I - Theories

1. Allowance for Doubtful Accounts on the balance sheet

a. is offset against total current assets.
b. increases the cash realizable value of accounts receivable.
c. appears under the heading "Other Assets."
d. is offset against accounts receivable.

2. The percentage of receivables basis for estimating uncollectible accounts emphasizes

a. cash realizable value.
b. the relationship between accounts receivable and bad debts expense.
c. income statement relationships.
d. the relationship between sales and accounts receivable.
3. To record an entry using the allowance method, the entry would be
a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.
b. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.
c. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.
d. debit to Loss on Credit Sales and a credit to Accounts Receivable

4. The existing balance in Allowance for Doubtful Accounts is considered in computing bad
debts expense in the
a. direct write-off method.
b. percentage of receivables basis.
c. percentage of sales basis.
d. percentage of receivables and percentage of sales basis.

5. If a company fails to record estimated bad debts expense,

a. cash realizable value is understated.
b. expenses are understated.
c. revenues are understated.
d. receivables are understated.

6. Accounts receivable is one of a series of ________ transactions dealing with the billing of a
customer for goods and services he/she has ordered.
a. accountancy
b. balance sheet
c. income statement
d. none of the above

7. Companies can use their accounts receivable as collateral when obtaining a ________ (asset-
based lending) or sell them through factoring.
a. debt
b. loan
c. bond (finance)
d. credit (finance)

8. The change in the bad debt provision from year to year is posted to the bad debt expense
account in the ________.
a. cash flow statement
b. revenue
c. income statement
d. general ledger

9. On a company’s ________, accounts receivable is the money owed to that company by

entities outside of the company.
a. equity (finance)
b. accountancy
c. asset
d. balance sheet

10. Trade accounts receivable are valued and reported on the balance sheet
a. in the investment section.
b. at gross amounts less sales returns and allowances.
c. at net realizable value.
d. only if they are not past due.

11. Which one of the following is not a primary problem associated with accounts receivable?
a. Depreciating accounts receivable
b. Recognizing accounts receivable
c. Valuing accounts receivable
d. Disposing of accounts receivable

12. All of the following are valid bad debts expense assumptions except
a. percentage of receivables method
b. direct write off method
c. percentage of sales method
d. treat bad debts as unusual items that do not often occur

13. All of the following statements are true regarding bad debts expense except
a. When using the income statement method, we concentrate on percentage of net credit sales.
b. When using the balance sheet method, the percentage of net credit sales is not considered.
c. Calculation of bad debts expense is required at least once a year when a company has
receivables.
d. All of the above are correct.

14. When an account is written off, Accounts Receivable will be credited. Under the Allowance
method, the debit will go to:
a. Bad Debts Expense
b. Allowance for Doubtful Accounts
c. Cash
d. None of these

15. The estimate of bad debts can be based on either a percentage of net sales, or:
a. a percentage of aged receivables.
b. a percentage of actual bad debts deemed uncollectible last period.
c. a percentage of next month’s anticipated sales.
d. None of these

16. Under the Allowance method of accounting for uncollected accounts, an adjusting entry is
made each period debiting Bad Debts Expense and crediting
a. Accounts Receivable
b. Allowance for Doubtful Accounts
c. Cash
d. None of these

17. Which accounting principle or concept permits the direct write-off method of accounting for
bad debts?
a. full-disclosure principle
b. business entity concept
c. matching principle
d. materiality principle

18. A firm using the allowance method of accounting for bad debts expense has recovered a bad
debt that was written off one year ago. The appropriate journal entry to record the recovery
would include a
a. credit to the Allowance for Doubtful Accounts account
b. debit to the Bad Debt Expense account
c. credit to the Bad Debt Expense account
d. debit to the Allowance for Doubtful Accounts account

19. When a firm writes off a bad debt under the allowance method of accounting for bad debts
a. the realizable value of accounts receivable decreases
b. total net current assets will decrease
c. the cash account will decrease
d. the realizable value of accounts receivable will not change
20. When a firm collects (recovers) an account receivable that was previously written off under
the allowance method of accounting for bad debts,
a. the realizable value of accounts receivable will decrease
b. the cash account will decrease by the full amount of the recovery
c. the allowance account will decrease by the amount collected
d. the realizable value of accounts receivable will increase

21.

