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Accounting 23
LESSON 2: ACCOUNTS RECEIVABLE

PAS 1, paragraph 66 “ An entity shall classify an asset as current when the entity expects to realize the
asset or intends to sell or consume it in the entity’s normal operating cycle, or when the entity expects or
realize the asset within twelve months after the reporting period”.

REVIEW PROBLEMS
Multiple Choice
1. M Company Provided some information on their financial records on December 31, 2020:
Accounts Receivable, January 1 P1,920,000
Collections of accounts receivables 6,240,000
Bad debts 200,000
Inventory, January 1 2,880,000
Inventory, December 31 2,640,000
Accounts payable, January 1 1,000,000
Accounts payable, December 31 1,500,000
Cash sales 1,200,000
Purchases 4,800,000
Gross profit on sales 2,160,000

What is the ending balance of accounts receivable on December 31, 2020?

a. P1,680,000 b. P2,880,00 c. P3,120,000 d. P4,080,000

2. On the December 31, 2020 balance sheet of MM Company, the current receivables consisted of the following:
Trade accounts receivable P232,500
Allowance for uncollectible accounts (5,000)
Claim against shipper for goods lost in transit (Oct. 2020) 7,500
Selling price of unsold goods sent by MM to consignee 65,000
Security deposit on lease of warehouse used for storing inventories 75,000
Total P375,000

At December 31, 2020, how much should be MM’s total current net receivables?
a. P235,000 b. P300,000 c. P310,000 d. P375,000

3. H Corporation had the following information relating to its accounts receivable:

Accounts receivable, Dec, 31, 2019 P1,950,000

Credit sales for 2020 8,100,000
Collections from customers for 2020 7,125,000
Accounts written off, August 30, 2020 187,500
Estimated uncollectible receivables per aging of Receivables,
December 31, 2020 247,500

In the December 31, 2020 statement of financial position, what is the amortized cost of the receivable?
a. P2,490,000 b. P2,737,500 c. P2,775,000 d. P2,925,000

4. On December 31, 2020, the “Receivables” account of C Company shows an amortized cost of P1,950,000.
Subsidiary details show the following:

Trade accounts receivables, P775,000; Trade notes receivable, P100,000; installment receivable, normally due
one (1) year to two (2) years, P300,000; Customers’ accounts reporting credit balances arising from sales
returns, P30,000; Advance payments for purchase of merchandise, P150,000; Customers’ accounts reporting
credit balances arising from advance payments, P20,000; Cash advances to subsidiary, P400,000; Claims from
insurance company, P15,000; Subscriptions receivable due in 60 days, P300,000; Accrued interest receivable,
P10,000.

How much should be presented as “trade and other receivables” under current assets?
a. P725,000 b. P1,125,000 c. P1,290,000 d. P1,650,000

5. The following information relates to H Company’s accounts receivables for 2020:

Accounts receivable, January 1, 2020 P975,000
Credit sales for 2020 4,050,000
Sales returns for 2020 112,500
Impairment of receivable 2020 60,000
Collections from customers during 2020 3,225,000
Estimated future sales returns at Dec. 31, 2020 75,000
Estimated sales discounts accounts at Dec. 31, 2020 25,000

What amount should H Company report for accounts receivable at Dec. 31, 2020 statement of financial
position?
a. P1,527,500 b. P1,627,500 c. P1,627,000 d. P1,800,000
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6. At January 1, 2020, Q Company had a receivable from A Company of P400,000 that has been outstanding for
quite sometime. Initial investigation revealed that A Company is in deep financial dilemma. At present A
Company is unable to settle all obligations but further investigation revealed that F Company is taking over to
run and operate the business affairs of A Company. However, F Company is more than willing to assume only
75% of A Company’s financial obligation and by the end of 2021, all the assumed financial obligations of A
Company will be settled. As of December 31, 2020 Q Company expects to collect P300,000 that is due from A
Company. At the time the receivable was recognized the prevailing effective rate of interest for a similar asset
is 14%.
PV of 14% after 1 period 0.87719
Q#1: What amount should Q Company report in its December 31, 2020 statement of financial position
involving its accounts receivable?
a. P136,843 b. P263,157 c. P300,000 d. P400,000

Q#2: What amount of bad debt/impairment loss should Q Company recognize related to its accounts
receivable in 2020?
a. P136,843 b. P263,157 c. P300,000 d. P400,000

7. The balance of the accounts receivable was extracted from P Company’s unadjusted trial balance at December
31, 2020:
Accounts receivable P1,000,000
A test of collectability of the receivable showed that P580,000 is currently collectible and not impaired;
P300,000 has been outstanding more than the required period for similar transaction and objective evidence
showed that only P158,000 is considered realizable but with a current fair value of P141,000; the remaining
receivable balance has been outstanding for 2 years and P Company estimates that none of which will be
realized.

