FAR Assignment Format - Financial Accounting and Reporting PDF

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Geliemae G. Bajan A-Chapter 8. Receivable Financing Pledge, Assignment and Factoring Define.  Question.  Question.  Question.  Question. . Question. . Question. . Question  Question.  Question  Question.  Problem 4-2. Credible company provided the following T-accounts summarizing the tran...

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Geliemae G. Bajan

A-11

Chapter 8. Receivable Financing Pledge, Assignment and Factoring 1. Define.  2. Question.  3. Question.  4. Question.  5. Question.  . 6. Question.  . 7. Question.  . 8. Question  9. Question.  10. Question  11. Question.  Problem 4-2. Credible company provided the following T-accounts summarizing the transaction affecting the accounts receivable for the current year. Accounts Receivable Jan. 1 balance Charge sales Shareholder’s subscriptions Deposit on contract Claims against common carrier for damages IOUs from employees Cash advance to affiliates Advances to a supplier

600,000 6,000,000 200,000 120,000 100,000 10,000 100,000 50,000

Collections from customers Writeoff Merchandise returns Allowances to customer for shipping damages Collections on carrier claims Collection on subscriptions

Required: a. Compute the correct amount of accounts receivable. Accounts receivable – January 1 Charge sales Total Less: Collections from customers 5,300,000 Writeoff 35,000 Merchandise returns 40,000 Allowances to customers 25,000 Accounts receivable – December 31 b. Prepare one compound entry to adjust the accounts receivable. Subscription receivable 150,000 Deposit on contract 120,000 Claim receivable 60,000 Advances to employees 10,000 Advances to affiliated 100,000

600,000 6,000,000 6,600,000

(5,400,000) 1,200,000

5,300,000 35,000 40,000 25,000 40,000 50,000

Advances to supplier Accounts receivable

50,000

490,000

c. Compute the amount to be presented as “trade and other receivables” under current assets. Accounts receivable 1,200,000 Claim receivable 60,000 Advances to employees 10,000 Advances to supplier 50,000 Total trade and other receivables 1,320,000 d. Indicate the classification and presentation of the other items. Subscriptions receivable should be deducted from subscribed shared capital Deposit on contract should be classified as noncurrent and presented as other noncurrent asset. Advances to affiliates should be classified as noncurrent and presented as long-term investment. Chapter 5. Estimation of Doubtful Accounts 1. What are the three methods of estimating doubtful accounts?  Aging the accounts receivable method  Percent of accounts receivable method  Percent of sales method 2. Explain the aging method of estimating doubtful accounts.  The aging of accounts receivable classifies accounts into not due and past due. This method determines the allowance by multiplying the total of each classification by the rate or percent of loss experienced by the entity for each category. The amount computed by aging method represents the required allowance for doubtful accounts at the end of the period. 3. Explain the percentage of accounts receivable method of estimating doubtful accounts.  The percentage of accounts receivable determines the required allowance by multiplying a certain rate, from past experience of the entity, with the open accounts at the end of the period. This method has the advantage of presenting the accounts receivable at estimated net realizable value. 4. Explain why the aging method and percentage of accounts receivable are known as “statement of financial position approach”.  Both methods compute for the allowance for doubtful accounts using an estimated percentage of accounts receivable, an element found on the statement of financial position. Also both methods have the advantage of presenting the accounts receivable in the statement of financial position at estimated net realizable value. 5. Explain the percentage of sales method of estimating doubtful accounts.  The percentage of sale method multiplies the amount of sales by a certain rate to get the doubtful accounts expense. The rate may be applied to credit sales or total sales. 6. Explain why the percentage of sales method is known as “income statement approach”.  When the “percent of sales” method is used in computing doubtful accounts, there is a proper matching of cost against revenue. This is so because the bad debt loss is directly related to sales and reported in the year of sale. Thus, this method is an income statement approach because it favors the income statement. 7. When is an account past due?  The credit terms will determine whether an account is past due. The phrase past due refers to the period beyond the maximum credit term. 8. Explain the treatment of an inadequate or excessive allowance for doubtful accounts.  When the allowance is inadequate or excessive, the correction is to be reported in the income statement either as an addition to or subtraction from doubtful accounts expense. The reason is that the correction is the natural result of a change in estimate. Changes in estimate are treated currently and prospectively, if necessary.  Adjustment for inadequate allowance Doubtful accounts expense XX Allowance for doubtful accounts XX  Adjustment for excessive allowance Allowance for doubtful accounts XX Doubtful accounts expense XX 9. Is a debit balance in the allowance for doubtful accounts possible?