I-Allowance for Doubtful Accounts is a contra-asset.

II-Bad Debts Expense is a contra-asset.

a. Only I is true
b. Only II is true
c. Both statements are true
d. Both statements are false

22. When a company debits Bad Debts Expense and credits Allowance for Doubtful Accounts,
a. their net income increases.
b. their expenses increase.
c. there is no effect on current assets.
d. there is no effect on net income.

23. The direct write-off method

a. is acceptable for financial reporting purposes.
b. debits Allowance for Doubtful Accounts to record write-offs of accounts.
c. shows only actual losses from uncollectible accounts receivable.
d. estimates bad debt losses.

24. Under the allowance method of accounting for uncollectible accounts,

a. the cash realizable value of accounts receivable is greater before an account is written
off than after it is written off.
b. Bad Debts Expense is debited when a specific account is written off as uncollectible.
c. Bad Debts Expense is debited and Allowance for Doubtful Accounts is credited.
d. Allowance for Doubtful Accounts is closed each year to Income Summary.

25. The term "receivables" refers to

a. amounts due from individuals or companies.
b. merchandise to be collected from individuals or companies.
c. cash to be paid to creditors.
d. cash to be paid to debtors.
 II - Problem Solving

1. Mikhail Company provided the following information for the current year:
Accounts receivable, January 1 1,000,000
Credit sales 2,000,000
Collections from customers 1,500,000
Accounts written off 100,000

What is the balance of accounts receivable on December 31?

a. 1,400,000
b. 1,500,000
c. 3,000,000
d. 2,900,000
Solution: Answer a
Accounts receivable, January 1 1,000,000
Credit sales 2,000,000
Collection from customers (1,500,000)
Accounts written off (100,000)
Accounts receivable, December 31 1,400,000

2. Maria Company provided the following data relating to accounts receivable for the current
year:
Accounts receivable, January 1 650,000
Credit sales 2,700,000
Sales returns 75,000
Accounts written off 40,000
Collection from customers 2,150,000
Estimated uncollectible accounts at year-end per aging 110,000

What is the net realizable value of accounts receivable on December 31?

a. 1,200,000
b. 1,125,000
c. 1,085,000
d 975,000
Solution: Answer d
Accounts receivable, January 1 650,000
Credit sales 2,700,000
Sales returns (75,000)
Accounts written off (40,000)
Collection from customers (2,150,000)
Accounts receivable, December 31 1,085,000
Estimated uncollectible accounts at year-end per aging (110,000)
Net realizable value 975,000

Questions 3 - 4 are based on the following information:

Hasmin Company provided the following information at year-end:
Accounts receivable, January 1 1,000,000
Credit sales 2,500,000
Claim receivable 500,000
Collections from customers 1,000,000
Subscription receivable 600,000

3. What is the balance of accounts receivable at year-end?

a. 2,500,000
b. 2,000,000
c. 4,000,000
d. 3,000,000
Solution: Answer a
Accounts receivable, January 1 1,000,000
Credit sales 2,500,000
Collections from customers (1,000,000)
Accounts receivable, December 31 2,500,000

4. What total amount should be reported as trade and other receivables?

a. 3,600,000
b. 3,000,000
c. 2,500,000
d. 3,100,000
Solution: Answer b
Accounts receivable, December 31 2.500,000
Claim receivable 500,000
Trade and other receivables 3,000,000

