Practice questions for Finance students. Questions from MBA past papers of University of Karachi

1. ACCOUNT RECEIVABLE QUESTIONS
JULY 2006
Q.No.3. The Razaq Corporation balance sheet on December 31, 2004, has the following temporary
investment and receivables:
Temporary Investment (at cost equals market value)…………….. Rs. 100,000
Notes Receivable………………………………………………….. 25,000
Account Receivable………………………….... Rs. 350,000
Less: Allowance for uncollectible Accounts…. 6,500
343,500
During January 2005 the following events and transactions occurred:
d. During January, Rs. 150,000 was collected on account.
e. During January, Rs. 7,200 of accounts receivable were written off as uncollectible.
f. On January 31, one account for Rs. 200 which had been written off earlier in the month was collected
from the customer.
g. On January 31, a Rs. 10,000, 12% notes was discounted with resources at the Merchant’s Bank. The
3-month note had been received on December 31, 2004, and matures on March 31, 2005. The bank
charged a 15% discount rate.
h. On January 31, interest was occurred on a Rs. 15,000, 10% note. The note had been received on
December 31.
Required:
Prepare entries to record the events and transactions listed.
JULY 2008
Q # 1 (b) The income statement approach to estimating uncollectible accounts expense is used by
Burgess Wholesale. On March 31 the firm had account receivable in the amount of $ 630,000. The
Allowance for Doubtful Accounts had a credit balance of $ 3,950. The controller estimated that
uncollectible accounts expense would amount to one-half of 1% of the $ 5,200,000 of net sales made
during March. This estimate was entered in the account by adjusting entry on March 31.
On April 12, an account receivable from Conrad Stern of $ 3,110 was determined to be worthless and
was written off. However, on April 24, Stern won several thousand dollars on TV game show and
immediately paid the $ 3,110 past-due account.
Required
Prepare journal entries of above transactions.
JANUARY 2009
Q1 (b) The credit manager of Olympic Sporting Goods has gathered the following information about the
company’s accounts receivable and credit losses during the current year: 8
Net credit sales for the year $ 3,000,000
Accounts receivable at year-end 360,000
Uncollectible accounts receivable:
Actually written off during the year $ 43,650
Estimated portion of year-end receivable expected to
Prove uncollectible (per aging schedule) 18,000 61,650
Required:
Prepare one journal entry summarizing the recognition of uncollectible accounts expense for the entire
year under each of the following independent assumptions:
a. Uncollectible accounts expense is estimated at an amount equal to 1 ½ % of the net credit sales.

2. b. Uncollectible accounts expense is recognized by adjusting the balance in the Allowance for
Doubtful Accounts to the amount indicated in the year-end aging schedule. ;the balance in the
allowance account at the beginning of the current year was $ 15,000. (Consider the effect of the
write-offs during the year on the balance in the Allowance for Doubtful Accounts)
c. The company uses the direct write-off method of accounting for uncollectible accounts.
JULY 2009
Q # 1 (a) At the end of each year, a company uses the simplified balance sheet approach to estimated
bad debts. On December 31, 1991, it has outstanding accounts receivable of $ 176, 600 and estimates
that 3.5% will be uncollectible.
i) Give the entry to record bad debts expense for 1991 under the assumption that the Allowance for
Doubtful Accounts had a $ 1, 470 credit balance before the adjustment.
ii) Give the entry under the assumption that the Allowance for Doubtful Accounts has a $ 1,235 debit
balance before the adjustment.
(b) Why does the Bad Debts Expense account usually not have the same adjusted balance as the
Allowance for Doubtful Accounts?
(c) Why does the direct write-off method of accounting for bad debts commonly fail to match revenues
and expenses?
JANUARY 2010
Q # 1 The December 31, 2007, balance sheet of Muneeb Auto Glass reports the following:
Accounts Receivable…………………………………….. Rs. 265,000
Allowance for Doubtful Accounts (credit balance)…....... 7,100
At the end of each quarter, Muneeb Auto Glass estimated doubtful-account expense to be 2 percent of
credit sales. At the end of the year, the company ages its accounts receivable and adjusts the balance in
Allowance for Doubtful Accounts to correspond to the aging schedule. During 2008 Muneeb completes
the following selected transactions:
Jan. 31 Wrote-off as uncollectible the Rs. 955 account receivable from Shahid Company and the Rs.
3,287 account receivable from Waris.
Mar. 31 Recorded doubtful-account expense based on credit sales of Rs. 130,000
May 2 Received Rs. 1,000 from Danish after prolong negotiations with Danish’s attorney. Muneeb has no
hope of collecting the remainder.
June 15 Wrote-off as uncollectible the Rs. 1120 accounts received from Luqman.
June 30 Recorded doubtful-account expense based on credit sales of Rs. 166,000.
July 14 Made a compound entry to write off the following uncollectible accounts:
Harris, Rs. 766; Graphics Unlimited, Rs. 2,413, and Bashir, Rs. 134
Sep. 30 Recorded doubtful-account expense based on credit sales of Rs. 141,400
Nov. 22 Wrote off the following account receivable as uncollectible: Mubashir Corp., Rs. 1,345; Blocker,
Inc, Rs. 2,109; and Main Street Plaza Rs. 755
Dec 31 Recorded doubtful-account expense based on the following summary of the aging of accounts
receivable:
Total Age of Accounts
Balance 1-30 Days 31-60 Days 61-90 Days Over 90 Days
Rs. 196,600 Rs. 161,500 Rs, 86,000 Rs. 34,000 Rs. 151,100
Estimated
Percentage
Uncollectible 0.2% 0.5% 4.0% 50.0%

