Assignment 01 Trade and Other Receivables

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Shade the best answer with YELLOW.

1. Which of the following is incorrect?
a. The operating cycle always is one year in duration.
b. The operating cycle sometimes is longer than one year in duration.
c. The operating cycle sometimes is shorter than one year in duration.
d. The operating cycle is a concept applicable both to manufacturing and retailing enterprises.

2. The category "trade receivables" includes

a. advances to officers and employees.
b. income tax refunds receivable.
c. claims against insurance companies for casualties sustained.
d. none of these.

3. Which of the following should be recorded in Accounts Receivable?

a. Receivables from officers
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these

4. When the direct write-off method of recognizing bad debt expense is used, the entry to write off
a specific customer account would
a. increase net income.
b. have no effect on net income.
c. increase the accounts receivable balance and increase net income.
d. decrease the accounts receivable balance and decrease net income.

5. When comparing the allowance method of accounting for bad debts with the direct write-off
method, which of the following is true?
a. The direct write-off method is exact and also better illustrates the matching principle.
b. The allowance method is less exact but it better illustrates the matching principle.
c. The direct write-off method is theoretically superior.
d. The direct write-off method requires two separate entries to write off an uncollectible
account.

6. When the allowance method of recognizing bad debt expense is used, the entry to record the
write-off of a specific uncollectible account would decrease
a. allowance for doubtful accounts.
 b. net income.
c. net realizable value of accounts receivable.
d. working capital.
7. When a specific customer's account is written off by a company using the allowance method, the
effect on net income and the net realizable value of the accounts receivable is
Net Realizable Value
Net Income of Accounts
Receivable
a. None None
b. Decrease Decrease
c. Increase Increase
d. Decrease None

8. When the allowance method of recognizing bad debt expense is used, the entries at the time of
collection of a small account previously written off would
a. increase net income.
b. increase the allowance for doubtful accounts.
c. decrease net income.
d. decrease the allowance for doubtful accounts.

9. A method of estimating bad debts that focuses on the balance sheet rather than the income
statement is the allowance method based on
a. direct write-off.
b. aging the trade receivable accounts.
c. credit sales.
d. specific accounts determined to be uncollectible.

10. The entry

Accounts Receivable xxx

Allowance for Uncollectible Accounts xxx

would be made when

a. a customer pays its account balance.
b. a customer defaults on its account.
c. a previously defaulted customer pays its outstanding balance.
d. estimated uncollectible receivables are too low.

PROBLEM SOLVING:
1. At January 1, 20x1, Judy Co. had a credit balance of ₱260,000 in its allowance for uncollectible
accounts. Based on past experience, 2% of Judy 's credit sales have been uncollectible. During
20x1, Judy wrote off ₱325,000 of uncollectible accounts. Credit sales for 20x1 were ₱9,000,000. In
 its December 31, 20x1, balance sheet, what amount should Judy report as allowance for
uncollectible accounts?
a. 115,000
b. 180,000
c. 245,000
d. 440,000
2. On the December 31, 20x6, balance sheet of Esther Co., the current receivables consisted of the
following:

Trade accounts receivable 93,000

Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit (November 20x6) 3,000
Selling price of unsold goods sent by Esther on consignment at
130% of cost (not included in Esther's ending inventory) 26,000
Security deposit on lease of warehouse used for storing some
inventories
Total 150,000

At December 31, 20x6, the correct total of Esther's current net receivables was
a. 94,000
b. 120,000
c. 124,000
d. 150,000

3. The following information is from the records of Prosser, Inc. for the year ended December 31,
2002.

Allowance for Doubtful Accounts, January 1, 2002 .. ₱ 6,000 (cr)

Sales, 2002 ....................................... 2,920,000
Sales Returns and Allowances, 2002 ................ 32,000

If the basis for estimating bad debts is 1 percent of net sales, the correct amount of doubtful accounts
expense for 2002 is
a. ₱22,800.
b. ₱23,200.
c. ₱28,880.
d. ₱34,880.