5. Drangleic Company revealed a balance of P2,187,500 in the accounts receivable control at

year-end.
An analysis of the accounts receivable showed the following:
Accounts known to be worthless 30,000
Advance payments to creditors on purchase orders 250,000
Advances to affiliated entities 70,000
Interest receivable on bonds 12,500
Trade accounts receivable - unassigned 500,000
Trade accounts receivable - assigned 1,000,000
Trade accounts receivable from officers, due currently 325,000

What amount should be reported as trade accounts receivable at year-end?

a.1,895,000
b. 1,500,000
c. 1,875,000
d. 1,720,000
Solution: Answer c
Trade accounts receivable - unassigned 500,000
Trade accounts receivable - assigned 1,000,000
Trade accounts receivable from officers, due currently 325,000
Total trade accounts receivable 1,825,000

Questions 6 - 7 are based on the following information:

6. Babe Company provided the following transactions affecting accounts receivable during the
current year:
Credit sales 2,200,000
Accounts receivable written off as worthless 100,000
Collections from customers 1,780,000
Sales returns and allowances 60,000
Accounts receivable, January 1 750,000
Allowance for doubtful accounts, January 1 160,000

The entity provided for uncollectible account losses at the rate of 2% of gross sales.

6. What is the balance of accounts receivable on December 31?

a. 1,010,000
b. 1,070,000
c. 1,170,000
d. 1,110,000

Solution: Answer a
Accounts receivable, January 1 750,000
Credit sales 2,200,000
Sales returns and allowances (60,000)
Accounts receivable written off as worthless (100,000)
Collections from customers (1,780,000)
Accounts receivable, December 31 1,010,000

7. What is the balance of allowance for doubtful accounts on December 31?

a. 204,000
b. 60,000
c. 104,000
d. 102,800

Solution: Answer c
Allowance for doubtful accounts, January 1 160,000
Doubtful accounts expense (2,200,000 x 2%) 44,000
Accounts written off (100,000)
Allowance for doubtful accounts, December 31 104,000

8. At the beginning of the current year, Oriath Company had a credit balance of P250,000 in the
allowance for uncollectible accounts. Based on past experience, 2% of credit sales would be
uncollectible.
During the current year, the entity wrote of P200,000 of uncollectible accounts. Credit sales for
the year totaled P5,000,000.
What is the uncollectible accounts expense for the current year?
a. 150,000
b. 100,000
c. 350,000
d. 120,000
Solution: Answer b
Uncollectible accounts expense (5,000,000 x 2%) 100,000

9. At year-end, Alvarico Company reported gross sales of P4,000,000, sales returns and
allowances of P50,000, and allowance for doubtful accounts with a debit balance of P10,000
before adjustment. The entity estimated the uncollectible accounts receivable at 5% of net sales.

What is the allowance for doubtful accounts at year-end?

a. 200,000
b. 190,000
c. 197,500
d. 187,500
Solution: Answer d
Doubtful accounts expense (4,000,000 - 50,000 x 5%) 197,500
Debit balance of allowance for doubtful accounts (10,000)
Allowance for doubtful accounts, December 31 187,500

10. Tagitican Company provided the following information for the current year:
Allowance for doubtful accounts, January 1 60,000
Net realizable value of accounts receivable on December 31 2,000,000
Accounts receivable, December 31 2,150,000
Accounts written off 20,000

What is the doubtful accounts expense for the current year?

a. 150,000
b. 120,000
c. 100,000
d. 110,000
Solution: Answer d
Allowance for doubtful accounts, January 1 60,000
Doubtful accounts expense 110,000
Accounts written off (20,000)
Allowance for doubtful accounts, December 31 150,000

11. Juliano Company's allowance for doubtful accounts was P1,000,000 at the end of 2019 and
P900,000 at the end of 2018.
For the year ended December 31, 2019, the entity reported doubtful accounts expense of
P150,000 in the income statement.
What amount was debited to the appropriate account to write off uncollectible accounts in 2017?
a. 50,000
b. 100,000
c. 75,000
d. 60,000

Solution: Answer a
Allowance for doubtful accounts, December 2018 900,000
Doubtful accounts expense 150,000
Accounts written off (50,000)
Allowance for doubtful accounts, December 2019 1,000,000

Questions 12 - 14 are based on the following information:

Carlitos Company provided the following information for the current year:
Accounts receivable, January 1 500,000
Credit sales 3,000,000
Sales returns and allowances 200,000
Collections from customers 1,200,000
Allowance for doubtful accounts, January 1 (100,000)

The entity provided for doubtful accounts expense at the rate of 4% of net sales.