3. Dec. 31 Made the closing entry for Doubtful-Account Expense for the entire year.
Required:
1. Record the transactions in the general journal.
2. Open the Allowance for Doubtful-Accounts, and post entries affecting that account. Keep a running
balance.
3. Most companies report two-year comparative financial statements. If Muneeb’s Account Receivable
balance is Rs. 296,600 at December 31, 2007, show how the company will report its account receivable
in a competitive balance sheet for 2007 and 2008.
DECEMBER 2010
Q # 1: Public Image, a firm specializing in marketing and publicity services, uses the balance sheet
approach to estimate uncollectible accounts expenses. At year-end an aging of the accounts receivable
produced the following classification:
Not yet due $333000
1 – 30 days past due 135000
31-60 days past due 58500
61-90 days past due 13500
Over 90 days past due 22500
Total $562500
On this basis of past experience, the company estimated the percentages probably uncollectible for the
above five age groups to be as follows: Group 1, 1%; Group 2, 3%; Group 3, 10%; Group 4, 20% and
Group 5, 50%.
The Allowance for Doubtful Accounts before adjustment at December 31 showed a credit balance of
$ 8,100.
Required:
1) Compute the estimated amount of uncollectible accounts based on the above classification by age
groups.
2) Prepare the adjusting entry needed to bring the Allowance for Doubtful Accounts to the proper
amount.
3) Assume that on January 10 of the following year, Public Image learned that an account receivable that
had
originated on September 1 in the amount of $8550 was worthless because the bankruptcy of the
customer,
Cranston Manufacturing. Prepare the journal entry required on January 10 to write off this account.
4) The Company is considering the adoption of a policy whereby customers whose outstanding accounts
become
more than 60 days past due will be required to sign an interesting-bearing note for the full amount of
their
outstanding balance. What advantages would such a policy offer?
JUNE 2011
Q# 1: At December 31, 2009 Kelso Imports reported this information on its balance sheet.
Accounts Receivable $600,000
Less: Allowance for doubtful accounts 40,000
During 2010 the company had the following transactions related to receivables.
1. Sales on account 2500,000
2. Sales return and allowances 40,000
3. Collections of account receivable 2200,000
4. Write-off of accounts receivable deemed uncollectible 45,000

4. 5. Recovery of bad debts previously written off as uncollectible 15,000
Required:
1. Prepare the journal entries to record each of these five transactions. Assume that no cash discounts
were taken on the collections of accounts receivable.
2. Enter the January 1, 2010 balances in Accounts Receivable and Allowance for Doubtful Accounts, post
the entries to the two accounts (use T accounts), and determine the balances.
3. Prepare the journal entry to record bad debts expense for 2010, assuming that aging the accounts
receivable indicates that estimated bad debts are $46,000.
DECEMER 2011
Q # 1 At December 31 last year, the balance sheet prepare by Luis Montoyo included $ 504,000 in
account receivable and an allowance for doubtful accounts of $ 26,400. During January of the current
year selected transactions are summarized as follows:
1. Sales on account $ 360,640
2. Cash collections from customers (no cash discount) 364,800
3. Account receivable from Acme Company written off as worthless 9,280
After a careful aging and analysis of all customer’s accounts at January 31, it was decided that the
allowance for doubtful account should be adjusted to a balance of $ 29,280 in order to reflect accounts
receivable at net realizable value in the January 31 balance sheet.
Required:
1. Prepare entries in general journal form summarizing for the entire month of January the activity
described in the three numbered items. Also show the adjusting entry at January 31 to provide for
uncollectible accounts.
2. Show the amounts of accounts receivable and the allowance for doubtful accounts as they would
appear in a partial balance sheet at January 31.
3. Assume that three months after the receivable from Acme Company had been written off as worthless,
Acme Company paid the $ 9,280 debt to Luis Montoyo. Give journal entry or entries for this recovery of a
receivable previously written off.
DECEMBER 2012
Q1: VALUATION OF ACCOUNTS RECEIVABLE: Sadia Corporation’s unadjusted trial balance at year-end
included the following accounts:
Debit Credit
Sales (75% represent credit sales) 2,304,000
Accounts Receivable 576,000
Allowance for doubtful accounts 4,368
Compute the uncollectible accounts expense for the current year, assuming that uncollectible accounts
expense is determined as follows:
a) Income Statement approach, 1% of total sales.
b) Income Statement approach, 1.5% of credit sales.

5. c) Balance Sheet approach. The estimate based on an aging of accounts receivable is that an allowance
of Rs. 24,000 will be adequate.
d) Suggest the measures for keeping accounts receivable at its minimum possible.
JUNE 2015
Q # 2 For a business that makes advance provision for uncollectible receivables
(a) Journalize the entries to record the following:
1) Record the adjusting entry at December 31, the end of the fiscal year, to provide for doubtful
accounts. The accounts receivable account has a balance of Rs 800,000, and the contra asset
account before adjustment has a debit balance of Rs 600. Analysis of the receivables indicates
doubtful accounts of Rs 20,000.
2) In March of the following fiscal year, the Rs 550 owed by Flake Co. on account is written off as
uncollectible.
3) Eight months later, Rs 200 of the Flake Co. account is reinstated and payment of that amount is
received.
4) In October, Rs 400 is received on the Rs 600 owed by Doe Co. and the remainder is written off
as uncollectible.
(b) Based on the data in (a) (1) above, what is the net realizable value of the accounts receivable as
reported on the balance sheet as of December 31?
(c) Assuming that the business had been following the direct write-off procedure in accounting for
uncollectible receivables, journalize the entries to record the following:
a) Recorded the write-off of account of Flake Co. [(a) (2) above].
b) Reinstated account of Flake Co. for Rs 200 and recorded payment of that amount received [(a)
(3) above].
c) Recorded the receipt of Rs 400 from Doe Co. in (a)
d) Above and wrote off the remainder owed as uncollectible.