ACC 124 Proof of

Cash/Receivables/
Doubtful Accounts
NOEMI JANE O. DINSAY, CPA, LPT
Theory
Question
Credit balances in accounts receivable shall be classified
as

A) Current liabilities
B) Part of accounts payable
C) Long term liabilities
D) Deduction from accounts receivable
Credit balances in accounts receivable shall be classified
as

A) Current liabilities
B) Part of accounts payable
C) Long term liabilities
D) Deduction from accounts receivable
Refer to all items credited to the depositors account

A) Book debits
B) Book Credits
C) Bank Debits
D) Bank credits
Refer to all items credited to the depositors account

A) Book debits
B) Book Credits
C) Bank Debits
D) Bank credits
Accounts Receivable should normally be reported at

A) Present value of future cash receipts

B) Current value plus accrued interest
C) Current value less expected collection cost
D) Expected amount to be received
Accounts Receivable should normally be reported at

A) Present value of future cash receipts

B) Current value plus accrued interest
C) Current value less expected collection cost
D) Expected amount to be received
Which method of recording bad debt loss is consistent
with accrual accounting

a. Allowance method
b. Direct writeoff method
c. Percent of sales method
d. Percent of accounts receivable method
Which method of recording bad debt loss is consistent
with accrual accounting

a. Allowance method
b. Direct writeoff method
c. Percent of sales method
d. Percent of accounts receivable method
The advantages of relating the bad debt experiences to
accounts receivables is that this approach

A) Gives us reasonably correct measurement of accounts

receivables in the statement of financial position
B) Relates bad debt loss to the period of sale
C) Is the only generally accepted method for measuring
accounts receivables
D) Makes estimates of uncollectible accounts necessary
The advantages of relating the bad debt experiences to
accounts receivables is that this approach

A) Gives us reasonably correct measurement of accounts

receivables in the statement of financial position
B) Relates bad debt loss to the period of sale
C) Is the only generally accepted method for measuring
accounts receivables
D) Makes estimates of uncollectible accounts necessary
Problem Solving
 1. At the close of its first year of operations, December 31, 2007, Linn Company had accounts
receivable of $540,000, after deducting the related allowance for doubtful accounts. During 2007, the
company had charges to bad debt expense of $90,000 and wrote off, as uncollectible, accounts
receivable of $40,000. What should the company report on its balance sheet at December 31, 2007, as
accounts receivable before the allowance for doubtful accounts?

a. $670,000
b. $590,000
c. $490,000
d. $440,000
B

$540,000 + ($90,000
– $40,000) =
$590,000.
 2. Before year-end adjusting entries, Bass Company's account balances at December 31, 2007, for
accounts receivable and the related allowance for uncollectible accounts were $600,000 and $45,000,
respectively. An aging of accounts receivable indicated that $62,500 of the December 31 receivables
are expected to be uncollectible. The net realizable value of accounts receivable after adjustment is

a. $582,500.
b. $537,500.
c. $492,500.
d. $555,000.
2. B

$600,000 – $62,500 =
$537,500.
 3. During the year, Jantz Company made an entry to write off a $4,000 uncollectible account.
Before this entry was made, the balance in accounts receivable was $50,000 and the balance in the
allowance account was $4,500. The net realizable value of accounts receivable after the write-off entry
was

a. $50,000.
b. $49,500.
c. $41,500.
d. $45,500.
3. D

($50,000 – $4,000) – ($4,500

– $4,000) = $45,500.
 4. The following information is available for Reagan Company:

Allowance for doubtful accounts at December 31, 2006 8,000

Credit sales during 2007 400,000
Accounts receivable deemed worthless and written off during 2007
9,000

As a result of a review and aging of accounts receivable in early January

2008, however, it has been determined that an allowance for doubtful
accounts of $5,500 is needed at December 31, 2007. What amount should
Reagan record as "bad debt expense" for the year ended December 31, 2007?