12. What is the doubtful accounts expense for the current year?
a. 112,000
b. 120,000
c. 110,000
d. 105,000
Solution: Answer a
Doubtful accounts expense (3,000,000 - 200,000 x 4%) 112,000

13. What is the balance of allowance for doubtful accounts at year-end?

a. 20,000
b. 10,000
c. 12,000
d. (12,000)
Solution: Answer c
Allowance for doubtful accounts, January 1 (100,000)
Doubtful accounts expense 112,000
Allowance for doubtful accounts, December 31 12,000

14. What is the net realizable value of the accounts receivable at year-end?
a. 2,088,000
b. 2,100,000
c. 2,050,000
d. 2,000,000
Solution: Answer a
Accounts receivable, January 1 500,000
Credit sales 3,000,000
Sales returns and allowances (200,000)
Collections from customers (1,200,000)
Accounts receivable, December 31 2,100,000
Allowance for doubtful accounts, December 31 (12,000)
Net realizable value 2,088,000

15. Dolphin Company provided the following accounts abstracted from the unadjusted trial
balance at year-end:
Accounts receivable 6,000,000
Allowance for doubtful accounts 10,000
Credit sales 7,800,000
Sales returns and allowances 200,000

The entity estimated that 6% of the gross accounts receivable will become uncollectible.
What should be the adjusted balance of the allowance for doubtful accounts at year-end?
a. 370,000
b. 360,000
c. 466,000
d. 456,000
Solution: Answer b
Required allowance for doubtful accounts (6,000,000 x 6%) 360,000

Questions 16 - 17 are based on the following information:

Trickster Company provided the following data for the current year:
Accounts receivable - customer 7,800,000
Collection on subscriptions receivable 200,000
Subscriptions receivable 400,000
Accounts payable 60,000
Cash received in advance from customers 500,000
Notes payable 225,000

The entity estimated 4% of the accounts receivable to be uncollectible.

16. What is the net realizable value of accounts receivable?

a. 7,800,000
b. 8,288,000
c. 7,488,000
d. 7,288,000
Solution: Answer c
Accounts receivable - customers 7,800,000
Allowance for doubtful accounts (7,800,000 x 4%) (312,000)
Net realizable value 7,488,000

17. What amount of receivables should be reported under noncurrent assets?

a. 400,000
b. 900,000
c. 625,000
d. 200,000
Solution: Answer d
Subscriptions receivable 400,000
Collection on subscriptions (200,000)
Long-term receivables 200,000

18. Bob Company provided the following information pertaining to accounts receivable at year-
end:
Days outstanding Estimated amount Estimated uncollectible
0 - 60 1,200,000 1%
61 - 120 900,000 2%
Over 120 1,000,000 60,000

At the beginning of the current year, the allowance for uncollectible accounts was P100,000.

Under the aging method, what amount of allowance for uncollectible accounts should be
reported at year-end?
a. 90,000
b. 190,000
c. 60,000
d. 100,000
Solution: Answer a
0 - 60 (1,200,000 x 1%) 12,000
61- 120 (900,000 x 2%) 18,000
Over 120 60,000
Allowance for uncollectible accounts, December 31 90,000

Questions 19 - 20 are based on the following information:

Warlock 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:
Number of days outstanding Amount Probability of collection
0 - 30 5,000,000 98%
31 - 60 2,000,000 90%
Over 60 1,000,000 80%
The following additional information is available for the current year:
Allowance for doubtful accounts, December 31 (20,000)

The entity based the estimate of doubtful accounts on the aging of accounts receivable.

