AUDIT OF RECEIVABLES

SEATWORK – PART 1
SOLUTIONS
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PROBLEM 1

Presented below are a series of unrelated situations. Answer the following questions relating to
each of the independent situations as requested.

1. Bantay Company’s unadjusted trial balance at December 31, 2016, included the following
accounts:
Debit Credit
Accounts receivable P1,000,000
Allowance for doubtful accounts 40,000
Sales P15,000,000
Sales returns and allowances 700,000

Bantay Company estimates its bad debt expense to be 1 1/2% of net sales. Determine its
bad debt expense for 2016.
a. P225,000 c. P214,500
b. P254,500 d. P 55,000

2. An analysis and aging of Burgos Corp. accounts receivable at December 31, 2016,
disclosed the following:

Amounts estimated to be uncollectible P 1,800,000

Accounts receivable 17,500,000
Allowance for doubtful accounts (per books) 1,250,000

What is the net realizable value of Burgos’ receivables at December 31, 2016?
a. P15,700,000 c. P16,250,000
b. P17,500,000 d. P14,450,000

3. Cabugao Company provides for doubtful accounts based 3% of credit sales. The following
data are available for 2016.

Credit sales during 2016 P21,000,000

Allowance for doubtful accounts 1/1/16 170,000
Collection of accounts written off in prior years (Customer credit
was reestablished) 80,000
Customer accounts written off as uncollectible during 2016 300,000

What is the balance in allowance for doubtful accounts at December 31, 2016?
a. P630,000 c. P500,000
b. P420,000 d. P580,000
4. At the end of its first year of operations, December 31, 2006, Caoayan, Inc. reported the
following information:

Accounts receivable, net of allowance for doubtful accounts P9,500,000

Customer accounts written off as uncollectible during 2016 240,000
Bad debts expense for 2016 840,000

What should be the balance in accounts receivable at December 31, 2016, before
subtracting the allowance for doubtful accounts?
a. P10,100,000 c. P 9,740,000
b. P10,340,000 d. P10,580,000

5. The following accounts were taken from Cervantes Inc.’s balance sheet at December 31,
2016.

Debit Credit
Accounts receivable P4,100,000
Allowance for doubtful accounts 100,000
Net credit sales P7,500,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be
reported for 2016.
a. P123,000 c. P223,000
b. P 23,000 d. P225,000

Suggested Solution:

Question No. 1

Sales P15,000,000
Less sales returns and allowances 700,000
Net sales 14,300,000
Multiply by bad debt rate 1 1/2%
Bad debt expense P 214,500
Question No. 2

Accounts receivable P17,500,000

Amount estimated to be uncollectible (1,800,000)
Net realizable value P15,700,000
Question No. 3

Allowance for doubtful accounts 1/1/06 P170,000

Establishment of accounts written off in prior years 80,000
Customer accounts written off in 2006 (300,000)
Bad debt expense for 2006 (P21,000,000 X 3%) 630,000
Allowance for doubtful accounts 12/31/06 P580,000
Question No. 4

Bad debt expense for 2006 P840,000

Customer accounts written off as uncollectible
during 2006 (240,000)
Allowance for doubtful accounts, 12/31/06 P600,000

Accounts receivable, net of allowance for doubtful

accounts P 9,500,000
Allowance for doubtful accounts, 12/31/06 600,000
Accounts receivable, before deducting allowance
for P10,100,000
doubtful accounts
Question No. 5

Accounts receivable P4,100,00

0
Percentage 3%
Bad debt expense, before adjustment 123,000
Allowance for doubtful accounts (debit balance) 100,000
Bad debt expense for 2006 P
223,000

PROBLEM 2

The adjusted trial balance of Galimuyod Company as of December 31, 2015 shows the
following:

Debit Credit
Accounts receivable P1,000,00
0
Allowance for bad debts P40,000

Additional information:

 Cash sales of the company represents 10% of gross sales.