a. $4,500
b. $5,500
c. $6,500
d. $13,500
4. C

$8,000 – $9,000 + X = $5,500; X = $6,500

5. Milo Company’s allowance for doubtful accounts was
P1,000,000 at the end of 2017 and P900,000 at the end of
2016. For the year ended December 31, 2017, Milo reported
doubtful accounts expense of P160,000 in its income
statement. What amount did Milo debit to the appropriate
account in 2017 to write off uncollectible accounts?

a. 60,000
b. 100,000
c. 160,000
d. 260,000
Solution: Answer A

Allowance for doubtful accounts – 12/31/16 900,000

Doubtful accounts expense 160,000
Total 1,060,000
Accounts written off (SQUEEZE) (60,000)
Allowance for doubtful accounts – 12/31/17 1,000,000
6. The following accounts were abstracted from Spain Company’s unadjusted
trial balance on December 31, 2021:
Debit Credit
Accounts receivable 5,000,000
Allowance for doubtful accounts 40,000
Net credit sales 20,000,000

Spain estimates that 3% of the gross accounts receivable will become

uncollectible. What amount should be recognized as doubtful accounts
expense for 2021?
a. 110,000
b. 150,000
c. 190,000
d. 600,000
Solution: Answer C.

Required allowance for doubtful accounts on December 31, 2017 (3% X 5,000,000) 150,000

If the percentage of accounts receivable method is used, the amount computed represents the require
ending allowance for doubtful accounts.

The doubtful accounts expense is determined as follows:

Allowance for doubtful, December 31, 2017 150,000

Add: Debit balance in allowance account before adjustment 40,000
Doubtful accounts expense 190,000
7. In the December 31, 2017 statement of financial position of Boulevard Company, the current receivables consisted the
following:

Trade accounts receivable 930,000

Allowance for uncollectible accounts (20,000)
Claims against shipper for goods lost
In transit (November 2017) 30,000
Selling price of unsold goods sent by
Boulevard on consignment at 130% at cost
(not included in Boulevard’s ending inventory) 260,000
Security deposit on lease warehouse
Used for storing some inventories 300,000
Total 1,500,000

On December 31, 2017 what total amount should be reported as trade and other receivables under current assets?
a. 940,000
b. 1,200,000
c. 1,240,000
d. 1,500,000
Solution: Answer A

Trade accounts receivable 930,000

Allowance for uncollectible accounts (20,000)
Claim receivable 30,000
Total trade and other receivables 940,000

The selling price of goods on consignment is excluded from accounts receivable because the goods are
still unsold.

The cost of the consigned goods of P200,000 (260,000/130%) should be included in inventory

The security deposit is a noncurrent receivable.

8. The following information is available for LenLen Company relating on 2021operations:

Accounts receivable, January 1 4,000,000

Accounts receivable collected 8,400,000
Cash sales 2,000,000
Inventory January 1 4,800,000
Inventory December 31 4,400,000
Purchases 8,000,000
Gross margin on sales 4,200,000

What is the balance of accounts receivable on December 31, 2021?

a. 8,200,000
b. 6,200,000
c. 2,000,000
d. 4,200,000
Solution: Answer B

Inventory – January 1 4,800,000

Purchases 8,000,000
Goods available for sale 12,800,000
Inventory – December 31 (4,400,000)
Cost of goods sold 8,400,000
Gross margin on sales 4,200,000
Gross sales 12,600,000
Cash sales (2,000,000)
Credit sales 10,600,000
Accounts receivable – January 1 4,000,000
Total 14,600,000
Accounts receivable collected (8,400,000)
Accounts receivable – December 31 6,200,000
9. The following data relate to accounts receivable of Baby M Company for 2021:

Accounts receivable, January 1 650,000

Credit sales 2,700,000
Sales return 75,000
Accounts written off 40,000
Collection from customers 2,150,000
Estimated future sales returns on December 31 50,000
Estimated uncollectible accounts at 12/31 per aging 110,000

What amount should Baby M report as net realizable value of accounts receivable on December 31, 2021?
a. 1,200,000
b. 1,125,000
c. 1,085,000
d. 925,000
Solution: Answer D