19. What amount should be recognized as doubtful accounts expense for the current year?
a. 470,000
b. 520,000
c. 500,000
d. 450,000
Solution: Answer b
0 - 30 (5,000,000 x 2%) 100,000
31 - 60 (2,000,000 x 10%) 200,000
Over 60 (1,000,000 x 20%) 200,000
Required allowance for doubtful accounts 500,000
Debit balance in allowance for doubtful accounts 20,000
Doubtful accounts expense 520,000

20. What should be the balance of allowance for doubtful accounts at year-end?
a.520,000
b. 500,000
c. 450,000
d. 470,000
Solution: Answer b
0 - 30 (5,000,000 x 2%) 100,000
31 - 60 (2,000,000 x 10%) 200,000
Over 60 (1,000,000 x 20%) 200,000
Required allowance for doubtful accounts 500,000

21. Queen Company provided the following data for the current year:
Allowance for doubtful accounts - January 1 180,000
Sales 950,000
Sales returns and allowances 10,000
Sales discounts 3,000
Accounts written off as uncollectible 20,000

The entity provided for doubtful accounts at the rate of 3% of gross sales.

What is the allowance for doubtful accounts at year-end?

a. 235,500
b. 208,500
c. 188,500
d. 141,500
Solution: Answer c
Allowance for doubtful accounts - January 1 180,000
Doubtful accounts expense (950,000 x 3%) 28,500
Accounts written off (20,000)
Allowance for doubtful accounts - December 31 188,500

Questions 22 - 25 are based on the following information:

From inception of operations, Penguin Company provided for uncollectible accounts expense
under the allowance method.
Provisions were made monthly at 3% of credit sales, bad debts written off were charged to the
allowance account and recoveries of bad debts previously written off were credited to the
allowance account.
No year-end adjustments to the allowance account were made.
The allowance for doubtful accounts was P100,000 on January 1, 2019.
During the current year, credit sales totaled P9,000,000, interim provisions for doubtful accounts
were made at 3% of credit sales, P90,000 of bad debts were written off, and recoveries of
accounts previously written off amounted to P15,000.
The entity prepared an aging of accounts receivable for the first time on December 31, 2019.
Classification Balance Uncollectible
November - December 2,000,000 2%
July - October 600,000 10%
January - June 400,000 25%
Prior to January 1, 2019 200,000 75%
Effective with the year ended December 31, 2019, the entity adopted a new accounting method
for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging
analysis of accounts receivable.
22. What is the required allowance for doubtful accounts on December 31, 2019?
a. 350,000
b. 320,000
c. 300,000
d. 720,000
Solution: Answer a
November - December (2,000,000 x 2%) 40,000
July - October (600,000 x 10%) 60,000
January - June (400,000 x 25%) 100,000
Prior to January 1, 2019 (200,000 x 75%) 150,000
Required allowance - December 31, 2019 350,000

23. What amount was recorded as doubtful accounts expense for 2019?
a. 180,000
b. 250,000
c. 300,000
d. 270,000
Solution: Answer d
Recorded doubtful accounts expense (9,000,000 x 3%) 270,000

24. What amount should be reported as doubtful accounts expense in the income statement for
2019?
a. 335,000
b. 270,000
c. 325,000
d. 340,000
Solution: Answer c
Allowance for doubtful accounts - January 1 100,000
Doubtful accounts expense 325,000
Recovery of accounts written off 15,000
Accounts written off (90,000)
Allowance for doubtful accounts - December 31 350,000

25. What is the year-end adjustment to the allowance for doubtful accounts on December 31,
2019?
a. 55,000
b. 65,000
c. 25,000
d. 45,000
Solution: Answer a
Correct doubtful accounts expense 325,000
Recorded doubtful accounts expense (270,000)
Increase in doubtful accounts expense 55,000