18,000 C. 54,000
B. 36,000 D. 90,000
6. What amount should be reported as current assets in relation to the note on December 31, 2024?
A. 18,000 C. 318,000
B. 300,000 D. 354,000
7. 7. What amount should be reported as non-current assets in relation to the note on December 31,
2024?
A. Zero C. 300,000
B. 18,000 D. 318,000

Long-term interest-bearing note with unrealistic interest rate

Refer to the following five independent situations:

Situation no. 1: One-time collection of principal with periodic interest collection

On January 1, 2022, State Co. sold an equipment to Nation Co. Nation Co. issued a 5-year, ₱500,000, 10% note to
State Co. The note requires the interest to be paid annually every December 31 starting December 31, 2022 until the
maturity of the note on December 31, 2026. The equipment has a cost of ₱1,000,000 and accumulated depreciation
as of January 1, 2022 of ₱550,000. The prevailing interest rate for a note of this type is 12%.
Round off PV factors to four decimal places.

1. At what amount shall the note be initially measured on January 1, 2022?

A. 425,550 C. 463,940
B. 450,000 D. 500,000
2. What amount should be reported as gain (loss) on sale of equipment?
A. 13,940 gain C. 50,000 gain
B. 13,940 loss D. 50,000 loss
3. Prepare the journal entry on January 1, 2022.
4. Prepare the amortization schedule.
5. What amount should be reported as interest income for 2022?
A. Zero C. 50,000
B. 46,394 D. 55,673
6. Prepare the journal entry on December 31, 2022.
7. What is the carrying amount of the note on December 31, 2022?
A. 463,940 C. 475,966
B. 469,613 D. 500,000
 8. How much shall be presented as current assets in relation to the note on December 31, 2022?
A. Zero C. 475,966
B. 469,613 D. 500,000
9. How much shall be presented as non-current assets in relation to the note on December 31, 2022?
A. Zero C. 475,966
B. 469,613 D. 500,000

Situation no. 2: One-time collection of principal with periodic interest collection

On January 1, 2022, State Co. sold an equipment to Nation Co. Nation Co. issued a 5-year, P500,000, 12% note to
State Co. The note requires the interest to be paid annually every December 31 starting December 31, 2022 until the
maturity of the note on December 31, 2026. The equipment has a cost of P1,000,000 and accumulated depreciation
as of January 1, 2022 of P550,000. The prevailing interest rate for a note of this type is 10%.
Round off PV factors to four decimal places.

1. At what amount shall the note be initially measured on January 1, 2022?

A. 453,920 C. 500,000
B. 496,720 D. 537,898
2. What amount should be reported as gain (loss) on sale of equipment?
A. 50,000 gain C. 87,898 gain
B. 50,000 loss D. 87,898 loss
3. Prepare the journal entry on January 1, 2022.
4. Prepare the amortization schedule.
5. What amount should be reported as interest income for 2022?
A. 50,000 C. 60,000
B. 53,790 D. 64548
6. Prepare the journal entry on December 31, 2022.
7. What is the carrying amount of the note on December 31, 2022?
A. 500,000 C. 537,898
B. 531,688 D. 544,108

Situation no. 3: Installment principal collection with periodic interest collection

On January 1, 2022, State Co. sold an equipment to Nation Co. Nation Co. issued a 5-year, P500,000, 10% note to
State Co. The note requires the principal amount to be paid in five equal annual installments and interest on the
unpaid balance to be paid annually every December 31 starting December 31, 2022. The equipment has a cost of
P1,000,000 and accumulated depreciation as of January 1, 2022 of P550,000. The prevailing interest rate for a note
of this type is 12%.
Round off PV factors to four decimal places.
1. At what amount shall the note be initially measured on January 1, 2022?
A. 312,070 C. 476,751
B. 368,810 D. 500,000
2. What amount should be reported as gain (loss) on sale of equipment?
A. 26,751 gain C. 50,000 gain
B. 26,751 loss D. 50,000 loss
3. Prepare the journal entry on January 1, 2022.
4. Prepare the amortization schedule.
5. What amount should be reported as interest income for 2022?
A. 47,675 C. 57,210
B. 50,000 D. 60,000
6. Prepare the journal entry on December 31, 2022.
7. What is the carrying amount of the note on December 31, 2022?
A. 93,925 C. 383,961
B. 290,036 D. 500,000
8. How much shall be presented as current assets in relation to the note on December 31, 2022?
A. 93,925 C. 383,961
B. 290,036 D. 500,000
 9. How much shall be presented as non-current assets in relation to the note on December 31, 2022?
A. 93,925 C. 383,961
B. 290,036 D. 500,000

Situation no. 4: Installment principal collection with periodic interest collection

On January 1, 2022, State Co. sold an equipment to Nation Co. Nation Co. issued a 5-year, P500,000, 12% note to
State Co. The note requires the principal amount to be paid in five equal annual installments and interest on the
unpaid principal balance to be paid annually every December 31 starting December 31, 2022. The equipment had a
cost of P1,000,000 and accumulated depreciation as of January 1, 2022 of P550,000. The prevailing interest rate for
a note of this type is 10%.
Round off PV factors to four decimal places.
1. At what amount shall the note be initially measured on January 1, 2022?
2. What amount should be reported as gain (loss) on sale of equipment?
3. Prepare the journal entry on January 1, 2022.
4. Prepare the amortization schedule.
5. What amount should be reported as interest income for 2022?
6. Prepare the journal entry on December 31, 2022.
7. What is the carrying amount of the note on December 31, 2022?
8. How much shall be presented as current assets in relation to the note on December 31, 2022?
9. How much shall be presented as non-current assets in relation to the note on December 31, 2022?

Situation no. 5:
On April 1, 2022, State Co. sold an equipment to Nation Co. Nation Co. issued a 5-year, ₱500,000, 12% note to
State Co. The note requires the principal amount to be paid in five equal annual installments and interest on the
unpaid balance to be paid annually every March 31 starting March 31, 2023. The prevailing interest rate for a note
of this type is 9%.
Round off PV factors to four decimal places.
1. At what amount shall the note be initially measured on April 1, 2022?
2. What is the carrying amount of the note on December 31, 2022?
3. What amount should be reported as interest income for 2023?
4. What amount should be reported as interest income for 2024?