What amount should the account receivable be reported in the December 31, 2020 statement of
financial position?
a. P291,000 b. P458,000 c. P721,000 d. P738,000

8 M Corporation had a specific receivable from a customer in the amount of P600,000 as of December 31, 2019.
During 2020, the customer informed M Corporation that servicing of its payable will be made once there is
significant improvement in their financial capabilities. Since there are no available historical data relating to
similar borrowers, M Corporation uses its experienced judgement to estimate the amount of impairment loss.
Reasonable estimate revealed that the fair value of the receivables as of December 31, 2020 represents 40%
of the outstanding receivable,

What amount of impairment loss on its receivable should AJ report for 2020?
a. None b. P240,000 c. P360,000 d. P600,000

9. On December 31, 2020, general ledger of M Company’s account receivable showed a balance of P1,400,000.
Because of continuing decrease in expected cash flows on its financial assets, M Company has decided to
estimate the cash flows of the outstanding receivables. The estimates are based on the expected peso amount
to be received on the outstanding receivables; the category (age) which also includes the length and period of
collectibility and time factor for similar borrowers.
Category Amount Time factor
A P400,000 0.909
B 300,000 0.826
C 250,000 0.751
D 150,000 0.683
Q#1: How much should M Company report its account receivable in its December 31, 2020 statement
of financial position?
a. P799,150 b. P901,600 c. P1,200,000 d. P1,400,000

Q#2: What amount of loss impairment on receivable should M Company recognize in its December 31,
2020 statement of comprehensive income?
a. P200,000 b. P300,000 c. P300,850 d. P498,400

10. On May 31, 2020, P Company had a total account receivable of P1,056,000.

Presented below is the analysis of the age, the peso amount of the receivable according to their age and
percent of uncollectible based on observable data leading to the recognition expense related to the receivable.

Age Amount Estimated Uncollectible

0-30 days P960,000 5%
31-60 days 64,000 10%
Over 60 days 32,000 P22,400
What amount should P Company report as expense related to the account receivable in its fiscal year
ending May 31, 2020 statement of comprehensive income?
a. P48,000 b. P60,800 c. P64,000 d. P76,800
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11. At the end of its first year of operations, December 31, 2020, S Company had accounts receivable of
P500,000, which were net of the related allowance for doubtful accounts. During 2020, S Company recorded
charges to bad debts expense of P80,000 and wrote off uncollectible accounts receivable of P20,000.

How much should S Company report in its December 31, 2020 balance sheet as accounts receivable
before the allowance for doubtful accounts?
a. P500,000 b. P520,000 c. P560,000 d. P600,000

.12. The following data were taken from the records of M Corporation for the year ended December 31, 2020:

Sales on account, P7,200,000; Accounts receivable written off as a result of permanent impairment, P50,000;
Notes receivable to settle accounts, P800,000; Purchases on account, P7,800,000; payments to creditors,
P6,400,000; purchase discounts, P520,000; sales returns, P30,000; Collections received to settle accounts,
P4,900,000; Notes given to settle account, P500,000; Purchase returns, P140,000; Payment of notes,
P200,000; Discounts taken by customers, P80,000; Collection on notes receivable, P360,000.

What is the carrying value of the Accounts Receivable on Dec. 31, 2020?
a. P1,210,000 b. P1,340,000 c. P1,650,000 d. P1,780,000

13. RD Company, a wholesaler, uses the aging method to estimate bad debt loss/impairment loss. The following
schedule of aged accounts receivable was prepared at December 31, 2020:
Age of accounts Amount Ave. % of Uncollectibles
0-30 days P561,600 0.48%
31-60 days 196,100 1.04%
61-90 days 88,400 10.40%
91-120 days 18,500 50.70%
Over 120 days 9,600 78.12%
What is the amount of impairment loss based on the average loss experience for the last 5 years?
a. P30,490 b. P30,810 c. P60,590 d. P63,286

14. M Corp. sells to wholesalers on terms of 2/15, n/30. M Corp. has no cash sales but 50% of M’s customers take
advantage of the discount. M Corp. uses the gross method of recording sales and trade receivables. An
analysis of M’s trade receivable balances at December 31, 2020 revealed the following:

Age Amount Collectibility

0-15 days P300,000 100%
16-30 days 180,000 95%
31-60 days 15,000 90%
Over 60 days 7,500 1,500
P502,500
In its December 31, 2020 statement of financial position, what amount should M Corp. report for
allowance for discounts?
a. P3,000 b. P4,860 c. P5,025 d. P6,000

15. On May 9, 2020, P Corp. sold merchandise with a list price of P150,000 to CC on account. P Corp. allowed
trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made F.O.B. shipping point.
P Corp. prepaid P6,000 of delivery costs for CC as an accommodation.