The normal balance of allowance for doubtful accounts is credit. However, in some cases, it may have a debit balance because of an entity’s policy to adjust the allowance at the end of the period and record accounts written off during the year.

10. What does a debit balance in the allowance for doubtful accounts indicate?  A debit balance in the allowance for doubtful accounts indicates that actual bad debt write-offs have exceeded previous provisions for bad debts. Problem 5-1. Marvelous Company reported the following information before adjustments at year-end: Accounts receivable Notes receivable Allowance for doubtful accounts Sales Sales return and allowances Sales discount

500,000 200,000 20,000 5,000,000 30,000 20,000

Required: Prepare adjusting entry to provide for doubtful accounts under each of the following independent assumptions: a. Past experience indicates that 75% of all sales are credit sales and that an average 2% of credit sales may prove uncollectible. Credit sales (5,000,000 x 75%) 3,750,000 Doubtful accounts (3,750,000 x 2%) 75,000 Doubtful accounts expense 75,000 Allowance for doubtful accounts 75,000 b. One percent of gross sales may prove uncollectible. Doubtful accounts (5,000,000 x 1%) 50,000 Doubtful accounts expense Allowance for doubtful accounts

50,000 50,000

c. An analysis of the aging of trade receivables indicates that accounts receivable in the amount of P80, 000 may prove uncollectible. Required allowance 80,000 Less: Credit balance of allowance 20,000 Doubtful accounts expense 60,000 Doubtful accounts expense 60,000 Allowance for doubtful accounts 60,000 d. The policy is to maintain an allowance for doubtful accounts equal to 10% of the outstanding accounts receivable. Required allowance (500,000 x 10%)50,000 Less: Credit balance of allowance 20,000 Doubtful accounts 30,000 Doubtful accounts expense 30,000 Allowance for doubtful accounts 30,000 Problem 5-4. At the beginning of current year, Relentless Company reported the following balances: Accounts receivable Allowance for doubtful accounts The following transactions took place in the current year. 1. Sales – cash and credit 2. Cash received from credit customer 3. Cash received from credit customers who took advantage of the 3/10, n/30 credit terms (included in No.2) 4. Accounts receivable written off as worthless 5. Cash received from cash customers 6. Credit memo for sales return and allowances issued to credit customers 7. Cash refunds to cash customers 8. Recoveries of accounts written off, not included in above collections

600,000 25,000 3,070,000 2,455,000 1,455,000 20,000 470,000 55,000 10,000 5,000

Required:

a. Prepare journal entries to record the transactions. 1. Accounts receivable 2,600,000 Sales (3,070,000 – 470,000) 2. Cash (2,455,000 – 1,455,000) 1,000,000 Accounts receivable 3. Cash 1,455,000 Sales Discount 45,000 Accounts receivable 4. Allowance for doubtful accounts 20,000 Accounts receivable 5. Cash 470,000 Sales 6. Sales return and allowance 55,000 Accounts receivable 7. Sales return and allowance 10,000 Cash 8. Accounts receivable 5,000 Allowance for doubtful accounts Cash 5,000 Accounts receivable

2,600,000 1,000,000

1,500,000 20,000 470,000 55,000 10,000 5,000 5,000

b. Prepare the adjustment for doubtful accounts if the entity provides for doubtful accounts equal to 2% of net credit sales. Credit sales 2,600,000 Sales discount (45,000) Sales return and allowances (55,000) Net credit sales 2,500,000 Doubtful accounts (2,500,000 x 2%) Doubtful accounts expense 50,000 Allowance for doubtful accounts 50,000 c. Determine the net realizable value of accounts receivable at year-end. Accounts receivable 625,000 Allowance for doubtful accounts (60,000) Net realizable value 565,000 Problem 5-5. At the beginning of current year, Nostalgia Company reported the following information: Accounts receivable 1,500,000 Allowance for doubtful accounts 60,000 The following summary transactions affecting accounts receivable occurred during the current year: Sales – all on account 2/10, 1/15, n/60

7,935,000

Cash received from customers

8,000,000

The cash received from customers include the following: Customers paying within the 10-day discount period Customers paying within the 15-day discount period Recovery of accounts written off Customers paying beyond the discount period

4,410,000 2,475,000 15,000 1,100,000

Accounts receivable written off as worthless

55,000

Credit memoranda for sales return

30,000

Required: a. Prepare journal entries to record the transactions. Accounts receivable Sales Cash Sales Discount Accounts receivable Cash

7,935,000 7,935,000 4,410,000 90,000 4,500,000 2,475,000...