Activity 1
Orion Company records sales return during the year as a credit to accounts
receivable.
However, at the end of the accounting period, the entity estimates the
probable sales return and records the same by means of an allowance
account.
The following transactions occurred in summary form:
1. Sale of merchandise on account, 2 / 10; n / 30 4,000,000
2. Collection within the discount period 1,470,000
3. Collection beyond the discount period 1,000,000
4. Sales return granted 100,000
5. Sales return estimated at the end of the year 20,000
Required: Prepare journal entries to record the transactions.
Answers:
1. Sale of merchandise on account, 2 / 10; n / 30 4,000,000
Accounts Receivable 4,000,000
Sales 4,000,000
To record sale of merchandise.
2. Collection within the discount period 1,470,000
Cash 1,470,000
Sales Discount (1,500,000 x 0.02) 30,000
Accounts Receivable (1,470,000/.98) 1,500,000
To record collection within the discount period.
3. Collection beyond the discount period 1,000,000
Cash 1,000,000
Accounts Receivable 1,000,000
To record collection beyond the discount period.
4. Sales return granted 100,000
Sales Return 100,000
Accounts Receivable 100,000
To record sales return granted.
5. Sales return estimated at the end of the year 20,000
Sales Return 20,000
Allowance for Sales Return 20,000
To record sales return estimated at the end of the year.
Activity 2.
On June 15, 2022, Zahira Company sold 100 air conditioning units. The sale
price for each unit is P45,000.
All of sales are subject to terms 2/10, n30. The entity used the gross method
of accounting for accounts receivable.
Required:
1. Prepare journal entry to record the sale.
2. Prepare journal entry to record receipt of the payment assuming the correct
amount was received on June 25, 2022.
3. Prepare the journal entry to record receipt of the payment assuming the
correct amount was received on July 10, 2022.
Accounts Receivable (P45,000 x 100) 4,500,000
Sales Revenue 4,500,000
To record sale of merchandise.
Cash 4,410,000
Sales Discount (4,500,000 x 0.02) 90,000
Accounts Receivable 4,500,000
To record collection within the discount period.
Cash 4,500,000
Accounts Receivable 4,500,000
To record collection beyond the discount period.
Activity 3.
Fragrance Company used the net price method of accounting for cash discounts.
On December 26, 2022, the entity sold merchandise for P5,000,000 to a customer.
Credit terms were 5/10, n/30.
The goods were shipped FOB destination, freight collect. Freight charge paid by the
customer was P100,000.
On December 27, 2022, the customer returned damaged goods originally billed at
P500,000.
Required:
1. Prepare journal entries to record all indicated transactions.
2. Compute net realizable value of accounts receivable on December 31.
Dec 26 Accounts Receivable (5,000,000 x 0.95) 4,750,000
Freight Out 100,000
Sales 4,750,000
Allowance for Freight Charge 100,000
To record sale of merchandise.
Dec 27 Sales Return (500,000 x .95) 475,000
Accounts Receivable 475,000
To record sales return.
Net Realizable Value of Accounts Receivable:
Accounts Receivable (4,750,000 -475,000) 4,275,000
Less: Allowance for Freight Charge 100,000
Accounts Receivable,net 4,175,000
Activity 4.
Beauty Company provided the following transactions affecting accounts receivable
during the current year:
Sales - cash and credit 5,900,000
Cash received from credit customers, all of whom took advantage of the
discount feature of the credit terms 4/10, n/30 3,024,000
Cash received from cash customers 2,100,000
Accounts receivable written off as worthless 50,000
Credit memorandum issued to credit customers for
sales returns and allowances 250,000
Cash refunds given to cash customers for sales
returns and allowances 20,000
Recoveries on accounts receivable written off as uncollectible in prior periods
not included in cash received from credit customers 80,000
At the beginning of current year, the balances of accounts receivable and allowance
for doubtful accounts are P950,000 and P100,000, respectively.
The entity provided for doubtful accounts by crediting allowance for doubtful
accounts at P70,000 for the current year.
Required:
1. Prepare journal entries to record all indicated transactions.
2. Compute net realizable value of accounts receivable at year-end.
Journal Entries
To record cash and credit sales
Cash 2,100,000
Accounts Receivable (5,900,000-2,100,000) 3,800,000
Sales 5,900,000
To record cash received from credit customers with sales discount
Cash 3,024,000
Sales Discount (3,150,000 x 0.04) 126,000
Accounts Receivable (3,024,000/ 0.96) 3,150,000
To record write off of accounts receivable
Allowance for Doubtful Accounts 50,000
Accounts Receivable 50,000
To record credit memo for sales return
Sales Return 250,000
Accounts Receivable 250,000
To record cash refunds for sales returns and allowances
Sales Return 20,000
Cash 20,000
To record recoveries of accounts receivable written off in previous periods
Accounts Receivable 80,000
Allowance for Doubtful Accounts 80,000
Cash 80,000
Accounts Receivable 80,000
2. Net Realizable Value of Accounts Receivable
Accounts Receivable, beg 950,000
Credit Sales 3,800,000
Collection (3,150,000)
Written Off as worthless (50,000)
Credit Memo for Sales Return (250,000)
Recovery of Accounts Receivable 80,000
Collection of recovery of accounts receivable (80,000)
Accounts Receivable, end 1,300,000
Allowance for Doubtful Accounts, beg 100,000
Write-off in current year (50,000)
Recovery of previously written off receivables 80,000
Additional allowance set-up for current year 70,000
Allowance for Doubtful Accounts, end 200,000
Net Realizable Value of Accounts Receivable
Accounts Receivable 1,300,000
Less: Allowance for Doubtful Accounts (200,000)
Accounts Receivable, net 1,100,000