What amount should CC remit to P Corp. as full payment on May 24, 2020?
a. P82,320 b. P88,200 c. P88,320 d. P94,200

16. MN Co. assigns P1,500,000 of its accounts receivables as collateral for a P1 million loan with a bank. The
bank assesses a 3% finance fee and charges interest on the note at 6%. What would be the journal entry to
record this transaction?
a. Debit Cash for P970,000, debit Finance charge for P30,000, and credit Notes Payable for P1,000,000.
b. Debit Cash for P970,000, debit Finance charge for P30,000, and credit Accounts Receivable for
P1,000,00
c. Debit Cash for P970,000, debit Finance charge for P30,000, debit Due from Bank for P500,000 and
credit Account receivable for P1,500,000
d. Debit Cash for P910,000, debit Finance charge for P90,000, and credit Notes Payable got P1,000,00

17. On December 1, 2020, ABC Corporation assigned P400,000 of accounts receivable to PNB Company as a
security for a loan of P335,000. PNB charged a 2% commission on the amount of the loan; the interest rate on
the loan was 10%. During December, ABC collected P110,000 on assigned accounts after deducting P380 of
discounts. ABC accepted returns worth P1,350 and wrote off assigned accounts totaling P2,980.

Q#1: How much cash did ABC received from PNB at the time of the transfer?
a. P301,500 b. P327,000 c. P328,300 d. P335,000

Q#2: What is the carrying value of the accounts receivable assigned as at Dec. 31, 2020?
a. none b. P285,290 c. P289,620 d. P290,000
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18. On December 1, 2020, NN Company assigned on a non-notification basis accounts receivable of P3,000,000
to a bank in consideration for a loan of 80% of the receivables less a 5% service fee on the accounts assigned.
The interest rate of the loan is 12% per annum. The company collected assigned accounts of P2,000,000 and
remitted the collections to the bank in partial payment for the loan. The bank applied first the collection to the
interest and the balance to the principal. The interest rate is 1% per month on the outstanding balance of the
loan.
In its December 31, 2020 statement of financial position, what amount of note payable should NN report
as current liability?
a. None b. P400,000 c. P424,000 d. P1,024,000

19. On October 31, 2020, B Company engaged in the following transactions:

Obtained a P500,000, six-month loan from City Bank, discounted at 12%. The company pledged P500,000 of
accounts receivable as security of the loan.

Factored P1,000,000 of accounts receivable without recourse on a non notification basis with Help Company.
Help charged a factoring fee of 2% of the amount of receivables factored and withheld 10% of the amount
factored.

What is the total cash received from the financing of receivables?

a. P1,320,000 b. P1,350,000 c. P1,380,000 d. P1,470,000

20. On February 1, 2020, XYZ Company factored receivables with a carrying amount of P2,000,000 to MNO
Corporation. XYZ assesses a finance charge of 3% of the receivables and retains 5% of the receivables.

Q#1: If the factoring is treated as a sale, what amount of loss from sale should the company report in
its 2020 statement of comprehensive income for the year 2020?
a. none b. P60,000 c. P100,000 d. P160,000

Q#2: Assume that XYZ Company retained significant amount of risks and rewards of ownership and
had a continuing involvement on the factored financial asset, what amount of loss from factoring
should the company recognize?
a. none b. P60,000 c. P100,000 d. P160,000

21. FF Corp. provides financing to other companies by purchasing their accounts receivables on a non-recourse
basis. FF charges a commission to its clients of 15% of all receivables factored. In addition, FF withholds 10%
of receivables factored as protection against sales returns or other adjustments. FF credits the 10% withheld to
Client Retainer and makes payments to clients at the end of each month so that the balance in the retainer is
equal to 10% of unpaid receivables at the end of the month. FF recognizes its 15% commissions as revenue at
the time the receivables are factored. Also, experience has led FF to establish an Allowance for Bad Debts of
4% of all receivables purchased.

On January 2, 2020, FF purchased receivables from CC Company totaling P1,500,000. CC had previously
established an Allowance for Bad Debts for these receivables of P35,000. By January 31, FF had collected
P1,200,000 on these receivables.

What amount of loss on factoring should CC Company recognize on the sale of its receivable?
a. none b. P150,000 c. P190,000 d. P225,000

22. BB Company factored P750,000 of accounts receivable to SS Company on December 1, 2020. BB Company
retained significant amount of risks and rewards of ownership and continues to manage the financial asset.

SS accepted the receivable, assessed a fee of 2% and retains a holdback equal to 4% of the accounts
receivable. In addition, SS charged 12% interest on the amount advanced.