Accounts receivable – January 1 650,000

Credit sales 2,700,000
Total 3,350,000
Less: Collections from customers 2,150,000
Accounts written off 40,000
Sales returns 75,000 2,265,000
Accounts receivable – December 31 1,085,000

The net realizable value of accounts receivable is computed as follows:

Accounts receivable 1,085,000

Less: Allowance for doubtful accounts 110,000
Allowance for sales returns 50,000 160,000
Net realizable value 925,000
10. All of Good Company’s sales are on a credit basis. The following information is available for the current
year:

Allowance for doubtful accounts – January 1 180,000

Sales 9,500,000
Sales return and allowances 800,000
Sales discount 200,000
Accounts written off as uncollectible 200,000

Good provides for doubtful accounts expense at the rate of 3% of net sales, what is the allowance for
doubtful accounts at year end?

a. 435,000
b. 265,000
c. 235,000
d. 241,000
Solution: Answer C

Allowance for doubtful accounts – January 1 180,000

Doubtful accounts expense
(9,500,000 – 800,000 – 200,000 X 3%) 225,000
Total 435,000
Accounts written off (200,000)
Allowance for doubtful accounts – December 31 235,000

Under the percentage of sales method, the amount computed represents the doubtful accounts expense.
11. War Company showed the following at year-end:

Allowance for doubtful accounts (debit balance) (16,000)

Net sales 7,100,000

War estimates its uncollectible receivables at 2% of net sales. What is the allowance for doubtful accounts at
year-end?

a. 158,000
b. 144,500
c. 142,000
d. 126,000
Solution: Answer D

The allowance method for doubtful accounts at year-end is computed as follows:

Allowance for doubtful accounts before adjustment (debit balance) (16,000)

Doubtful accounts expense (7,100,000 X 2%) 142,000
Allowance for doubtful accounts December 31 126,000
12. Jollytown Company began operations on January 1, 2017. Jollytown has found that
its estimated bad debts expense has been consistently higher than actual bad debts.
Management proposes lowering the percentage from 3% of credit sales to 2%.
Credit sales for 2018 totaled P5,000,000, and accounts written off as uncollectible
during 2018 totaled P550,000. What is the bad debt expense for 2018?

a. 150,000
b. 100,000
c. 550,000
d. 240,000
Solution: Answer B

Bad debt expense for 2018 (2% X 5,000,000) 100,000

13. Cebu Company follows the procedure for debiting bad debt expense for 2% of all
new sales.

Sales Allowance for bad debts

2015 3,000,000 40,000
2016 2,800,000 60,000
2017 3,500,000 80,000

What is the amount of accounts written off in 2017?

a. 50,000
b. 70,000
c. 10,000
d. 86,000
Solution: Answer A

Allowance for bad debts – December 31, 2016 60,000

Bad debts expense for 2017 (2% x 3,500,000) 70,000
Total 130,000
Allowance for bad debts – December 31, 2017 80,000
Accounts written off in 2017 50,000
14. Jed Company provided the following information in relation to the bank account:

Balance per bank statement on May 31 6,200,000

Balance per ledger, May 31 3,750,000
Deposit of May 30 not recorded by the bank 1,400,000
Debit Memo-Service Charges 50,000
Credit Memo-collection of notes by bank for Jed 1,500,000
Outstanding checks ?

Check for the purchase of supplies was drawn for 300,000 but was recorded as 200,000.
The management wrote a check for traveling expenses of 500,000 while out of town. The
check was not recorded.

What is the amount of outstanding check on July 31?

ANSWER:

3,000,000
15. The accountant of Libya Company prepared the following bank reconciliation dated June
30 of the current year.

Balance per bank 9,800,000

Deposit in transit 400,000
Outstanding checks (1,400,000)
Balance per book 8,800,000

There were total deposits of P6,500,000 and charges for disbursements of P9,000,000 for July
per bank statement.

All reconciliation items on June 30 cleared the bank on July 31. Checks outstanding amounted
to P1,000,000 on July 31.

What is the amount of cash disbursements per book in July?

ANSWER:

8,600,000