4. An analysis and aging of the accounts receivable of Shriner Company at December 31 revealed
the following data:
Accounts Receivable .................................. ₱450,000
Allowance for Doubtful Accounts (before adjustment) .. 25,000 (cr)
Accounts estimated to be uncollectible ............... 32,000

The net realizable value of the accounts receivable at December 31 should be

a. ₱450,000.
b. ₱443,000.
c. ₱425,000.
d. ₱418,000.
5. Maple Company provides for doubtful accounts expense at the rate of 3 percent of credit sales.
The following data are available for last year:

Allowance for Doubtful Accounts, January ₱ (

1 ........ 54,000 c
r)
Accounts written off as uncollectible during the
year ............................................ 60,000
Collection of accounts written off in prior years .
(customer credit was re-established) .............. 15,000
Credit sales, year-ended December 31 .............. 3,000,00
0

The allowance for doubtful accounts balance at December 31, after adjusting entries, should be
a. ₱45,000.
b. ₱84,000.
c. ₱90,000.
d. ₱99,000.

6. Based on the aging of its accounts receivable at December 31, Pribob Company determined that
the net realizable value of the receivables at that date is ₱760,000. Additional information is as
follows:
Accounts Receivable at December 31 ................ ₱880,000
Allowance for Doubtful Accounts at January 1 ...... 128,000
(cr) Accounts written off as uncollectible during the year
............................................ 88,000

Pribob's doubtful accounts expense for the year ended December (31 is
a. ₱80,000.
b. ₱96,000.
c. ₱120,000.
d. ₱160,000.
7. Based on its past collection experience, Ace Company provides for bad debts at the rate of 2
percent of net credit sales. On January 1, 2002, the allowance for doubtful accounts credit balance
was ₱10,000. During 2002, Ace wrote off ₱18,000 of uncollectible receivables and recovered
₱5,000 on accounts written off in prior years. If net credit sales for 1999 totaled ₱1,000,000, the
doubtful accounts expense for 2002 should be
a. ₱17,000.
b. ₱20,000.
c. ₱23,000.
d. ₱35,000.

8. Richards Company uses the allowance method of accounting for bad debts. The following
summary schedule was prepared from an aging of accounts receivable outstanding on
December 31 of the current year.

No. of Days Probabilit

y
Outstanding Amount of
Collection
0-30 days ₱500,000 .98
31-60 days 200,000 .90
Over 60 days 100,000 .80

The following additional information is available for the current year:

Net credit sales for the year .................. ₱4,000,000

Allowance for Doubtful Accounts:
Balance, January 1 ............................. 45,000 (cr)
Balance before adjustment, December 31 ......... 2,000 (dr)

If Richards determines bad debt expense using 1.5 percent of net credit sales, the net realizable value
of accounts receivable on the December 31 balance sheet will be
a. ₱738,000.
b. ₱740,000.
c. ₱742,000.
d. ₱750,000.

9. Gekko, Inc. reported the following balances (after adjustment) at the end of 2002 and 2001.
12/31/2002 12/31/2001
Total accounts receivable ................. ₱105,000 ₱96,000 Net
accounts receivable ................... 102,000 94,500
During 2002, Gekko wrote off customer accounts totaling ₱3,200 and collected ₱800 on accounts
written off in previous years. Gekko's doubtful accounts expense for the year ending December 31,
2002 is
a. ₱1,500.
b. ₱2,400.
c. ₱3,000.
d. ₱3,900.

10. Gray Company had an accounts receivable balance of ₱50,000 on December 31, 2001, and ₱75,000
on December 31, 2002. The company wrote off ₱20,000 of accounts receivable during 2002, and
collected ₱3,000 on an account written off in 2000. Sales for the year 2002 totaled ₱620,000. All
sales were on account. The amount collected from customers on accounts receivable during 2002
was a. ₱575,000.
b. ₱578,000.
c. ₱600,000.
d. ₱595,000.