What amount of finance cost should BB Company report in its December 2020 statement of
comprehensive income related to the factoring of its account receivable?
a. none b. P7,200 c. P15,000 d. P22,200

23. CC Company holds a portfolio of receivables with carrying amount of P2,000,000. The company enters into a
factoring agreement with Finance Company under which it transfers the portfolio via an assignment to Finance
Company in exchange for P1,800,000 of cash. All sums collected from debtors are paid by CC Company to a
specifically nominated bank account opened by Finance Company. CC Company agrees to reimburse Finance
Company in cash for any shortfall between the amount collected from the receivable and consideration
received of P1,800,000. Once the receivables have been repaid, any sums collected above P1,800,000 less
any interest on the initial payment the date the debtors pay, will be paid to CC Company.

What amount of receivable should CC Company continue to recognize immediately after the transfer?
a. none b. P200,000 c. P1,800,00 d. P2,000,000
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24. GG Company owns a portfolio of loans with a carrying amount of P5,000,000 that yields 8% interest income.
The loans are accounted as loans and receivables at amortized cost.

GG Company sells the entire portfolio to a bank for P5,250,000 without any recourse via a legal assignment.
However, the company agrees to service the portfolio over the remainder of its life for no additional payment
and estimates that the amount that would fairly compensate it for servicing the portfolio is P200,000.

What is the amount of gain or loss on the transfer of financial asset?

a. none b. P50,000 c. P200,000 d. P250,000

25. On December 28, 2020, LL Company sells a loan portfolio to AF Company for P490,000. The carrying value of
the loan portfolio is P500,000 on the date of the sale. Immediately, LL Company purchased a call option to
repurchase the loan portfolio.

Q#1: Assuming the call option is deep out of the money, what amount of financial asset (loans) should
LL Company continue to recognize and report in its Dec. 31, 2020 balance sheet?
a. none b. P10,000 c. P490,000 d. P500,000

Q#2: Assuming the call option is deep in the money, what amount of financial asset (loans) should LL
Company continue to recognize and report in its Dec. 31, 2020 balance sheet?
a. none b. P10,000 c. P490,000 d. P500,000

26. On November 30, 2020, MM Company transferred its financial asset-receivable to TM Finance Company for
P800,000. The amortized cost of the financial asset at the time of transfer is P850,000. Also, on the same
date MM Company writes a put option that obligates it to repurchase the transferred asset at the transferee’s
option.
Q#1: Assuming the call option is deep out of the money, what amount of financial asset -receivable
should MM Company continue to recognize and report in its Dec. 31, 2015 statement of financial
position?
a. None b. P50,000 c. P800,000 d. P850,000

Q#2: Assuming the call option is deep in the money, what amount of financial asset -receivable should
MM Company continue to recognize and report in its Dec. 31, 2015 statement of financial position?
a. None b. P50,000 c. P800,000 d. P850,000

27. On December 28, 2020, LG Company sells a loan portfolio that has a carrying amount of P300,000 for
P290,000 and provides the buyer with a guarantee to compensate the buyer for any impairment losses.

What amount of financial asset LG Company should continue to recognize in its December 31, 2020
statement of financial position?
a. none b. P10,000 c. P290,000 d. P300,000

28. On December 31, 2020, LV Company sells a loan portfolio that has a carrying amount of P600,000 for
P580,000 and provides the buyer with a guarantee to compensate the buyer for any impairment losses up to
P20,000 when expected losses based on historical experience is P30,000. LV Company has retained control
the transferred asset.
What amount of financial asset LV Company should continue to recognize in its December 31, 2020
balance sheet, assuming LV Company has retained control on the transferred financial asset?
a. None b. P20,000 c. P30,000 d. P600,000

29. On December 31, 2020 MD Company enters into factoring arrangement involving its trade receivables with a
carrying amount of P10,000,000 with SP Company. The arrangement resulted into the transfer of the portfolio
for a consideration of P9,800,000. MD Company transfers the credit risks but retains the late payment risk up
to a maximum of 180 days. After 180 days, the receivable is deemed to be in default and credit insurance
takes effect. A charge is levied on MD Company for these late payments using a current rate of 6%. The fair
value of the guarantee of late payment risk is P40,000. Apart from the late payment risk, MD Company does
not retain any credit or any interest rate risk and does not carry out any servicing of the portfolio. There is no
active market for the receivables.
Q#1: What amount of financial asset MD Company should continue to recognize in its December 31,
2020 balance sheet, assuming MD Company has retained control on the transferred financial asset?
a. none b. P240,000 c. P300,000 d. P340,000

Q#2: What amount of loss from the transfer should MD Company recognize as a result of the transfer
of financial asset?
a. none b. P240,000 c. P300,000 d. P340,000

Q#3: What amount of financial liability should MD Company recognize as a result of the transfer of
financial asset?
a. none b. P340,000 c. P9,800,000 d. P10,000,000