 90% of the credit sales customers do not take advantage of the 2/10, n/30 terms.
 It is expected that cash discount of P6,000 will be taken on accounts receivable outstanding
at December 31, 2006.
 Sales returns in 2016 amounted to P400,000. All returns were from charge sales.
 During 2016, accounts totaling to P44,000 were written off as uncollectible; bad debt
recoveries during the year amounted to P3,000.
 The allowance for bad debts is adjusted so that it represents certain percentage of the
outstanding accounts receivable at year end. The required percentage at December 31,
2016 is 150% of the rate used on December 31, 2015.
Questions:

Based on the above and the result of your audit, answer the following:

1. The accounts receivable as of December 31, 2016 is

a. P3,000,000 c. P 333,333
b. P 300,000 d. P2,444,000

2. The allowance for doubtful accounts as of December 31, 2016 is

a. P 20,000 c. P180,000
b. P120,000 d. P146,640

3. The net realizable value of accounts receivable as of December 31, 2016 is

a. P 307,340 c. P2,874,000
b. P2,814,000 d. P2,291,360

4. The doubtful account expense for the year 2016 is

a. P181,000 c. P 21,000
b. P121,000 d. P147,640

Suggested Solution:
Question No. 1

Expected cash discounts P 6,000

Divide by percentage of cash discount 0.02
Portion of AR that will be granted cash discounts 300,000
Divide by percentage of total AR estimated to
take advantage of the discount 0.10
Accounts receivable, 12/31/06 P3,000,000

Question No. 2

Accounts receivable, 12/31/06 P3,000,000

Multiply by bad debt rate
[(P40,000/P1,000,000) x 1.5] 0.06
Allowance for doubtful accounts, 12/31/06 P 180,000
Question No. 3

Accounts receivable, 12/31/06 P3,000,000

Less: Allowance for doubtful P180,000
accounts
Allowance for sales discounts 6,000 186,000
Net realizable value, 12/31/06 P2,814,000
Question No. 4

Allow. for doubtful accounts, 12/31/06 P180,000

Add accounts written off 44,000
Total 224,000
Less: Allow. for doubtful accounts, 12/31/05 P40,000
 Bad debt recoveries 3,000 43,000
Doubtful accounts expense for 2006 P181,000
PROBLEM NO. 3

In your audit of the books of George Company for the year 2025, you concluded that the
allowance for doubtful accounts should be adjusted to equal the estimated amount required
based on aging of the accounts as of December 31. During your audit, you were able to gather
the following data:

Allowance for doubtful accounts, Jan. 1, 2025 P300,000

Provision for doubtful accounts during 2025 (3% of P5,000,000 sales) 150,000
Bad debts written off in 2025 187,500
Recovery of bad debts written off during 2025 50,000
Estimated doubtful accounts per aging of accounts on Dec. 31, 2025 200,000
Accounts receivable, December 31, 2025 2,375,000

REQUIRED:

1. Based on the result of your audit, determine the following:

a. Doubtful accounts expense for 2025.
37,500
b. Net realizable value of Accounts Receivable as of December 31, 2025.
2,175,000
c. The increase(decrease) in the recorded Allowance for doubtful accounts.
(112,500)

2. Assuming there was no aging of accounts, determine the following:

a. Doubtful accounts expense for 2025.
150,000
b. Allowance for doubtful accounts as of December 31, 2025.
312,500

3. Assuming there was no aging of accounts and the company used 8% percent of accounts
receivable method, determine the following:
a. Doubtful accounts expense for 2025.
27,500
b. Allowance for doubtful accounts as of December 31, 2025
190,000
PROBLEM NO. 3 - George Company
Requirement No. 1 (a)
Allowance for doubtful accounts per aging 200,000
Add: bad debts written off 187,500
Total 387,500
Less: allowance for doubtful accounts, 1/1/25 300,000
Recovery of bad debts written off 50,000 350,000
Doubtful accounts expense for 2025 37,500
Requirement No. 1 (b)
Accounts receivable, 12/31/25 2,375,000
Less: allowance for doubtful accounts per aging 200,000
Net realizable value 2,175,000
Requirement No. 1 (c)
Should be (per aging) 200,000
As recorded (per client):
Allowance for doubtful accounts, 1/1/25 300,000
Add: doubtful accounts expense for 2025 150,000
Recovery of bad debts written off 50,000
Total 500,000
Less: bad debts written off 187,500 312,500
Decrease in recorded allowance 112,500
Requirement No. 1 (c)
(Debit) Allowance fordoubtful accounts 112,500
(Credit) Doubtful accounts expense 112,500

Requirement No. 2
a) P5,000,000 x 3% = P150,000
b) P300,000 + P150,000 +P50,000 - P187,500 = P312,500

Requirement No. 3
a) (P2,375,000 x 8% )+ P187,500 - P300,000 - P50,000 = P27,500
b) P2,375,000 x 8% = P190,000